Challenges of Human Resource Management in Japan 0203846702, 9780415582605, 9780203846704

Citation preview

Challenges of Human Resource Management in Japan

Human resource management (HRM) systems differ across corporations around the world. Japan has unique characteristics that create specific challenges for HRM and there is currently a lack of research focusing on Japanese HR issues available to Westerners. This book examines the major challenges and dilemmas in human resource management as Japan’s industrial society continues its resurgence in the global arena. The first part of the book deals with Japanese HRM from an international perspective, analyzing the overall structure of Japanese HRM systems, and comparing these with current international systems. The second part of this book looks at Japanese HRM from a domestic perspective and as such covers the micro issues of HRM practice in Japan. Written by a leading team of HRM experts from Japan, the UK, France, Australia, and Canada, this book will be of interest to anyone interested in HRM in Japan, and international HRM more generally. Ralf Bebenroth is Associate Professor of International Business at the Research Institute for Economics and Business Administration at Kobe University, Japan. Toshihiro Kanai is Professor of Organizational Behavior at Kobe University, Japan.

Routledge Contemporary Japan Series

1 A Japanese Company in Crisis Ideology, strategy, and narrative Fiona Graham

8 The Changing Japanese Family Edited by Marcus Rebick and Ayumi Takenaka

2 Japan’s Foreign Aid Old continuities and new directions Edited by David Arase

9 Adoption in Japan Comparing policies for children in need Peter Hayes and Toshie Habu

3 Japanese Apologies for World War II A rhetorical study Jane W. Yamazaki 4 Linguistic Stereotyping and Minority Groups in Japan Nanette Gottlieb 5 Shinkansen From bullet train to symbol of modern Japan Christopher P. Hood 6 Small Firms and Innovation Policy in Japan Edited by Cornelia Storz 7 Cities, Autonomy and Decentralization in Japan Edited by Carola Hein and Philippe Pelletier

10 The Ethics of Aesthetics in Japanese Cinema and Literature Polygraphic desire Nina Cornyetz 11 Institutional and Technological Change in Japan’s Economy Past and present Edited by Janet Hunter and Cornelia Storz 12 Political Reform in Japan Leadership looming large Alisa Gaunder 13 Civil Society and the Internet in Japan Isa Ducke 14 Japan’s Contested War Memories The ‘memory rifts’ in historical consciousness of World War II Philip A. Seaton

15 Japanese Love Hotels A cultural history Sarah Chaplin

24 Perversion in Modern Japan Psychoanalysis, literature, culture Edited by Nina Cornyetz and J. Keith Vincent

16 Population Decline and Ageing in Japan The social consequences Florian Coulmas

25 Homosexuality and Manliness in Postwar Japan Jonathan D. Mackintosh

17 Zainichi Korean Identity and Ethnicity David Chapman

26 Marriage in Contemporary Japan Yoko Tokuhiro

18 A Japanese Joint Venture in the Pacific Foreign bodies in tinned tuna Kate Barclay

27 Japanese Aid and the Construction of Global Development Inescapable solutions Edited by David Leheny and Kay Warren

19 Japanese–Russian Relations, 1907–2007 Joseph P. Ferguson 20 War Memory, Nationalism and Education in Post-War Japan, 1945–2007 The Japanese history textbook controversy and Ienaga Saburo’s court challenges Yoshiko Nozaki 21 A New Japan for the TwentyFirst Century An inside overview of current fundamental changes and problems Edited by Rien T. Segers 22 A Life Adrift Soeda Azembo, popular song and modern mass culture in Japan Translated by Michael Lewis 23 The Novels of Oe Kenzaburo Yasuko Claremont

28 The Rise of Japanese NGOs Activism from above Kim D. Reimann 29 Postwar History Education in Japan and the Germanys Guilty lessons Julian Dierkes 30 Japan-Bashing Anti-Japanism since the 1980s Narrelle Morris 31 Legacies of the Asia-Pacific War The Yakeato generation Edited by Roman Rosenbaum and Yasuko Claremont 32 Challenges of Human Resource Management in Japan Edited by Ralf Bebenroth and Toshihiro Kanai

Challenges of Human Resource Management in Japan Edited by Ralf Bebenroth and Toshihiro Kanai

First published 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2010. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. Routledge is an imprint of the Taylor & Francis Group, an Informa business © 2011 Editorial selection and matter, Ralf Bebenroth and Toshihiro Kanai; individual chapters, the contributors. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Challenges of human resource management in Japan / edited by Ralf Bebenroth and Toshihiro Kanai. p. cm. — (Routledge contemporary Japan series ; 32) 1. Personnel management—Japan. 2. Manpower planning—Japan. I. Bebenroth, Ralf. II. Kanai, Toshihiro, 1954HF5549.2.J3C42 2010 658.300952—dc22 2010003783 ISBN 0-203-84670-2 Master e-book ISBN

ISBN: 978-0-415-58260-5 (hbk) ISBN: 978-0-203-84670-4 (ebk)

Contents

List of figures and tables List of contributors 1 Challenges of human resource management in Japan: an introduction

ix xi

1

RALF BEBENROTH AND TOSHIHIRO KANAI

PART I

Japanese HRM from an international perspective 2 Taking stock of the research on evolving relationships between Japanese human resource management practices and firm performance

9

11

NEALIA S. BRUNING

3 Japanese human resource management: inspirations from abroad and current trends of change

28

MARKUS PUDELKO AND ANNE-WIL HARZING

4 Expatriation and performance

61

RALF BEBENROTH AND DONGHAO LI

5 Human resource management and employment systems in Asia: directions of change and new challenges

79

PHILIPPE DEBROUX

6 Demystifying the relationship between intercultural adjustment and effectiveness in international assignments: reflections on Japanese expatriate managers BEATRIZ MARIA BRAGA AND EDSON KEYSO DE MIRANDA KUBO

97

viii Contents 7 Global talent management and learning for the future: pressing concerns and opportunities for growth for Japanese multinationals 124 MARY YOKO BRANNEN

PART II

Japanese HRM from a domestic perspective 8 Strategic human resource management research in the Japanese context: unique opportunities for theory advancement

131

133

TOMOKI SEKIGUCHI, NORIHIKO TAKEUCHI, AND TOMOKAZU TAKEUCHI

9 Psychological contract in Japanese companies: an explorative study on contents, fulfillment, and breach of contracts

154

YASUHIRO HATTORI

10 Cognitive framework for performance appraisal: an empirical study of narrative evaluations in a Japanese auto company

171

KIYOSHI TAKAHASHI

11 Diversification of employment categories in Japanese firms and its functionality: a study based on the human resource portfolio system

188

MITSUTOSHI HIRANO

12 Quantum leap experiences for leadership development: stories and lessons of Japanese top and middle managers

210

TOSHIHIRO KANAI AND YOICHI FURUNO

Index

236

Figures and tables

Figures 2.1 3.1 3.2 3.3 4.1 10.1 11.1 11.2 12.1 12.2

HRM practices and relationships with organizational performance HR managers’ assessment of the main characteristics of their own HRM system Country-of-origin, localization, and dominance effects by home country Extent of adaptation to local practices Model and summary of all hypotheses Threefold model of performance criteria in Japan Model of human resource portfolio system Examination of human resource portfolio system Four shifts in leadership study Three time spans of leadership

17 35 50 53 68 175 198 200 212 215

Tables 2.1 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 4.1 4.2

Examples of HRM practices included in high-performance HRM system definitions Responses and response rates HR managers’ assessment of the main characteristics of their own HRM system (significance analysis) Orientation/adaptation toward aspects from other country models Adoption from American HRM Adoption from Japanese HRM Subsidiary, home, and host country means Country-of-origin, localization, and dominance effects Extent of adaptation to local practices Motives by Edstrom and Galbraith and agency theory Descriptive analysis and correlations

14 32 36 38 39 43 48 49 52 65 71

x

Figures and tables 4.3 4.4 4.5 4.6 4.7 6.1 6.2 9.1 9.2

9.3 10.1 10.2 11.1 11.2 11.3 11.4

12.1 12.2

Logistic regression models and multiple regression models for CEO top manager and board member ratio to expatriation Regression models for expatriate CEO top manager and expatriate board member ratio to the performance CEO top manager and board members in numbers Expatriated CEO top managers for the most represented countries in Japan Support of hypotheses Reasons for stress and suffering in your life abroad Japanese expatriates in their international assignment: actual position (in %) Results of the exploratory factor analysis (organization’s obligations) Results of the exploratory factor analysis (employee’s obligations) Estimation of ordered probit regression analysis Frequencies of keywords in narrative essays Factor analysis of the cognitive framework for employee evaluation Human asset specificity, measured in five attributes Uncertainty within tasks, measured in terms of six attributes Human asset specificity and uncertainty within tasks for each category Multi-regression analysis: relationships between human asset specificity/uncertainty within tasks and HRM practices in equitable treatments Distribution of 26 middle managers’ quantum leap experiences Distribution of 20 top managers’ quantum leap experiences

71 72 75 75 76 110 117 162 164 168 179 181 199 199 200

204 219 225

Contributors

Ralf Bebenroth is Associate Professor in a tenured position at the Research Institute for Economics and Business Administration at Kobe University. His research interest is in the field of international business, covering aspects such as HRM and corporate governance issues. His teaching has been carried out completely in the Japanese language. Some of his recent publications are: “Executive staffing practice patterns in foreign MNC affiliates based in Japan”, Asian Business & Management Journal, Palgrave, 2008 (with Sekiguchi, T. and Li, D.) and “Stellenwert des Controlling bei der Besetzung leitender Positionen in japanischen Niederlassungen”, Controller Magazin, Verlag ControlingWissen, 2008 (with Pascha W.). Beatriz Maria Braga is Associate Professor at Fundação Getulio Vargas, Escola de Administração de Empresas de São Paulo, Brazil. Her research interests include strategic human resource management, international human resource management, and careers. Recent publications include: “Avaliação e mensuração de resultados em gestão de pessoas: um estudo com as maiores empresas do Brasil”, RAUSP. Revista de Administração, Brazil, 2008 (with Albuquerque L.); and “Producción Académica en Recursos Humanos en Brasil: 1991–2000”, Academia (Caracas), Peru, 2003 (with Caldas M., Tonelli M. and Tinoco T.), among others in national journals. Mary Yoko Brannen holds the Spansion Chair of Multicultural Integration at San Jose University and is Visiting Professor of International Business at INSEAD. She has published extensively in the field of HRM and Japan and has published in journals like the Academy Management Review, Journal of International Business Studies, and Business Horizons. Her publications include: “When Mickey loses face: recontextualization, semantic fit, and the semiotics of foreigness” in Academy of Management Review, 2004; “National culture, networks, and individual influence in a multinational management team” in Academy of Management Journal, 2000 (with Salk, J. E.); and “Merging without alienating: interventions promoting cross-cultural organizational integration and their limitations” in Journal of International Business Studies, 2009 (with Peterson, M. F.).

xii Contributors Nealia S. Bruning holds the position of I. H. Asper School of Business Professor. Her research interests are in the field of organizational behavior. Some of her recent publications are: “Western high-performance HR practices in China: a comparison among public-owned, private and foreign-invested enterprises”, International Journal of Human Resource Management, 2007; and “Enhancing opportunities for expatriate job satisfaction: human resource strategies for foreign assignment success”, Human Resource Planning, 2005 (with McCaughey D.). Philippe Debroux is Professor of Business at Soka University, Japan. His research covers HRM issues connected to Japan. Some of his recent publications are: “The changing nature of Japanese HRM: the impact of the recession and the Asian financial crisis”, International Studies of Management and Organization, 2004 (with Benson J.); “Internal corporate governance discipline and the HRM system in large Japanese companies”, Asia Pacific Business Review, 2004; “Reflexions on the debate on corporate social responsibility” in Soka Keei Ronshu, 2004; and “Flexible labour markets and individualized employment: the beginnings of a new Japanese HRM system?” in Asia Pacific Business Review, 2003 (with Benson J.). Donghao Li was recently appointed to the position of Associate Professor at Wakayama University after completing his PhD at Kobe University under Professor Kagono. His research interests include corporate governance issues. Some of his recent publications are: “Performance of inbound Japanese M&A. In the wave of M&A”, Europe and Japan, Iudicium Publishing House, 2007 (with Bebenroth R.); and “Outside directors and the Japanese board room: an in-depth study” in Corporate Ownership and Control, 2007 (with Bebenroth R.). Yoichi Furuno joined Recruit Management Solutions Co., Ltd. in 1987 after graduation from the Faculty of Engineering, the University of Tokyo. He obtained an MBA at University of Southern California Marshall School of Business. Yoichi Furuno assumed his present post as Chief Director, Institute for Organizational Behavior Research, Recruit Management Solutions Co., Ltd in 2009. He is engaged in study and research activities regarding change of work values, career development, and leadership training. Anne-Wil Harzing is Professor in International Management at the University of Melbourne, Australia. Her research interests include international HRM, expatriate management, HQ–subsidiary relationships, cross-cultural management, and the role of language in international business. She has published about these topics in journals such as Journal of International Business Studies, Journal of Organizational Behavior, Strategic Management Journal, Human Resource Management, and Organization Studies. Her books include: Managing the Multinationals (Edward Elgar, 1999) and International Human Resource Management (Sage, 2010). Since 1999 she has also maintained an extensive website (www.harzing.com) with resources for international and cross-cultural management as well as academic publishing and bibliometrics.

Contributors

xiii

Yasuhiro Hattori is Assistant Professor at Shiga University and was a PhD graduate at Kobe University under his supervisor Toshihiro Kanai. He is especially interested in the relationship between the Japanese firm and its employees. He has published in the field of Organizational Behavior and HRM in the Japanese context. Some of his recent publications are: “State of psychological contract in Japanese companies” in Kobe University, Discussion Paper Series, 2008 (with Arai K. and Miyamoto T.); and “Incremental and discontinuous change of psychological contracts over time”, Working Paper No. 117, Shiga University, 2009 (with Arai K.). Mitsutoshi Hirano is Professor at Kobe University for the field of Human Resource Management and belongs to the Business faculty. His research interests are: strategic human resource management, career development system, and diversity management. Recent publications include: “Knowledge combination and value-creation mechanism under the Japanese-style career system” in Japan Labor Review, 6(3), 2009 (with Uchida Y. and Suzuki R.); and “Japanese-style career system and its functionality” in IL Politico (Univ. Pavia, Italy), 73(2), 2008. Toshihiro Kanai is Dean of the Business Faculty and Professor of Organizational Behavior, the Graduate School of Business Administration, Kobe University. His research areas are motivation, career and leadership in organizational behavior as well as applications of organizational behavior, in human resource management, where he has published extensively. Major publications include: Henkaku gata midoru no tankyu [Pursuit of Innovative Middle Management] (Hakuto Shobo, 1991); Chunen ryoku management [How to Use Middle Management’s Power] (Sogensha, 1999); and Keiei soshiki [Management and Organization Theories] (Nihon Keizai Shimbun, 1999). Edson Keyso de Miranda Kubo is Assistant Professor of organizational theory at USCS (Universidade Municipal de São Caetano do Sul). He holds an MA in Management from Kobe University. He is currently studying for his PhD in Management at EAESP-FGV in Brazil and his research theme is about cross-cultural adjustment of Japanese expatriates in Brazil. His most recent publication is: “Demystifying the relationship between intercultural adjustment and effectiveness in international assignments: reflections on Japanese expatriate managers”, Spain-EGOS (with Braga B. M.). Markus Pudelko is Professor of International Business at Tübingen University and previously worked at the University of Edinburgh Business School. He has earned masters’ degrees in Business Studies (University of Cologne), Economics (Sorbonne University), and International Management (Community of European Management Schools – CEMS), and a PhD (University of Cologne). Markus Pudelko published previously on Japanese management practices in journals such as Human Resource Management, Long Range Planning, International Journal of Human Resource Management, Human Resource Management Journal, Organizational Dynamics, and Asian Business & Management. In

xiv

Contributors

2005 he co-edited a book entitled Japanese Management: the search for a new balance between continuity and change (Palgrave). Tomoki Sekiguchi is Associate Professor of Management at Osaka University. His research interests center on HRM and organizational behavior. His recent publications include: “The role of job embeddedness on employee performance: the interactive effects with leader–member exchange and organization-based selfesteem” in Personnel Psychology, 2008 (with Burton J. P. and Sablynski C. J.); “Executive staffing practice patterns in foreign MNC affiliates based in Japan” in Asian Business & Management, 2008 (with Li D. and Bebenroth R.); and “How organizations promote person–environment fit: using the case of Japanese firms to illustrate institutional and cultural influences” in Asia Pacific Journal of Management, 2006. Kiyoshi Takahashi is Professor of Industrial and Organizational Psychology at Kobe University. He studies and teaches not only in the area of I/O psychology but also in organizational behavior. Some of his works include: “Effects of wage and promotion incentives on the motivation levels of Japanese employees” in Career Development International, 2006; “The emerging role of diversity and work–family values in a global context” in New Perspectives on International Industrial/Organizational Psychology, 1997; and “Employment interview: narrative and quantitative reviews of literature” in Frontier of Japanese Human Resource Practices, 1997. Norihiko Takeuchi is an Associate Professor of Management at Aoyama Gakuin University. He earned his PhD in International Management and Development from the Graduate School of International Development, Nagoya University, Japan. His research interests include organizational behavior and human resource management issues, with particular focus on the employee–organization linkages, supervisor–subordinate relationships, and the strategic perspectives in human resource management. His published articles have appeared in International Journal of Human Resource Management, Asia Pacific Journal of Management, Research and Practice in Human Resource Management, Global Business Review, and others. Tomokazu Takeuchi is an Associate Professor of Human Resource Management and Organizational Behavior at the School of Business Administration, Tokyo Fuji University, Japan. His current research interests include issues associated with organizational socialization, career management, and strategic human resource management. His most recent publication is: “A longitudinal investigation on the factors affecting newcomers’ adjustment: evidence from Japanese organizations” in International Journal of Human Resource Management, 2009 (with Takeuchi N.).

1

Challenges of human resource management in Japan An introduction Ralf Bebenroth and Toshihiro Kanai

Aims and purpose The late 1980s showed Japanese firms emerging as not only globally competitive but superior performers. Many of them were leaders in their industries, “challenging” other countries’ firms with a Japanese model consisting of techniques such as total quality management, lean manufacturing, kaizen (continuous improvement), and the kanban system (just-in-time production). At that time, Japan received high scholarly interest from all around the world (Doz, Santos, and Williamson 2001). Researchers looked at Japanese firms to see how to organize and manage effective and efficient production facilities. Beyond the production process academics and practitioners from both Western and Asian countries were interested in the common organizational characteristics of Japanese firms, such as keiretsu business groups (Whitley 1996, Budhwar 2004). During the so-called “lost decade” of the 1990s, international interest in Japanese firms waned as the economic situation deteriorated. The country seemed to have lost its competitive edge. Between 2004 and 2008, Japan’s economy was back on stage and even after the recent economic crisis of 2008 and 2009, Japanese firms have regained a globally competitive position. International scholars outside of Japan realize now that Japanese firms have changed, and generally for the better. For example, Schaede identifies a strategy of “Choose and Focus” at many Japanese firms, making them more competitive against international competitors (2008). This is visible by the fact that Japanese companies are once more steadily acquiring foreign firms. However, unlike what was done in the late 80s, today’s Japanese firms undertake strategically relevant acquisitions. Naturally, these economic changes go hand in hand with the pressures and changes the country faces, as the Japanese society ages fast and has one of the lowest birth rates in the world. Also, there is a mental change visible in Japan, which takes place in various forms, such as an increase of mergers and acquisition transactions domestically but also with firms from other countries (Bebenroth 2007). That means that Japanese managers and their firms are changing their minds regarding adopting foreign standards (Pudelko 2009) and are also becoming more closely linked with foreign companies, something that leads to “challenges” in dealing with non-Japanese people (Stahl et al. 2005, Brannen and Peterson 2009). The Japanese economic development and the strength of their firms instigated

2

R. Bebenroth and T. Kanai

Western interest in Japanese HRM systems (Pudelko 2006). In the 80s, scholars around the world perceived the Japanese HRM and almost all its facets as a source of firms’ successes. Western scholars were eager to learn from Japan. In the 90s, this same system was increasingly regarded as problematic, in need of change and considered to be one of the main reasons for the Japanese economic recession (Aoki, et al. 2007). From a global perspective, the economic challenges of the twenty-first century for firms differ substantially from that of the 1980s and 90s. Nowadays, knowledge management, the process of successfully connecting knowledge of people and leveraging that knowledge of people, is considered to be a key characteristic of superior firms and establishing global, competitive advantage (Doz, et al. 2001). Knowledge management is closely related to HRM as it deals with people and the process of how knowledge is transferred. Conventional wisdom holds that firms with better human resources outperform their rivals (Barney 1991). Barney has argued that the key competitive advantage of human resources is based on the difficulty of replicating a high-performance HRM system. Thus, HR competitive advantages are not the same across multinational companies (MNCs) around the world. Japan has many unique characteristics different from other countries and there is a lack of research by Westerners focusing on HR issues in that country. Even if there is quite extensive research done by Japanese researchers in the Japanese language in this field, only a few works are written in English and therefore normally not accessible to the non-Japanese audience interested in the topic. This publication is designed, by including both contributions from Western and Japanese scholars, to spread knowledge about Japanese HRM systems to the English-speaking world, professors, researchers of HRM, and students/practitioners interested in HRM issues in a Japanese context. Japan as a country of focus has received scholarly attention by the Routledge Contemporary Japan Series in various publications. Some recently published volumes in this series covered topics like: “The Rise of Japanese NGOs,” by Kim D. Reimann (Nov. 2009), and “Japanese Aid and the Construction of Global Development,” edited by David Leheny and Kay Warren (Oct. 2009). This volume is edited with original contributions by well-known scholars in the field and written exclusively for the purpose of this book. The current volume aims to shed light on HRM issues at Japanese firms, as well as HRM-relevant issues of MNCs operating in Japan or at least connected to Japanese firms. The first part of this book is comprised of contributions of international scholars, the second part is written by leading Japanese HRM scholars. The first part of this volume deals with “Japanese HRM from an international perspective.” It is organized from a macro HRM perspective and covers overall structures of systems, makes comparisons between the current Japanese system and other systems, and identifies current Japanese HRM challenges. The second part covers “Japanese HRM from a domestic perspective.” This part deals with HRM practices within the Japanese context and covers the micro issues. This book had its start at a workshop held in March 2008, at the Institute for Economics and Business Administration of Kobe University, Japan. The workshop

Challenges of human resource management in Japan

3

was entitled “Challenges of Human Resource Management in Japan” and Mary Yoko Brannen (INSEAD, University of San Jose), who was born in Kobe, Japan, provided the keynote address. Some other prestigious international researchers in this field, like Markus Pudelko (University of Tuebingen), Nealia Sue Bruning (University of Manitoba), and Philippe Debroux, Soka University, Tokyo, presented earlier versions of the current chapters at the workshop. On that day in Kobe, the audience engaged in discussions with the presenters and provided suggestions that were incorporated into chapters. The editors are thankful to the contributors for putting their effort into these unique contributions.

Overview of content The first part deals with “Japanese HRM from an international perspective,” consisting of contributions by Sue Bruning, Markus Pudelko and Anne-Wil Harzing, Ralf Bebenroth and Donghao Li, Philippe Debroux, Beatriz Braga and Edson Kubo and Mary Yoko Brannen. Chapter 2 by Sue Bruning, entitled, “Taking stock of the research on evolving relationships between Japanese human resource management practices and firm performance,” examines the linkage between Japanese HRM and firm performance. Dr. Bruning’s review contributes to the literature on common and unique aspects of high-performing HRM (HPHRM) systems. These HPHRM systems are examined briefly in relation to firm performance. The historical differentiation of Japanese HRM systems is reviewed and current changes in Japanese HR practices are reviewed. The changes within Japanese HR systems leads to the question of whether there is a point where the changes challenge the fundamental principles that define Japanese high-performance HRM systems. Chapter 3 provides a critical analysis of current Japanese HRM systems. Pudelko and Harzing focus on the “Japanese human resource management: inspirations from abroad and current trends of change,” stating that Japanese human resource management has been perceived by many observers as successful during the 1980s with suggestions of how Western managers could learn from the Japanese HRM model. Yet, only a decade later Japan famously entered a strong recession, and so these same HRM practices are also viewed by a series of authors as the root of the malaise. In their chapter, Pudelko and Harzing investigate to what extent Japanese HR managers nowadays incorporate HRM practices from the West and, in addition, shed light on what Japanese firms intend to adopt. Japanese HR managers’ intentions and practices were studied at two levels: at headquarters (HQ) and at the subsidiary level for German, United States, and Japanese firms. Chapter 4 is devoted to the performance of Japan-based foreign companies. In “Expatriation and performance” Bebenroth and Li investigate whether or not Japan-based foreign subsidiaries perform better under the guidance of an expatriated CEO. In other words, the authors investigate whether Japan-based foreign subsidiaries led by non-Japanese managers outperform other firms who are led by local managers. To broaden the subjects of interest and to focus not only on a single person, the authors also include the ratio of foreign board members. The

4

R. Bebenroth and T. Kanai

question to be empirically answered is whether a higher ratio of expatriates in the boardroom leads to a better performance of the subsidiary. In addition to performance, the authors use three mediating variables: the size, the ownership, and the age of the subsidiary for investigating differences between more local and more international HRM-equipped Japan-based foreign subsidiaries. Debroux investigates “Human resource management and employment systems in Asia: directions of change and new challenges” and sheds some light on one of the biggest problems East Asian companies are likely to face in the long run, the formation of a dual structure of employment. Some employees are skilled and thus “empowered” as workers, continuously improving their capabilities and, on the other hand, “deskilled” workers are expected to be just “cheap” and “flexible.” Such polarization may cause enormous social problems. Debroux states that it could also damage corporate management and thus affect the profitability of firms. The author discusses in this theoretically oriented paper signs of a new HRM system in East Asia and gives ideas on how sustainable labor relations can be built in East Asia, including Japan. In their theoretical article “Demystifying the relationship between intercultural adjustment and effectiveness in international assignments: reflections on Japanese expatriate managers,” Braga and Kubo contribute to highlighting intercultural adjustment as the determinant factor of the expatriate’s success in an international assignment. The model of international adjustment from Black et al. (1991), argue the authors, puts intercultural adjustment as a prerequisite for the success of an expatriation. Their literature review shows that the interaction adjustment and general adjustment determine the work adjustment and lead to effectiveness. In this context, Japanese expatriates are taken as examples of success in international assignments due to their combined lowest failure rates in the world. However, their literature review shows that the Japanese expatriates do not seem to adjust to the interaction and general dimensions. This contradiction demystifies the central dimensions of the Black et al. (1991) model and their main assumption that adjustment is a precondition for effectiveness. Mary Yoko Brannen, our keynote speaker at the workshop, investigates “Global talent management and learning for the future: pressing concerns and opportunities for growth for Japanese multinationals.” She investigates HRM-specific aspects of the importance of the multinational company in today’s fast-moving and knowledge-intensive society. She explains the importance of global business and the means for leveraging and exchanging knowledge between locations and across organizational domains. Brannen states that in order to realize this potential with diverse workforces separated by time, space, and economic development, substantial workforce management efforts by all multinationals regardless of country of origin must occur in the coming years. Her chapter summarizes the issues that global talent management needs to address in the coming years and highlights the pressing concerns and opportunities for growth for Japanese MNCs. As such, this chapter serves as a bridge between Part I and Part II of this book. Part II, “Japanese HRM from a domestic perspective,” is a microanalysis. In addition to our international contributors, prestigious Japanese scholars from Japanese

Challenges of human resource management in Japan

5

universities who have an intimate understanding on the issues from an insider perspective have participated with their contributions to this book. The second part consists of five contributions. The first paper is contributed by Tomoki Sekiguchi, Norihiko Takeuchi, and Tomokazu Takeuchi. The second chapter is contributed by Yasuhiro Hattori from the faculty of Economics, Shiga University. The other contributions are comprised of information from experts in HRM from Kobe University, all belonging to the Graduate School of Business Administration faculty, the second oldest business school in Japan, serving as the center of Japanese business research and education. These papers were written by Kiyoshi Takahashi and by Mitsutoshi Hirano. Finally, Toshihiro Kanai participated with a contribution in collaboration with Yoichi Furuno. In their theoretical contribution, Sekiguchi, Takeuchi and Takeuchi investigate “Strategic human resource management research in the Japanese context: unique opportunities for theory and advancement.” The authors state that there has been a large amount of theoretical and empirical work on strategic human resource management (SHRM) conducted; however, the majority of these studies have been conducted in Western countries, especially in the United States. In this paper the authors discuss how SHRM research in the Japanese context contributes by taking advantage of its unique cultural and institutional settings and the embedded nature of Japanese HR practices. It is argued that undertaking SHRM research in the Japanese context has a potential advantage in elaborating and extending SHRM theory to a broader range of contexts and introducing new perspectives to SHRM. This broader perspective has many implications for managing people in Asian countries. In his paper “Psychological contract in Japanese companies: an explorative study on contents, fulfillment, and breach of contracts,” Hattori examines contents of psychological contract in Japanese companies, and how fulfillment/breach of such contents influences employees’ trust in the company. In his research on 128 employees of Japanese companies, he obtains results of a factor analysis contrary to the findings of previous works. Psychological contracts in Japanese companies did not emerge as a simple dichotomy (transactional/relational); instead, they resembled a more complicated set of contracts. The result demonstrated that the contents and the latent structure of psychological contracts in Japanese companies are different from those in European and American companies. Then, the author conducted an ordered probit regression analysis to investigate the manner in which the latent factors and their fulfillment influence an employee’s trust in his/her company. Although the way in which contracts influence trust is different in each individual case, the fulfillment/breach of contracts affects trust as an overall whole. Takahashi’s paper is a “Cognitive framework for performance appraisal: an empirical study of narrative evaluations in a Japanese auto company.” The author states that since the seminal work by J. P. Campbell (1990), the domain of job performance has started to expand. Traditional job-oriented performance criteria have been extended to include the contextual performance, which is not related to specific tasks but is affected by altruistic, personality-related, extra-role behaviors. Yet, typical criteria for performance appraisals in Japanese companies

6

R. Bebenroth and T. Kanai

have contained not only job outcomes but ability ratings and personality/job attitude evaluation as well. Using a narrative essay for the performance evaluation, Takahashi scrutinizes the cognitive frameworks used by senior managers in a Japanese auto manufacturer. The results of his factor analysis show three criteria domains that describe the heuristics/mental models employed in the process of managerial performance appraisal. Hirano investigates the Japanese Human Resource Portfolio System (HRPS) in his paper, “Diversification of employment categories in Japanese firms and its functionality: a study based on the Human Resource Portfolio System.” The author states that modern Japanese firms are required to build a Human Resource Portfolio System which rationalizes the diversification of employment categories and the transition among separate groups of employees in the internal labor markets, instead of a dichotomy based on two types of employment status, that is, regular workers and non-regular workers. The specific objective of Hirano’s research is to build a concept of HRPS based on transaction cost economics. For this, a HRPS measurement criterion is developed by combining human asset specificity and uncertainty within tasks. The author then validates the HRPS model by examining the results of questionnaires sent to 459 businesses in Osaka Prefecture. Finally, the significance of the diversification and transition among employment categories from the HRPS perspective is considered by the author. The final contribution is delivered by Kanai and Furano and deals with Japanese leadership research. It is titled “Quantum leap experiences for leadership development: stories and lessons of Japanese top and middle managers.” Work experience, as the authors say, provides the best learning opportunities in leadership development. Sharing and interpreting the so-called “quantum leap experiences” as opportunities for acquiring leadership qualities will convert tacit knowledge in the workplace into explicit knowledge for management training and development. In this article, the authors systematically analyze the question of how potential leaders can be identified and finally developed in the Japanese context.

Acknowledgments The editors would like to thank all contributors for their efforts in writing their contributions solely for this Routledge Contemporary Japan Series publication. We also would like to express our thanks to Routledge for the invitation to publish our findings in this volume. Furthermore, we appreciate the support given by the Research Institute for Economics and Business Administration of Kobe University in financially supporting the initial workshop. Without this start at the workshop this kind of publication would not have been possible. Finally, thanks to all participants of the workshop. We would like to thank Koji Okubayashi, Professor Emeritus of Kobe University, for joining the workshop and for his many comments and suggestions on the topics delivered. Kobe, Dec. 2009 Ralf Bebenroth and Toshihiro Kanai

Challenges of human resource management in Japan

7

References Aoki, M., Jackson, G. and Miyajima, H. (eds.) (2007) Corporate Governance in Japan: institutional change and organizational diversity, Oxford: Oxford University Press. Barney, J. B. (1991) “Firm resources and sustained competitive advantage”, Journal of Management, 17(1): 99–120. Bebenroth, R. (ed.) (2007) In the Wave of M&A: Europe and Japan, Germany: Iudicium Verlag. Brannen, M. Y. and Peterson, M. F. (2009) “Merging without alienating: interventions promoting cross-cultural organizational integration and their limitations”, Journal of International Business Studies, 40: 468–89. Budhwar, P. S. (2004) “Introduction: HRM in the Asia-Pacific context”. In: P. S. Budhwar (ed.) Managing Human Resources in Asia-Pacific, London: Routledge, pp. 1–15. Doz, Y., Santos, J. and Williamson, P. (2001) From Global to Metanational: how companies win in the knowledge economy. Boston, MA: Harvard Business School Press. Leheny, D. and Warren K. (2009) Japanese Aid and the Construction of Global Development. Routledge Contemporary Japan Series, London: Routledge. Pudelko, M. (2006) “A comparison of HRM systems in the USA, Japan and Germany in their socio-economic context”, Human Resource Management Journal, 16(2): 123–53. —— (2009) “The end of Japanese- style management?” Long Range Planning, 42: 439–62. Reimann, K. D. (2009) The Rise of Japanese NGOs. Routledge Contemporary Japan Series, London: Routledge. Schaede, U. (2008) Choose and Focus: Japanese business strategies for the 21st century, Ithaca: Cornell University Press. Stahl, G., Mendenhall, M. Pablo, A. and Javidan, M. (2005) Sociocultural Integration in Mergers and Acquisitions, Palo Alto: Stanford University Press. Whitley, R. (1996) Business Systems in East Asia: firms, markets and societies, London: Sage.

Part I

Japanese HRM from an international perspective

2

Taking stock of the research on evolving relationships between Japanese human resource management practices and firm performance Nealia S. Bruning

Abstract Both aspects common to Western companies and unique aspects of Japanese human resource management/international human resource management practices (HRM/IHRM) have been examined in numerous studies. This chapter reviews this literature to examine the historical relationship between Japanese HRM/IHRM practices and firm performance, and to identify current changes that are occurring in Japanese HRM policies and practices. The chapter first briefly summarizes the general evidence on HRM/IHRM practices and compares HR practices in Western and Japanese contexts. The development of Japanese HRM/IHRM practices is examined in a formative historical context, in relation to changes stimulated by the economic crisis of the 1990s and current changes that have resulted from various economic and contextual influences. The chapter highlights basic dilemmas faced by Japanese firms. On one hand, there is a desire to retain the fundamental HR practices that have been elements integral to Japanese management practice and firm performance. On the other hand, a number of changes are occurring with long-held practices. Will Japanese firms be able to retain critical HR practice elements while making adjustments and converging with IHRM best practices in other regions of the world?

Background Significant research attention has been paid in the last decade to the relationships between human resource management policies and practices and organizational performance. In general, HRM policies and practices are expected to enhance the organization’s flexibility, performance, and human resource capacity. A primary theoretical driver to the focus on human resources is the resource-based view of the firm as articulated by Barney (1991, 1995). In this view human resources are considered to be a primary resource factor behind firm competitive advantage

12

N. S. Bruning

due to development of capabilities that are valuable, rare, imperfectly imitable, and imperfectly substitutable. In addition, strategic human resource management proponents are concerned with the contribution HRM policies and practices make to the organization’s effectiveness and how the effectiveness is achieved (Erickson and Dyer 2005). Both approaches emphasize the development of social capital in firms, and more recently there has been a transition towards more efficient uses of the social capital (Taylor 2007). The extension of efficient and effective human resource practices to international contexts has fostered the development of the field of international human resource management. Large Japanese and Western-based multinational companies have exhibited both overlapping and distinct approaches to managing the human resource function. In this chapter I will: explore definitions of what is often termed high performance human resource management systems (HPHRM) in both Western and Japanese contexts; briefly examine the data related to the relationships between HPHRM systems and organizational performance; characterize the Japanese approaches to the relationship between HRM practices and firm performance; review the changes in Japanese HPHRM systems; and conclude with an analysis of the current challenges being faced by Japanese companies as some of the long-held HRM practices are modified.

A general model of HRM environments and integration with IHRM In general, the human resource management function is composed of six primary areas: human resource planning, human resource staffing, human resource training and development, compensation and benefits, safety and health, and employee and labor relations. The international aspect of the HRM function introduces a complexity of policies and practice related to how the HRM function needs to be managed and adjusted to various contexts in which the organization operates. An example of the extent of factors that can influence the HRM function when moving from domestic to international is provided in a study by Sparrow and Hiltrop (1997). The model specifies factors that determine national patterns of European HRM. The context and cultural factors expected to influence HRM practices cluster into four primary categories: cultural factors, institutional factors, HR role and competence, and business structure. While this exemplary model, which is illustrative of a number of models that have originated from studies in Western contexts, identifies major HRM functions and highlights how various contextual factors influence the HRM policies and practices; it does not specify how HRM practices are related to firm performance, nor does it capture alternative approaches to examining human resource management practices that have developed outside of the Western model. The Japanese approach to human resource management is a case in point, and is one that has been successfully related to firm performance (e.g. Ichinowski and Shaw 1999).

Taking stock of the research on evolving relationships

13

High-performance HRM – firm performance studies A number of theoretical and empirical problems have confronted researchers who have wished to study the relationship between HRM practices and firm performance, whether they are examined in Western contexts or in Japanese contexts. They include: •

• • • • • •

A literature plagued with value-laden terms (e.g. high-performance HRM practices) which state there is high performance without establishing those relationships. For example, training is considered one of the elements of HPHRM practices, yet many studies measure the existence of training not the content, relevance or quality of the training programs, thus it is unclear whether it is a “high-performance” training program. Many terms are used to describe overlapping constructs such as high-performance work contexts, high-performance work systems, etc. Considerable overlap exists between constructs, and the distinction is not clear. A lack of clarity in the measured dimensions is often evident. Many empirical studies are limited by feasibility issues, the contextual limitations that have affected the study. The constructs in general cover the entire field of HRM and often beyond, such as company strategy, leadership orientation, innovation practices, etc. It is rare that the studies examine issues related to international HRM practices, e.g. staffing of international subsidiaries, expatriate policies and practices, adaptation to local conditions, etc.

Thus, the resulting studies have been diverse, not easily compared, and plagued by issues such as validity and reliability. Even in this challenging context, a few broad generalizations have been made (e.g. Von Glinow, Drost, and Teagarden 2002) and calls for more comprehensive studies have been sounded (e.g. Wall and Wood 2005).

High-performance human resource management practices Table 2.1 provides some examples of definitions of HRM practices that have been included in the HRM high-performance definitions and shows how the definitions contrast with an exemplary Japanese study by Takeuchi et al. (2003) on highperformance HRM practices. Thus, the approaches taken by researchers in most contexts, where highperformance HRM practices have been measured, have attempted to define practices that represent HPHRM systems. In some studies a bundling approach has been used to capture the interdependent nature of HR systems and to identify an aggregate overall indicator of the HR system. When examining the relationships between HRM practices and firm performance the data at this point fails to identify any definitive HR best practice systems that consistently deliver firm performance

14

N. S. Bruning

Table 2.1 Examples of HRM practices included in high-performance HRM system definitions Hiltrop (1996)

Delaney and Huselid (1996)

Internal labor market

Wright, Gardner, Moynihan, and Allen (2005)

Von Glinow, Drost, and Teagarden (2002)

Takeuchi, Wakabayashi, and Chen (2003)

Internal labor Selection market

Compensation

In-company welfare/culture

Teamwork

Staffing/ selection

Training

Selection

Long-term commitment

Strategic career system

Grievance procedures

Pay for performance

Performance appraisal

Skill development practices

Openness and information

Vertical levels

Performance evaluation

Training and development

Team-based problem-solving

Decentralization Decentralized Participation and delegation decisionmaking

Role and status of Human Resource Department

Recognition and Incentive rewards compensation Reward for skills Training and development

Training effectiveness

Long-term focus Concern for people

(Peterson et al. 1996, Paauwe and Boselie 2003). In the most comprehensive published comparative HPHRM practices study, reported on by Von Glinow, Drost, and Teagarden (2002), some of the most striking findings are the lack of generalizable “best practices” across cultural contexts. However, the study focused on the use of HRM practices and did not examine the relationships between practices and firm performance. They were seeking data on the commonality, nature of and utilization of “best practices” across cultural contexts. Interestingly, some of the early “best practice” research was associated with Japanese manufacturing systems which gained prominence in the 1980s (McCurry and McIvor 2002, Paauwe and Boselie 2003). These characteristics were linked to HR practices that identified critical components of Japanese HR systems, such as a focus on employee development, employee participation, teamwork,

Taking stock of the research on evolving relationships

15

incentive-based pay, and investment in recruitment and selection (Boxall and Purcell 2003).

Issues related to extending the model to IHRM There is a lack of clarity about what is meant by international human resource management (IHRM). Is IHRM a set of unique processes and HRM functions that occur when the organization extends operations across international boundaries or is IHRM concerned primarily with the transfer of general HRM practices to other contexts? Sparrow and Brewster (2006) emphasize some of the unique aspects of IHRM by proposing that IHRM practices should support the performance of multinational companies by increasing their international competitiveness, efficiency, local responsiveness, flexibility and adaptability, and transfer of knowledge to their globally dispersed units. Simonin and Ozsomer (2009) and Yamao et al. (2009) reinforce the recent emphasis on one of the functions of IHRM systems being to facilitate knowledge transfer among dispersed units. Some authors have argued for contextual differences that should drive differences between HRM systems in various contexts (Papalexandris and Panayotopoulou 2004, Pudelko 2006a). Schuler and Tarique (2007) examine three types of factors that drive IHRM functions, policies, and practices. They include exogenous factors (legal environment, managing multinational enterprises and global, regional, and local perspectives), global, strategic multinational enterprise components (strategic human resource management systems, IHRM systems, cross-border alliances) and endogenous factors (global competitive advantage and global realities). According to Schuler and Tarique the fit between the drivers and the IHRM system (managing a global workforce, global leadership development, and global careers) is expected to be related to the multinational enterprise’s effectiveness. So, in most cases the scope of IHRM includes all of the HR policies and practices that are applicable to operating in dispersed international contexts. The international contexts introduce unique elements to the examination of IHRM policies and practices (see, for example, Dowling and Welch 2005, Schuler and Tarique 2007).

The challenge of adapting HRM practices to different contexts An important challenge is one of integrating and understanding how HRM practices need to adapt to different contextual conditions and then relate the adapted HRM practices to organizational performance. There have long been arguments that HRM practices in various international contexts, such as in various Asian contexts, need to be adapted to and incorporate various local conditions. Brewster et al. (2005), as an example, offer a model which provides some of this integration and they test the relationships using a combination of approaches. Their basic model identifies some of the organizational drivers for a specific type of HRM set of practices, i.e. efficiency orientation, global provision, information exchanges, core business processes, and localization of decision-making. These drivers flow

16

N. S. Bruning

into certain HR enablers which set the limits on the types of practices that might be put in place. These HRM enablers include HR affordability, central HR philosophy, and e-enabled HR knowledge transfer. The enablers then drive and are affected by the HR processes which then influence organizational outcomes, termed organizational capability in their model. A very different approach is to present a model of HRM practices that is substantively different from the Western approaches that have dominated the HRM practices-performance literature. The Japanese HRM ideology and practice provide an instructive and illustrative example of an alternative framework. In the following discussion the basic components of the Japanese HRM structure will be reviewed, changes in the fundamental components examined, and identification of issues that are apparent through the changes in the Japanese HRM system will be highlighted.

The Japanese context The development of the unique approach to HR and systems in Japan is embedded in the historical familial role of firms and the reconstruction efforts after World War II (Miles 2007). Firms served as a supportive network for workers as they left their rural environments to seek jobs in urban areas. The psychological contract that developed between workers included the exchange of hard work and commitment to firms in exchange for consideration of their welfare by the employers (Kurihara 2004). The unique set of HR practices are believed to be influenced by the dominant Confucian values of a paternalistic system where the ruler is compassionate and honorable and the subjects are respectful and obedient (Miles 2007). These practices were manifested by employees who stayed with firms and policies that rewarded loyalty, such as seniority-based wages, lifetime employment, employee stock-ownership programs, decisions reached through consensus and harmonious relationships. The employee’s welfare was of such high importance that some observers have suggested that firms were run for the benefit of employees, not the shareholders, thus resulting in an employee-based stakeholder model (Ozaki 1992, Araki 2006, Miles 2007). The most common definitions of the Japanese HRM systems identify a number of key components. They include a primary emphasis on employee needs, lifetime employment which incorporates an internal labor market (promotions of existing employees) and a context that encourages team-based/participatory processes (Pucik and Hatvany 1983). These fundamental HRM policies are manifested through open communications, job rotation, internal training, a competitive appraisal system, emphasis on work groups, consultative decision-making, and concern for the employee (Pucik and Hatvany 1983, Rowley, Benson, and Warner 2004). A careful screening process of job candidates ensures fit with the corporate culture and environment (Beechler and Yang 1994). A focus on the internal labor market is a strategic emphasis of large Japanese organizations which differs in some significant ways from practices in small to medium-sized organizations (Benson 1996). Benson found that small to medium-sized Japanese organizations

Taking stock of the research on evolving relationships

17

In-company welfare Behavioural consequences

Skill development

Problem solving

Financial performance

Long-term commitment

Figure 2.1 HRM practices and relationships with organizational performance

maintained labor flexibility by relying more on contractual labor and competitive wage flexibility. Larger firms, on the other hand, relied more extensively on the development of a highly skilled and committed workforce that is adaptable through an extensively developed range of skills. Takeuchi et al. (2003) exemplify the systemic view that is used to describe critical HRM practices and the relationships with organizational performance. In their approach the focus is on how the company establishes a culture and climate that supports long-term employee commitment to the organization, enhanced skills, and team-based problem-solving (see Figure 2.1). They hypothesize that HRM practices that enhance the in-company welfare of the employee and support their long-term commitment (e.g. through lifetime employment) provide a context which is supportive of skill development, which fosters their ability to solve work-related problems. Heightened problem-solving capability is expected to lead to stronger financial performance of the firm. The model presents an integrative view of how HRM practices are related to employee attitudes and behaviors which then in turn fosters better organizational performance. Another complementary example of a systemic approach to the examination of Japanese HRM practices is the person–environment fit (P-E) perspective proposed by Sekiguchi (2006). He illustrates in his research how Japanese firms, through their HRM policies and practices, support P-E fit. Three types of P-E fit are examined, including person–job (P-J) fit, person–group (P-G) fit, and person–organization (P-O) fit. Policies such as the intensive interview processes and relational psychological contracts promote P-O fit, while teamwork and group processes such as quality circles, cross-functional teams, and problem-solving teams promote P-G fit. Selection processes, orientation activities, broad job classifications, job rotation, socialization, and extensive training activities promote P-J and P-G fit. The three types of fit are combined into P-E fit, which is reinforced through performancebased rewards and promotion (both recent changes). The HRM activities that promote various types of P-E fit promote a level of commitment and sense of self-efficacy that incorporates a holistic perspective and emphasizes the selection and development of employees. Therefore the Takeuchi et al. (2003) and Sekiguchi (2006) descriptions of Japanese HRM practices illustrate a second major approach to examining HRM practices–organizational performance relationships. The first approach, most

18

N. S. Bruning

common among Western examinations of the HRM practices–organizational performance question, tends to look at various HRM factors or bundles of factors, while the Japanese approach has been a causal modeling approach which identifies how various HR and work context factors fit into a causal framework. Some recent research (Takeuchi 2009, Takeuchi et al. 2009, Wang 2009) has begun to integrate these perspectives. The argument has been well established by researchers who examine the Japanese HRM system that, historically, there have been key components deemed fundamental to organizational success and employee welfare and performance, and which then define the HR policies and practices that are expected to be related to higher firm performance.

Transfer of Japanese HR systems to international contexts One of the early studies that examined the transfer of Japanese-style human resource management practices to international contexts was conducted by Beechler and Yang (1994). In this qualitative study they focused on the question of what factors influenced Japanese transfer of HRM practices to overseas subsidiaries, thus extending the examination of Japanese HRM policies and practices to IHRM policies and practices. Three principal HR strategies were examined: the internal labor market, emphasis on employee needs, and a focus on teamwork and participative processes. The specific practices examined included job rotation, seniority-based wages, long-term employment, implicit performance evaluation, training, development of fresh graduates, team-based employee activities, consensus-style decision-making, and a relatively small gap between compensation and perquisites for white-collar and blue-collar workers. Their results indicated that even though the top management in the Japanese-based organizations desired to transfer these practices to the local contexts, the local environment and subsidiary characteristics constrained the transfer. One of the major questions that confronts managers, whether they are based in Japan or elsewhere, is how to transfer knowledge and skills to international subsidiaries and encourage labor flexibility (through enhanced skills). One of the basic decisions is to determine the degree to which HRM policies and practices will follow the parent company approach or is localized or adapted to local environments. Bird et al. (1998) examined this transfer process in a ten-year study of Japanese multinational organizations (e.g. Bird and Beechler 1995). The objectives of the study were to understand more about how organizations learn and respond quickly to environmental changes through their IHRM practices, how they organize across borders and minimize costs relative to competitors. While their questions were general ones, the data they used to examine those questions was based on data from Japan. They were able to discern four major archetypes of Japanese firms in their approaches to IHRM practices. These archetypes were determined by three differentiating dimensions: the degree to which the affiliate reflects the parent company’s system, the source where the affiliate management attributes problems when the system fails, and the degree to which innovations are shared between affiliates and the parent firm. The four archetypes were: exportive, where

Taking stock of the research on evolving relationships

19

HR policies and practices were transferred from the parent to the affiliate; adaptive, where the most prominent characteristic was the dominance of adaptations to local conditions; closed hybrid, where some HR policies and practices were adapted to local conditions but these adaptations were rarely shared with other affiliates in the organization; and open hybrid approaches, where some adaptations to local conditions were made and these learning experiences were shared throughout the organization. The open hybrid system resulted in the highest levels of organizational learning, was the most expensive to implement, required the highest levels of coordination and integration, and led to the highest levels of flexibility in the organizations. A key question related to the current analysis is whether there were HR policies and practices that were adapted to local conditions and others that were retained in order to preserve the core characteristics of the Japanese HRM system. Bird, Taylor, and Beechler (1998) do not answer this question nor do they provide an indication of the relative representation of the Japanese firms in the various archetypes. Was there a dominant archetype that would typify Japanese firms? Carr and Pudelko (2006) and Pudelko and Harzing (2007) provide data to suggest that the hybrid archetypes may be the most common given their data that found convergence between Japan, Germany, and the United States on “best practices” in HRM. One could tentatively conclude from their research that the open hybrid system might be more common through the notion of convergence, suggesting sharing of HRM policies and practices. Miah and Bird (2007) and Yuen and Kee (1993) provide additional evidence that in at least some contexts, e.g. South Asia, Japanese firms are characterized more by localization of their HRM practices. However, the transfer of such practices as participative processes has been difficult in contexts where these practices/concepts are foreign to local employees. Alternatively, Keeley (2001) provides data to suggest that most Japanese firms would be classified in the exportive (ethnocentric) model of international human resource management practices. For example, over the last three decades Japanese firms have employed three to four times more parent-country nationals in managerial jobs than have U.S. or European firms. The lack of employment and development of host-country nationals is proposed to have negative implications for Japanese companies. If the firms primarily use home-country nationals to staff managerial positions, they will be unattractive to local managers who seek developmental and challenging opportunities. Given the contrasts in the conclusions between research studies, more studies are needed to validly classify Japanese firms into the various IHRM practice archetypes. Furthermore, research is needed on the relationship between the archetypes and firm performance; and of the practices that tend to be localized and those that follow parent-company practices.

Changes in the Japanese HR systems The historical model of Japanese HRM systems with their core components was challenged in the 1990s with the Asian economic crisis. Japanese firms, which relied on growth contexts to support their human resource policies, were faced with no-growth and even decline scenarios. Other change forces included the pursuit of

20

N. S. Bruning

additional capital and the profit orientations of boards of directors (Miles 2007). The impacts on Japanese firms were immense. Employees were deemed redundant, some were forced to take early retirement, reductions were made to employment of university graduates and efforts were taken to hire cheaper labor (Benson and Debroux 2003, Kishita 2006). Some authors (e.g. Keeley 2001) have suggested that Japan’s international HRM practices have created almost insurmountable structural competitive disadvantages. He states that the Japanese system of management is so culturally dependent, such as based on collective values, that integration of non-Japanese employees into the system is difficult, which poses barriers to internationalization of their organizations. Many authors have examined the changes in Japan’s home-based and international HRM policies in a more focused manner, looking at individual policies and practices. Much of the focus of research on Japan has since shifted to an examination of the HR policies and practices that have weathered the economic shocks, those that have changed or have converged to be closer to Western HPHRM systems and the impacts of the changes of Japanese HR practices on employee attitudes, performance, and work behaviors. While the economic environment of the 1990s placed pressure on Japanese companies to become more cost efficient and in some circles called into question the superiority of the Japanese HR system, others have encouraged a closer look at the dynamics of the changing Japanese context. Farndale and Paauwe (2007) provide a model to examine some of the drivers of HR practice change. These drivers can be either institutional or competitive and they can occur in either the internal or external context. Internal drivers tend to lead to differentiation. Examples include an organization’s heritage (institutional driver) or specific strategic choices/human agency (competitive driver). External drivers tend to encourage isomorphism or less differentiation between firms. Examples include the national-level context (institutional driver) and global-level universal best practice benchmarking (competitive driver). In the case of Japan, there have been significant national-level context pressures, i.e. the poor economic situation which led to modifications in HR practices that supported more firm flexibility and efficiencies (Pudelko 2004). Common changes have been noted in the Japanese HR system such as the flattening of organizational structures (Morris, Hassard, and McCann 2006), a deterioration of seniority-based wage systems, replaced by more performance or merit-based pay systems (Mroczkowski and Hanaoka 1998, Morris et al. 2006, Pudelko 2006b, Keizer 2009); the hiring of more casual/part-time staff as a second tier of employees (while retaining other employees within the lifetime employment system) (Morris et al. 2006, Keizer 2009); and adoption of local HRM practices in subsidiary or joint venture operations (Farndale and Paauwe 2007). The second tier of employees (casual, non-regular appointment employees) has allowed Japanese firms to retain a core set of employees on the lifetime employment track while introducing flexibility for changing economic conditions. Therefore, there is evidence that HR systems such as the reliance on employee training and development, lifetime employment for a substantial segment of the workforce, teamwork and participative processes have remained basically intact. But questions remain about

Taking stock of the research on evolving relationships

21

the impacts of these changes on the historical components of the Japanese HRM system and the impacts on employee attitudes and firm performance. For example, with the development of two-tiered employment security systems in organizations has there been a rise in inequity perceptions and, if so, are those inequity perceptions related to less positive employee attitudes and performance? One of the most radical changes to the Japanese HRM system has been the shift to performance-related pay, seikashugi. One study, conducted by the Japan Institute for Labor Policy and Training and cited by Keizer (2009), documented that, in 2004, 57.8 percent of all firms and 74 percent of firms with more than 1,000 employees had implemented seikashugi. Keizer also noted the rapid adoption of management by objectives (MBO) type practices where pay is determined in some part by the attainment of various types of objectives over a specified time period. It is yet to be documented how the shift from the acquisition of job skills over the long term (seniority-based and knowledge-based pay systems) to immediate and objectives-based job performance will affect employee attitudes and performance. A comparative study by Ichinowski and Shaw (1999) suggests that the preservation of teamwork and participative processes may be a key factor to support Japanese competitive advantage. They examined Japanese and U.S. steel production lines operating in the U.S. The Japanese steel manufacturing operations were characterized by problem-solving teams, extensive orientation, training throughout employees’ careers, extensive information sharing, job rotation, high employment security and profit sharing. Some of the U.S. plants incorporated all of the Japanese employment practices and some had implemented some of the Japanese HR practices. They found that the firms that included all of the above features exhibited higher performance (about 7 percent higher) than those that incorporated part of the above features. The authors concluded that partial adoption of Japanese highperformance HR practices failed to yield high-performance results. Similar results were found by Park et al. (2003). Ichinowski and Shaw offer a systemic explanation for why partial adoption of Japanese practices failed to yield high-performance results. For example, problem-solving teams are considered critical to kaisen, the continuous improvement process, but without supportive processes such as job security, workers may not feel secure enough to provide productivity improvement ideas if the ideas could lead to job losses. Also, with heightened employment security, the firm has more flexibility with their workforce by being able to assign workers to other jobs in the plant. Flexible assignment also requires more training so that workers have the skills to be reassigned to different jobs. In order to have workers who are committed to the firm and who have the capacity to develop the requisite multiple job skills for job rotation assignments, there is a need for careful selection processes. Supportive labor–management communications are seen to foster the joint problem-solving nature of the plant operations. Traditionally, the compensation schemes provided additional systemic support for the participative system. Some of the components were based on seniority, merit evaluations, and job classification, but a key component of the pay system was a bonus payment based on the profitability of the company. Therefore, the explanations provided

22

N. S. Bruning

by Ichinowski and Shaw (1999) for why full adoption of the Japanese HRM policies and practices are needed are consistent with the causal model proposed by Takeuchi et al. (2003), a system of practices that has been traditionally believed to be key to Japanese employees’ high performance. Herein lies the conundrum: how much deterioration of Japanese HRM fundamental practices can exist before there could be systemic impacts on employee attitudes and behaviors (as suggested above in the questions on equity concerns that could be related to two-tiered employment security scenarios)? Recent evidence suggests that some of the degradation has already occurred. For example, Brislin et al. (2005) noted in a recent survey conducted by PriceWaterhouseCoopers that a movement away from a company orientation to a self-orientation has been evidenced. Employees are more concerned about their lifetime employability and there is a shift away from lifetime employment (Brislin et al. 2005, Yamashita 2006, Iida and Morris 2009). Another study suggests that one group of employees that have experienced significant changes in the work context has been middle managers. In a survey of human resource managers and middle managers within Japanese organizations, Iida and Morris (2009) found that the managers reported reasonable levels of job security but also noted that they were being required to perform a greater range of tasks, with greater intensity. Their work hours were longer, they were experiencing higher levels of stress, more accountability, and a worsened work–life balance. These changes were experienced as a result of organizational actions related to cost-reduction and culture-change programs. Half of the privatesector organizations in the survey were downsizing and a third were delayering. Lifetime employment in some of the organizations was being abandoned in favor of self-managed careers. Some of the intensification of work pressures could be differentially experienced by males and females. Yanadori and Kato (2009) found that when supportive work–life balance practices were lacking in firms there was a rise in female turnover, but not male turnover. Some of the indicated changes suggest that Japanese firms are shifting their emphasis on employees as the major stakeholder in the firm to other stakeholders such as shareholders (Miles 2007). These changes suggest profound shifts in the relations between employees and their firms (Mroczkowski and Hanaoka 1997, 1998, Miles 2007). Also, as more mobility through increased lifetime career mobility is experienced, tacit knowledge could more readily flow between firms and reduce an organization’s competitive advantage (Yamashita 2006). Another challenge is the transferability of Japanese HRM practices to other regions of the world. While Ichinowski and Shaw (1999) cited effective transfer of Japanese HRM practices to U.S. steel mills, the results in other locations have been mixed. Japanese tend to use more expatriates than locals in foreign management positions, which has been associated with more human resource management problems (Keeley 2001). Another study reinforced the findings that they tend to have more ethnocentric staffing practices and policies and experience more international HRM problems than do U.S. and European firms (Kopp 1994). While Miah and Bird (2007) found Japanese firms’ parent culture less evident in their South Asian subsidiaries than in their home plants, Onishi (2006) found that Japanese firms

Taking stock of the research on evolving relationships

23

were able to successfully transfer to their subsidiaries a number of their Japanese HR principles, such as lifetime employment, consensual decision-making, quality circles, and house unions. However, they were unsuccessful in transferring the seniority-based wage system. The Japanese managers and Thai employees agreed that seniority could be part of the evaluate criteria but placed a heavier emphasis on achievement (Onishi 2006).

Conclusion This chapter has explored the definition of high-performance work systems from a Western orientation but has focused on the Japanese perspective on highperformance work systems. The research on high-performance work systems, their definitions and research results were briefly reviewed. The Japanese perspective has been characterized by an emphasis on a causal system based on an integrative approach to core HRM components and outcomes of the HRM system. In Western contexts the extension of high-performance human resource management practices has been uneven and has tended to lack a consistent theoretical framework. In Japan the transfer of Japanese HRM practices seems to be impeded by cultural and contextual differences, and perhaps, the tendency of Japanese firms to carry out ethnocentric HRM practices. These ethnocentric practices are most evident in the reliance on parent-company nationals to run subsidiary operations. Relatively little research has been conducted on the relationship between Japanese HR policies and practices and firm performance. More research is focused on the implementation of Japanese HR policies and practices to different contexts and the current changes to fundamental principles that have dominated Japanese HR practices for decades. The economic shocks of the 1990s have led to changes in some components of the Japanese system, but other elements such as the participative and team-based processes remain intact. Some research has questioned whether the erosion of basic Japanese HR practices through modified elements of the system (such as more casual/part-time labor, reduction of the importance of seniority) undermines the employee commitment that has been viewed as critical to the success of Japanese organizations. The research on performance-based pay is less clear. There is evidence to suggest that Japanese organizations have adopted performance-based systems, such as management by objectives, in an effort to support enhanced employee performance (Keizer 2009). What remains unclear and is an important research question is whether there are threshold or boundary conditions in changing some of the fundamental Japanese HRM practices that, once breached, diminish the commitment and effectiveness of the participatory and teamwork processes, and ultimately negatively impact Japanese firm performance. The answer to this question has far-reaching implications for Japanese HRM practices and the sustainability of competitive advantage of Japanese firms.

24

N. S. Bruning

References Araki, T. (2006) “Corporate governance reforms, labour law developments and the future of Japan’s practice dependent stakeholder model”, Japan Labour Review, 2(1): 26–57. Barney, J. (1991) “Firm resources and sustained competitive advantage”, Journal of Management, 17(1): 99–120. —— (1995) “Looking inside for competitive advantage”, Academy of Management Review, 9(4): 49–61. Beechler, S. and Yang, J. Z. (1994) “The transfer of Japanese-style management to American subsidiaries: contingencies, constraints, and competencies”, Journal of International Business Studies, 25(3): 467–91. Benson, J. (1996) “Management strategy and labour flexibility in Japanese manufacturing enterprises”, Human Resource Management Journal, 6(2): 44–57. Benson, J. and Debroux, P. (2003) “Flexible labour markets and individualized employment: the beginnings of a new Japanese HRM system?” Asia Pacific Business Review, 9(4): 55–75. Bird, A. and Beechler, S. (1995) “Links between business strategy and human resource management strategy in U.S.-based Japanese subsidiaries: an empirical investigation”, Journal of International Business Studies, 26(1): 23–46. Bird, A., Taylor, S. and Beechler, S. (1998) “A typology of international human resource management in Japanese multinational corporations: organizational implications”, Human Resource Management, 37(2): 159–72. Boxall, P. and Purcell, J. (2003) Strategy and Human Resource Management, Basingstoke: Palgrave MacMillan. Brewster, C., Sparrow, P. and Harris, H. (2005) “Towards a new model of globalizing HRM”, International Journal of Human Resource Management, 16(6): 949–70. Brislin, R. W., MacNab, B., Worthley, R., Kabigting, F. Jr. and Zukis, B. (2005) “Evolving perceptions of Japanese workplace motivation: an employee-manager comparison”, International Journal of Cross Cultural Management, 5(1): 87–104. Carr, C. and Pudelko, M. (2006) “Convergence of management practices in strategy, finance and HRM between the USA, Japan and Germany”, International Journal of Cross Cultural Management, 6(1): 75–100. Delaney, J. T. and Huselid, M. A. (1996) “The impact of human resource management practices on perceptions of organizational performance”, Academy of Management Journal, 39: 949–69. Dowling, P. J. and Welch, D. E. (2005) International Human Resource Management: managing people in a multinational context, Cincinnati OH: South-Western College Publishing. Erickson, J. and Dyer, L. (2005) “Toward a strategic human resource management model of high reliability organization performance”, International Journal of Human Resource Management, 16(6): 907–28. Farndale, E. and Paauwe, J. (2007) “Uncovering competitive and institutional drivers of HRM practices in multinational corporations”, Human Resource Management Journal, 17(4): 355–75. Hiltrop, J.-M. (1996) “A framework for diagnosing human resource management practices”, European Management Journal, 14(3): 243–54. Ichinowski, C. and Shaw, K. (1999) “The effects of human resource management systems on economic performance: an international comparison of U.S. and Japanese plants”, Management Science, 45(5): 704–21.

Taking stock of the research on evolving relationships

25

Iida, T. and Morris, J. (2009) “Farewell to the salaryman? The changing roles and work of middle managers in Japan”, The International Journal of Human Resource Management, 19(6): 1072–87. Keeley, T. D. (2001) International Human Resource Management in Japanese Firms, London: Palgrave. Keizer, A. B. (2009) “Transformations in- and outside the internal labour market: institutional change and continuity in Japanese employment practices”, The International Journal of Human Resource Management, 20(7): 1,521–35. Kishita, T. (2006) “The HRM of Japanese firms in the days to come of global competition”, Research and Practice in Human Resource Management, 14(1): 29–48. Kopp, R. (1994) “International human resource policies and practices in Japanese, European, and United States multinationals”, Human Resource Management, 33(4): 581–99. Kurihara, Y. (2004) “The changing corporate governance in Japan: adapting to globalization”, Global Business and Economics Review, 6(1): 82–91. McCurry, L. and McIvor, R. (2002) “Agile manufacturing: 21st century strategy for manufacturing on the periphery?” Irish Journal of Management, 23(2): 75–93. Miah, M. K. and Bird, A. (2007) “The impact of culture on HRM styles and firm performance: evidence from Japanese parents, Japanese subsidiaries/joint ventures and South Asian local companies”, International Journal of Human Resource Management, 18(5): 908–23. Miles, L. (2007) “Current changes in labour management and industrial relations in Japan and their impact on its ‘stakeholder-oriented’ governance model”, Managerial Law, 49(4): 117–28. Morris, J., Hassard, J. and McCann, L. (2006) “New organizational forms, human resource management and structural convergence? A study of Japanese organizations”, Organization Studies, 27: 1,485–512. Mroczkowski, T. and Hanaoka, M. (1997) “Effective rightsizing strategies in Japan and America: is there a convergence of employment practices”, Academy of Management Executive, 11(2): 57–67. —— (1998) “The end of Japanese management: how soon?”, Human Resource Planning, 21(3): 20–30. Onishi, J. (2006) “The transferability of Japanese HRM practices to Thailand”, Asia Pacific Journal of Human Resources, 44(3): 260–75. Ozaki, R. (1992) Human Capitalism: the Japanese enterprise system as world model, New York: Penguin Books. Paauwe, J. and Boselie, P. (2003) “Challenging ‘strategic HRM’ and the relevance of the institutional settings”, Human Resource Management Journal, 13(3): 56–70. Papalexandris, N. and Panayotopoulou, L. (2004) “Exploring the mutual interaction of societal culture and human resource management practices”, Employee Relations, 26(5): 495–509. Park, H. J., Mitsuhashi, H., Fey, C. F. and Björkman, I. (2003) “The effect of human resource management practices on Japanese subsidiary performance: a partial mediating model”, International Journal of Human Resource Management, 14(8): 1,391–406. Peterson, R. B., Sargent, J., Napier, N. K. and Shim, W. S. (1996) “Corporate expatriate HRM policies, internationalization, and performance in the world’s largest MNCs”, Management International Review, 36(3): 215–30. Pucik, V. and Hatvany, N. (1983) “Management practices in Japan and their impact on business strategy”. In: R. Lamb (ed.), Advances in Strategic Management, 1: 103–32.

26

N. S. Bruning

Pudelko, M. (2006a) “A comparison of HRM systems in the USA, Japan and Germany in their socio-economic context”, Human Resource Management Journal, 16(2): 123–53. —— (2006b) “The seniority principle in Japanese companies: a relic of the past?”, Asia Pacific Journal of Human Resources, 44(3): 276–95. —— (2004) “HRM in Japan and the West: what are the lessons to be learnt from each other?”, Asian Business and Management, 3: 337–61. Pudelko, M. and Harzing, A.-W. (2007) “Country of origin, localization, or dominance effect? An empirical investigation of HRM practices in foreign subsidiaries”, Human Resource Management, 46(4): 535–59. Rowley, C., Benson, J. and Warner, M. (2004) “Towards an Asian model of human resource management: a comparative analysis of China, Japan and South Korea”, International Journal of Human Resource Management, 15(4): 917–33. Sekiguchi, T. (2006) “How organizations promote person-environment fit: using the case of Japanese firms to illustrate institutional and cultural influences”, Asia Pacific Journal of Management, 23: 47–69. Schuler, R. S. and Tarique, I. (2007) “International human resource management: a North American perspective, a thematic update and suggestions for future research”, International Journal of Human Resource Management, 18(5): 717–44. Simonin, B. L. and Ozsomer, A. (2009) “Knowledge processes and learning outcomes in MNCs: an empirical investigation of the role of HRM practices in foreign subsidiaries”, Human Resource Management, 48(4): 505–30. Sparrow, P. and Brewster, C. (2006) “Globalizing HRM: the growing revolution in managing employees internationally”. In: C. Cooper and R. Burke (eds.), The Human Resources Revolution: Research and Practice, London: Elsevier. Sparrow, P. R. and Hiltrop, J.-M. (1997) “Redefining the field of European human resource management: a battle between national mindsets and forces of business transition?”, Human Resource Management, 36(2): 201–19. Takeuchi, N. (2009) “How Japanese manufacturing firms align their human resource policies with business strategies: testing a contingency performance prediction in a Japanese context”, International Journal of Human Resource Management, 20(1): 34–56. Takeuchi, R., Chen, G. and Lepak, D. P. (2009) “Through the looking glass of a social system: cross-level effects of high-performance work systems on employees’ attitudes”, Personnel Psychology, 61(1): 1–28. Takeuchi, N., Wakabayashi, M. and Chen, Z. (2003) “The strategic HRM configuration for competitive advantage: evidence from Japanese firms in China and Taiwan”, Asia Pacific Journal of Management, 20: 447–80. Taylor, S. (2007) “Creating social capital in MNCs: the international human resource management challenge”, Human Resource Management Journal, 17(4): 336–54. Von Glinow, M. A., Drost, E. A. and Teagarden, M. B. (2002) “Converging on IHRM best practices: lessons learned from a globally distributed consortium on theory and practice”, Human Resource Management, 41(1): 123–40. Wall, T. D. and Wood, S. J. (2005) “The romance of human resource management and business performance, and the case for big science”, Human Relations, 58(4): 429–62. Wang, Y. (2009) “Examination on philosophy-based management of contemporary Japanese corporations: philosophy, value orientation and performance”, Journal of Business Ethics, 85: 1–12. Wright, P. M., Gardner, T. M., Moynihan, L. M. and Allen, M. R. (2005) “The relationships between HR practices and firm performance: examining causal order”, Personnel Psychology, 58: 409–46.

Taking stock of the research on evolving relationships

27

Yamao, S., De Cieri, H. and Hutchings, K. (2009) “Transferring subsidiary knowledge to global headquarters: subsidiary senior executives’ perceptions of the role of HR configurations in the development of knowledge stocks”, Human Resource Management, 48(4): 531–54. Yamashita, M. (2006) “Boundaryless career and adaptive HR practices in Japan’s hotel industry”, Career Development International, 11(3): 230–42. Yanadori, Y. and Kato, T. (2009) “Work and family practices in Japanese firms: their scope, nature and impact on employee turnover”, The International Journal of Human Resource Management, 20(2): 439–56. Yuen, E. C. and Kee, H. T. (1993) “Headquarters, host-culture and organizational influences on HRM policies and practices”, Management International Review, 33(4): 361–83.

3

Japanese human resource management Inspirations from abroad and current trends of change1 Markus Pudelko and Anne-Wil Harzing

Abstract The objective of this chapter is to develop suggestions as to how Japanese multinational corporations might best make use of foreign, here specifically American and German, HRM practices in order to reform their own HRM model. These suggestions are based on a large-scale empirical study, encompassing responses from more than 800 HR managers. The learning possibilities for Japanese companies from abroad are analyzed on two different levels: at headquarters and at subsidiary level. Based on empirical evidence, this chapter argues that, for Japan, the American system serves as a powerful source of inspiration, highlighting the direction of change. However, in order to establish to what degree to change, more “moderate” approaches – such as, for example, the German one – might provide additional sources of inspiration. In any case, no matter from where outside inspirations are taken, the Japanese socio-cultural context has to be taken fully into consideration if this adaptation process is to lead to positive results.

Introduction Human resource management has been perceived by many observers as a key ingredient accounting for the success of Japanese companies on world markets during the 1980s. Suggestions of how Western managers could learn from Japanese HRM practices were plentiful. Only one decade later, however, Japan went into a recession from which it has not yet fully recovered. Paradoxically, these same HRM practices are now being viewed by a series of authors as the root of the malaise. This chapter investigates whether Japanese HR managers are now planning to learn from the West. More specifically, it explores whether Japanese HR managers are keen to learn from Western (in this case American and German) HRM and what they intend to adopt. In order to find answers to these questions we study Japanese HR managers’ intentions and practices at two levels: at headquarters and at subsidiary level. As the “traditional” Japanese HRM model2 is increasingly regarded to be in crisis and subject to major change (Dalton and Benson 2002), this issue is of particular significance for Japanese companies. Indeed, one can argue that the question of

Japanese human resource management

29

whether, or to what extent, Japan should incorporate Western management practices has been standing now for the last one and a half decades at the centre of Japanese management research. Frenkel (1994) observed a convergence toward Western HRM practices, Ornatowski (1998) even discussed the end of Japanesestyle HRM, Matanle (2003) noted a part convergence in the direction of Western management and Aoki et al. (2007) and Schaede (2008) described irreversible tendencies toward an adaptation of Western management concepts. Yet despite this research focus, there is little empirical work on managers’ knowledge of practices elsewhere, and on their views on cross-national adoption. This seems to be a serious omission: such adoption processes are implemented by managers rather than academics; and it is surprising that little empirical research has been done in order to better understand those perceptions and judgments upon which adoption decisions ultimately rely.3 This viewpoint guides the empirical focus of the research. One obvious difficulty we are presented with if we wish to answer the question of what Japan can learn from “the West” is the selection of countries that are representative of “the West.” In this study we limit our empirical research to the inspirations Japan might receive from the USA and Germany. This selection has some merit, in representing the largest and the third largest developed economies in the world (with Japan being the second largest economy), and the economically dominant nations of North America and Europe (with Japan being the leading economy in Asia). In addition, the USA and Germany each embody the prime example of two of the three main varieties of market economies: the USA representing the free market economy of Anglo-Saxon countries and Germany the social market economy of continental Europe (with Japan embodying the third main variety of market economies, the government-induced market economy of East Asia). Furthermore, according to Smith and Meiksins (1995: 243) the USA, Japan and Germany are most frequently referred to as role models, “as they provide ‘best practice’ ideals from which other societies can borrow and learn.” Consequently, these country models have been subject to numerous comparative analyses (Thurow 1992, Garten 1993, Yamamura and Streeck 2003, Pascha 2004, Jacoby 2005). As economic performance and growth paths vary over time the role of a “dominant” economy also rotates among countries. In the 1950s, 1960s and most of the 1970s the American management style clearly was dominant and a common expectation was that it would spread around the world, gaining application in many foreign countries. From the late 1970s to the early 1990s, this argument increasingly was applied to Japan (Mueller 1994) and, to a lesser extent and limited to the European context, to Germany (Albert 1991, Thurow 1992). Since the implosion of the Japanese economy, the stagnation of the German economy, and with the advent of globalization, the conventional wisdom over the last one and a half decades up to the current economic crisis has been that the American management model is particularly well suited to provide the necessary flexibility to cope with rapidly evolving economic and technological conditions. Consequently, the USA again became the dominant role model (Edwards et al. 2005). This study employs a very carefully matched design in which we investigate the same three countries (Japan, the USA, and Germany) as home and host countries.

30

M. Pudelko and A.-W. Harzing

We not only study HRM practices at headquarters in each of these three countries, but also the practices of the subsidiaries of MNCs from each of the three countries in the two other respective countries. As a result, we are able to compare the HRM practices of nine different groups of companies: HQ in Japan, the USA, and Germany, subsidiaries of Japanese and German MNCs in the USA, subsidiaries of Japanese and American MNCs in Germany, and subsidiaries of American and German MNCs in Japan. This design will enable us to disentangle the inspirations companies seek from abroad to a far greater extent than has been possible in other studies. The structure of our analysis is separated into two main sections. The first describes empirical results from HQ and the second depicts the situation at subsidiary level. For each of the two main sections, first the context of existing research is summarized. Subsequently, the methodology of the empirical research is described. Findings are then presented and subsequently discussed. Finally, suggestions are made as to how the Japanese might best make use of foreign HRM policies to reform their own HRM practices and ultimately improve competitiveness.

Analysis at headquarters level Research context As mentioned above, the Japanese HRM model has often been recognized as a key factor in the rise of the Japanese economy, particularly during the 1980s (see, for example, Inohara 1990). However, the same Japanese HRM which until recently has been much celebrated in the West, and presented as a role model to be learned from (see, for example, Vogel 1979, Ouchi 1981, Peters and Waterman 1982, Bleicher 1982, Hilb 1985), is now increasingly viewed as outmoded, and necessitating substantial reform (Frenkel 1994, Smith 1997, Yoshimura and Anderson 1997, Crawford 1998, Horiuchi 1998, Ornatowski 1998, El Kahal 2001, Pudelko 2005, 2006). Others, however, continue to stress its inherent strengths and warn against significant change (Kono and Clegg 2001, Ballon 2002, 2006). On the other hand, American understanding of HRM has traditionally been viewed by Japanese managers with skepticism. It is regarded as contradicting in many ways the broad concept of “respect for people” (Kono and Clegg 2001) and the aim of “human resource development” (Ballon 2002) that is ingrained in the Japanese management philosophy. In particular, the idea of defining the employees of a company as “resources” (instead of members of the company “family”) that need to be managed (instead of “developed”) runs contrary to the key concepts of traditional Japanese HRM. However, in response to the deep crisis of the Japanese economy and management model, which has lasted for more than a decade now, it is clear that some shift toward Western management principles is taking place (Frenkel 1994, Ornatowski 1998, El Kahal 2001, Matanle 2003). Thus, mirroring the economic growth patterns, adoption of Japanese HRM principles seems in the USA to be largely an issue of the past, whereas the question of adoption of American HRM policies is more current in Japan than ever. The key issue in Japan

Japanese human resource management

31

seems to be to find a new balance between the continuation of traditional (human resource) management principles and changes inspired largely by Western, or more specifically American, strategies. Regarding the specific German understanding of (human resource) management, it has to be concluded that this is a subject of no significant importance in Japanese business research, if it is considered at all (Pudelko 2000a). Methodology Data collection and sample It may be noted from this brief review that existing literature in this field is in some respects inconclusive or somewhat contradictory. Nor has it generally been informed by empirical examination of HR managers’ own views on cross-national adoption processes. As this group might be expected to constitute the chief change agent, empirical insight appears in this context all the more important. Accordingly, this chapter provides data on the perceptions of HR managers from three different countries on the possibility of learning from each other. In this task, a quantitative approach seemed to be the most appropriate. The analysis is therefore based on empirical data which have been drawn together from an extensive survey (Pudelko 2000a–c). The heads of HR departments from the 500 largest corporations of Japan – and for comparative reasons the USA and Germany – were selected as units of investigation. It was assumed that the heads of HR departments would have the highest degree of experience, knowledge, and vision with regard to the issues being investigated, due to their senior positions within corporate hierarchies. Furthermore, major corporations have been chosen for this study, as MNCs are considered to be particularly effective in transferring knowledge across national borders and, consequently, constitute a major agent in globally diffusing “best practices” (Bartlett and Ghoshal 1989). Questionnaires were sent out in Japanese, English, and German depending on the receiver. The method of translation-back-translation was employed in order to secure consistency among the three versions. As the top half of Table 3.1 indicates, of the HR managers contacted, 68 respondents were from Japan, 57 from the USA and 107 from Germany. Consequently, the HQ part of this study is based on the responses of 232 senior HR managers. The resulting response rates were 14, 12, and 21 percent, respectively. These response rates seem to reflect the fact that persons of very senior positions were approached (usually on a VP level). In addition, the top 500 companies of Japan, the USA, and Germany are often contacted in similar studies. However, it should be observed that the response rate for Japan is above similar prior surveys in Japan as reported by Kato and Morishima (2003). The response rate for Germany is also still above comparable postal questionnaire research such as the well-known Cranet-E-survey for Germany (Hanel 1996; see also Schmitt and Sadowski 2003). Furthermore, it should be noted that the 232 companies included in this survey cover a large amount of different service and manufacturing industries in all three countries. It is therefore suggested that the

32

M. Pudelko and A.-W. Harzing

data set provides useful information on HRM in Japan, the USA, and Germany. More information on responses and response rates can be taken from the top main row of Table 3.1. Description of HRM models Before approaching the question of how Japanese (and in comparison, American and German) HR managers perceive other HRM models in order to potentially seek inspirations from them, it seemed relevant to investigate first how the managers defined their own respective national model. Only from an understanding of how managers perceive both their own practices and those of others can suggestions be developed of how the mutual learning and adoption process might be improved. In order to gain information about the perceived attributes of each HRM model, and make a direct comparison possible, a series of 20 pairs of opposing statements was developed across seven HRM categories. Respondents were asked to indicate, for each of these pairs, on a six-point bipolar scale the practices they believed best characterized the human resource practices (found throughout all hierarchical Table 3.1 Responses and response rates Companies

Country of origin

Headquarters USA

Subsidiaries in Japan

Subsidiaries in the USA

Response rate

18

57

12%

JPN

500

8

68

14%

GER

500

2

107

21%

1,500

28

232

16%

USA

250

27

54

24%

JPN

250

19

82

35%

Subtotal

500

46

136

30%

0

36

49%

USA

74*

GER

250

23

85

37%

Subtotal

324

23

121

40%

GER

500

62

151

34%

JPN

600

57

209

38%

1,100

119

360

37%

3,424

216

849

26%

Subtotal Total

Returned responses

500

Subtotal Subsidiaries in Germany

Questionnaires Returned mailed undeliverable

Note: * For American subsidiaries in Japan only those companies that agreed to be approached by the researchers were contacted. This explains both the small number of questionnaires sent out and the relatively high response rate.

Japanese human resource management

33

levels) in their country. As the data are considered to be interval scale, arithmetic means for the responses from each country could be given and statistically compared with one another. The 20 pairs of opposing statements were formulated in a way which covers a comprehensive spectrum of possibilities within an HRM system. They constitute a synopsis of 133 opposing statements that were previously generated on the basis of the relevant literature in order to summarize the most relevant aspects of the reviewed literature on Japanese, American, and German HRM (Pudelko 2006). Space constraints prevent us from providing supporting citations for each of the 20 opposing statements. However, the following texts are representative of the publications used to construct the questionnaires items. For Japan: Yoshimura and Anderson (1997), Ornatowski (1998), Dalton and Benson (2002), and Matanle (2003); for the USA: Kalleberg et al. (1996), Kochan (1996), Ichniowski et al. (2000), and Strauss (2001); and for Germany: Wever (1995), Müller (1999), Streeck (2001), and Wächter and Muller-Camen (2002). Our use of content-oriented scale anchors and an even-numbered scale avoids the acquiescence response effect often found in scales expressing agreement and the medium response effect common to scales with a distinct mid-point. These factors are particularly important for our study, since Japanese respondents have been found to show response effects that differ from those of U.S. respondents (Chen, Lee, and Stevenson 1995, Harzing 2006). The scale anchors were based on an extensive literature review and were designed to cover a comprehensive spectrum of possibilities in between which each of the three HRM models could be situated. Who adopts from whom and when? A central objective of the analysis was to reveal the perceptions HR managers had of the other two HRM models, in order to understand more about past and possible future adoption practices. In order to gather this information, HR managers were asked if they are of the opinion that corporations of their country have “since the 1980s oriented themselves toward, or adopted, particular human resource practices” of the other two countries. In a follow-up question, they were asked whether they hold the view that the companies of their country “should in the upcoming years orient themselves toward, or adopt, particular human resource practices” from the respective other two models. On a six-point Likert scale, going from “strongly agree” to “strongly disagree,” the managers indicated their opinion about these questions. By using an even-numbered scale we avoided the medium response effect, a problem that surveys with an odd-numbered scale in particular in Japan are frequently confronted with. Again, arithmetic means for the responses from each country were computed. While these two questions do not provide longitudinal data in the strict sense, we argue that they still provide a good indication of changes over time.

34

M. Pudelko and A.-W. Harzing

Who adopts what from whom? Finally, a more disaggregated analysis was undertaken of the specific aspects of HRM systems that managers had emulated, or contemplated emulating. The focus here was especially upon the attributes of the Japanese HRM model that American and German HR managers consider worth adopting, and the attributes of American HRM that the Japanese and Germans consider worth adopting. Responses were analyzed by means of simple summation of attributes mentioned in response to open-ended questions in the survey of what the managers intended to learn from the Japanese or American HR models. Inter-country comparisons were drawn by comparing these figures. Finally, a series of follow-up interviews with HR managers of Japanese companies in Japan, the USA, and Germany was conducted to clarify aspects of responses. Results Description of HRM models The results revealed that according to the HR managers’ own evaluations Japan, the USA, and Germany have HRM models that clearly differ from each other. More specifically, according to the means, it was noticeable that in 16 out of 20 scales Japan and the USA were closer to the opposite poles – with typical Japanese practices closely situated to the anchors on the right-hand side of Figure 3.1 and typical American practices closely situated to the anchors on the left-hand side – while typical German practices were found in between. In a pair-wise consideration between the USA and Japan in all of these 16 statements, the differences proved to be statistically different. The corresponding figures for Germany and Japan and for Germany and the USA were 12 and 6, respectively. Based on the HR managers’ evaluations of their own respective HRM model, one can therefore conclude that the American and the Japanese HRM models are clearly opposing each other and the German model resembles the American one more than the Japanese one. More details on the statistical significance of differences can be taken from Table 3.2. Who adopts from whom and when? The Japanese, American, and German HR managers were asked if they believed that since the 1980s companies from their countries either had oriented themselves toward particular HRM practices of firms of the other two countries or should do so in the upcoming years. The smaller the mean in Table 3.3, the more the respondents agreed with the observation that companies of their own country have oriented themselves in the past or should orient themselves in the future toward foreign HRM practices. The results suggest that Japanese companies are orienting themselves significantly

1. Recruitment and release of personnel − finding the best qualified candidate (from within the company or externally) for a predefined position (job-oriented) − selection based on performance and expertise in a given area − high labour turnover (low degree of loyalty between employer and employee)

USA GER JNP 2.68 2.70 4.74

2.51 2.70 4.90 2.96 4.63 4.97

− recruitment of new graduates to a permanent employer-employee-relationship; more senior positions are filled exclusively using internal personnel (people-oriented) − selection based on inter-personal skills − low labour turnover (high degree of loyalty between employer and employee)

2. Training and development provided by the company − training focused on specific knowledge for narrowly defined tasks (goal: to create a specialist) − tendency to be limited and focused on the individual − little effort to mould the employee in accordance with the company’s culture

3.35 3.50 4.00 3.19 3.52 4.34 4.11 3.56 3.87

3. Employee assessment and promotion criteria − heavy weight on individual achievements 2.09 2.48 3.03 − primarily formal, quantifiable promotion criteria (results-oriented) − career path usually confined to one department or area

3.07 3.01 3.10 3.25 3.49 4.25

− widespread training for broadly defined tasks (goal: to create a generalist) − tendency to be extensive and focused the work group − much effort to mould the employee in accordance with the company’s culture

− heavy weight on seniority and contribution to collective achievements − primarily informal, non-quantifiable promotion criteria (behaviour-oriented) − career path encompassing several departments and areas

4. Employee incentives − primarily material incentives

2.84 3.08 3.15

− a mix of material and immaterial incentives

− pay depends on individual performance

2.30 2.76 3.04

− pay depends on seniority

− very large difference in pay between top managers and average workers (more than 100 fold)

1.98 3.61 5.59

− little difference in pay between top managers and average workers (less than 20 fold)

5. Communication within the company − coordination primarily through vertical communication − brief, highly structured, and efficient communication

2.61 3.09 3.13 3.31 3.39 3.63

− coordination primarily through horizontal communication − detailed extensive communication, also in order to promote a harmonious work environment

6. Decision-making within the company − top-down decision-making − authoritative, individual decision-making behaviour where conflict is accepted − tendency to base decisions on quantitative variables (‘hard facts’)

2.49 2.21 2.97 3.46 3.22 4.31 2.50 2.75 3.74

− bottom-up decision-making − participative, collective, and consensusoriented decision-making behaviour − tendency to base decisions on qualitative variables (‘soft facts’)

7. Superior–subordinate relationship − task-oriented

2.72 3.24 4.18

− person-oriented

− characterised by regulations

3.40 3.41 3.76

− characterised by common values

− superior is concerned only with the performance of the subordinate

3.28 3.51 4.35

− superior is also concerned with the well-being of the subordinate

Figure 3.1 HR managers’ assessment of the main characteristics of their own HRM system

Table 3.2 HR managers’ assessment of the main characteristics of their own HRM system (significance analysis) Question

USA

GER

JPN

USA= GER

1.1

2.67

2.68

4.74

0.00

106.83***

78.80***

123.04***

0.17

0.12

0.16

2.51

2.70

4.90

1.46

213.63***

188.42***

263.70***

0.13

0.09

0.12

2.91

4.59

4.97

84.76***

4.91

106.52***

121.02***

0.15

0.11

0.13

3.35

3.43

3.94

0.14

6.53**

6.49**

8.53**

0.17

0.12

0.16

3.02

3.36

4.28

2.44

20.48***

28.47***

32.51***

0.17

0.13

0.16

3.96

3.46

3.81

5.60**

3.00*

0.44

6.46**

0.17

0.13

0.16

2.09

2.41

3.03

3.45*

14.08***

24.37***

26.19***

0.14

0.10

0.13

3.07

2.98

3.06

0.18

0.15

0.00

0.25

0.17

0.12

0.15

3.25

3.39

4.19

0.47

15.55***

16.25***

20.82***

0.17

0.13

0.16

2.79

3.06

3.15

1.31

0.00

1.12

1.53

0.19

0.14

0.17

2.26

2.74

3.04

7.05***

3.27*

15.89***

16.01***

0.14

0.11

0.13

1.98

3.48

5.59

37.71***

84.21***

183.13***

188.85***

0.20

0.14

0.18

2.61

3.07

3.13

6.20**

0.15

6.82***

8.17***

0.15

0.11

0.13

3.19

3.39

3.57

1.16

1.06

3.51*

3.51

0.15

0.11

0.14

1.2

1.3

2.1

2.2

2.3

3.1

3.2

3.3

4.1

4.2

4.3

5.1

5.2

GER= JPN

USA= JPN

USA=GER= JPN

(continued)

Japanese human resource management Question

USA

GER

JPN

USA= GER

6.1

2.49

2.21

2.97

3.38*

28.28***

8.49***

28.29***

0.12

0.09

0.11

3.46

3.16

4.31

2.78*

46.47***

19.05***

47.28***

0.14

0.11

0.13

2.46

2.64

3.74

1.15

42.90***

44.03***

56.90***

0.14

0.10

0.13

2.72

3.18

4.18

7.07***

37.55***

59.59***

65.43***

0.14

0.10

0.13

3.30

3.41

3.71

0.37

2.83*

4.04**

4.58

0.15

0.11

0.14

3.28

3.48

4.35

1.31

29.28***

32.69***

40.62***

0.14

0.10

0.13

6.2

6.3

7.1

7.2

7.3

GER= JPN

USA= JPN

37

USA=GER= JPN

Note: *** ** , , and * indicate statistical significance at the levels of 1%, 5%, and 10%, respectively.

more toward American than toward German practices. Considering also the comparative data about the orientation of American companies toward Japanese and German HRM practices and of German companies toward Japanese and American HRM practices, the following observation is the most remarkable: no country is orienting itself so intensely toward another country model as Japan is toward the American model, both with regard to the past and even more so with regard to the future. This result is a strong indication of the degree to which Japanese respondents consider their own HRM model in need of change and requiring inspiration from abroad, particularly from the USA. It is noticeable that this judgment is mirrored by American and German managers who were also significantly more skeptical about Japanese HRM practices as a source of inspiration for the future compared to the past. Consequently, Japanese, American, and German HR experts seem to all agree that Japanese HRM has significantly decreased in attractiveness. Further findings reinforce this conclusion. The HR managers were also asked by means of open-ended questions to indicate concrete attributes of the other two HRM systems which they consider worth adopting in their own system (again for the two time periods “since the 1980s” as well as “in the upcoming years”). Discussion of the named attributes is set out shortly, but what is of interest here is that from the total number of 495 items raised by the HR experts of the three countries, 353 apply to the USA, 131 to Japan and only 11 to Germany. This again indicates that American HRM is perceived as most attractive, with Japanese HRM far less appealing, and German HRM the least desirable by a wide margin. Furthermore, with regard to Japanese HRM, it is interesting to note that the number

38

M. Pudelko and A.-W. Harzing

Table 3.3 Orientation/adaptation toward aspects from other country models Mean

Mean

F-value

Japan orienting itself in the past toward USA

3.03

Japan orienting itself in the 5.14 past toward Germany

133.02 ***

Japan orienting itself in the future toward USA

2.80

Japan orienting itself in the 4.42 future toward Germany

71.33 ***

USA orienting itself in the 4.14 past toward Japan

USA orienting itself in the past toward Germany

5.07

17.83 ***

USA orienting itself in the 4.57 future toward Japan

USA orienting itself in the future toward Germany

4.93

3.39 *

Germany orienting itself in the past toward Japan

3.98

Germany orienting itself in 3.34 the past toward USA

14.88 ***

Germany orienting itself 4.25 in the future toward Japan

Germany orienting itself in 3.71 the future toward USA

11.50 ***

Note: *** ** , , and * indicate statistical significance at the levels of 1%, 5%, and 10%, respectively.

of those items referring to the orientation toward the Japanese model in the future (27) compared to those for the past (104) decreased substantially. This indicates again the degree to which Japanese HRM fell in the appreciation of the American and German HR experts. Who adopts what from whom? It is now of interest to see which concrete attributes of the American and German HRM the Japanese consider worth adopting and, in comparison, which attributes of the Japanese HRM model the American and German HR managers consider worth adopting.4 With regard to the adoption of American HRM practices by Japanese companies (Table 3.4, left part), 169 items were mentioned (102 for the past, 67 for the future). It should be noted here that the rather comprehensive attribute “due to globalization and liberalization adoption of American management is unavoidable” was given just once for the past but eight times for the future. This increase is a further indication of a desired major change of Japanese management. A reorientation in Japanese HRM can also be deduced from the mention of the following closely related attributes: “performance orientation” (30), “result and objective orientation” (18), “performance and results-oriented remuneration” (11), and “turning away from the seniority principle” (7). Indeed, the performance, result, and objective orientation as well as the resulting decline of the seniority principle is by far the most commonly mentioned set of attributes of American HRM, from which Japanese HR managers consider learning. Other characteristics that indicate important shifts are: “Turning away from lifelong employment, i.e. flexibility of recruitment, release of personnel, and change of employer” (15) as well

Table 3.4 Adoption from American HRM JPN Attributes (ordered by HRM categories)

GER

Sum of Past Future Total Past Future Total totals

Strategies

7

15

22

21

28

49

71

due to globalization and liberalization adoption of American management is unavoidable

1

8

9

0

0

0

9

stronger consideration of market outcomes

1

2

3

1

0

1

4

mergers, acquisitions, and selling of company divisions

1

2

3

0

0

0

3

profit orientation and shareholder value

2

0

2

9

1

10

12

flexibility, promptness, and mobility

0

0

0

1

16

17

17

globalization

0

3

3

1

4

5

8

customer and service orientation

0

0

0

4

0

4

4

management and strategy orientation

1

0

1

3

1

4

5

others

1

0

1

2

6

8

9

Structures

2

1

3

5

7

12

15

flat, decentralized organizational structures

2

1

3

5

6

11

14

others

0

0

0

0

1

1

1

Processes

4

0

4

8

2

10

14

restructuring

2

0

2

0

0

0

2

project, process, and change management

1

0

1

3

1

4

5

total quality management

1

0

1

3

0

3

4

others

0

0

0

2

1

3

3

13

10

23

4

0

4

27

8

7

15

0

0

0

15

Recruitment and release of personnel turning away from lifelong employment, i.e. flexibility of recruitment, release of personnel, and change of employer

(continued)

JPN Attributes (ordered by HRM categories)

GER

Sum of Past Future Total Past Future Total totals

recruitment of experienced specialists for specifically advertised positions

2

3

5

1

0

1

6

managers are externally recruited and can also be laid off again more easily

3

0

3

2

0

2

5

others

0

0

0

1

0

1

1

Training and development

4

3

7

6

1

7

14

increased formation of specialists and turning away from the formation of generalists

4

3

7

0

0

0

7

job rotation

0

0

0

4

0

4

4

others

0

0

0

2

1

3

3

Employee assessment and promotion criteria

36

21

57

13

6

19

76

performance orientation

15

15

30

7

3

10

40

result and objective orientation

14

4

18

0

1

1

19

turning away from the seniority principle

6

1

7

0

0

0

7

development of human resources

0

0

0

5

1

6

6

others

1

1

2

1

1

2

4

23

12

35

21

18

39

74

performance- and results-oriented remuneration

4

7

11

9

8

17

28

position-based remuneration

7

3

10

0

0

0

10

remuneration on annual instead of monthly basis

8

1

9

0

0

0

9

more individuality, flexibility, and variability concerning remuneration

3

1

4

6

6

12

16

others

1

0

1

6

4

10

11

Communication

1

1

2

6

5

11

13

efficiency-oriented relations

1

1

2

0

0

0

2

Employee incentives

(continued)

Japanese human resource management JPN Attributes (ordered by HRM categories)

GER

Sum of Past Future Total Past Future Total totals

open and relaxed communication

0

0

0

3

2

5

5

others

0

0

0

3

3

6

6

10

2

12

2

3

5

17

autonomy

7

0

7

0

0

0

7

promptness and stringency

0

1

1

2

2

4

5

others

3

1

4

0

1

1

5

Superior–subordinate relationship

2

2

4

18

10

28

32

leadership

1

1

2

0

0

0

2

participative leadership and teamwork

0

0

0

6

7

13

13

management by objectives

1

0

1

9

0

9

10

others

0

1

1

3

3

6

7

102

67

169

104

80

184

353

Decision-making

Across all categories

41

as “increased formation of specialists and turning away from the formation of generalists” (7), referring to the decline in lifelong employment and the formation of generalists. Additional stated attributes are: “position based remuneration” (10), “remuneration on annual instead of monthly basis” (9), “autonomy” (7), “recruitment of experienced specialists for specifically advertised positions” (5), “stronger consideration of market outcomes” (3), “mergers, acquisitions, and selling of company divisions” (3), “globalization” (3), “flat, decentralized organizational structures” (3), “managers are externally recruited and can be laid off again more easily” (3), “profit orientation and shareholder value” (2), “restructuring” (2), “efficiency-oriented relations” (2), and “leadership” (2). Data for the adoption of American HRM practices by German companies (Table 3.4, right part) are not discussed here in detail, as they do not concern the question of main interest here – what Japanese learn from the USA and Germany and what Americans and Germans learn from Japan. Nevertheless, it should be stated that from the total of 184 items raised (104 regarding the past, 80 the future) about what the Germans want to adopt from American companies, the largest amount (57 in total) concern a higher degree of flexibility, promptness, mobility, individuality, performance, and results orientation. The quest for more flexibility is more pronounced with regard to the future (16) as opposed to the past (1). With regard to the adoption of Japanese HRM practices by American companies (Table 3.5, left part), two issues are to be emphasized: first, the low number of attributes of the Japanese HRM which the American HR managers consider

42

M. Pudelko and A.-W. Harzing

worth adopting (21 in total); and, second, the large decrease of items referring to the future (4) as opposed to the past (17). The main attributes mentioned included “team orientation” (4), “participative and bottom-up decision-making” (3), “quality orientation and total quality management” (3), “kaizen, i.e. continuous improvement” (2), and “loyalty toward and identification with the company” (2). Regarding the adoption of Japanese HRM practices by German companies (Table 3.5, right part), many more items have been given (110 in total) than was the case for the orientation of American firms toward Japanese ones. As with the Americans, the German respondents are looking less to the future (23 items) than to the past (87). Unsurprisingly, “team orientation” is (as with the Americans) the attribute that was mentioned most often. However, it decreases in importance from 18 in the past to 5 in the future. “Kaizen, i.e. continuous improvement” similarly drops from 19 in the past to 2 in the future, “quality orientation and total quality management” from 12 to 1, “cost calculation” from 8 to 0, and “kanban, i.e. justin-time production” as well as “quality circles” from 4 to 0. Other characteristics mentioned were “corporate culture” (7), “participative and bottom-up decisionmaking” (6), “value orientation” (5), “loyalty toward and identification with the company” (3), and the “training of socially competent generalists” (3). Due to the small number of items raised regarding adoption from Germany, no extra table is included here. With regard to the adoption of German HRM practices by Japanese companies (only 1 item raised for the past and 10 for the future), just the “division of job positions in order to avoid lay-offs” (2) is worth mentioning. Finally, regarding the adoption of German HRM practices by American companies, not one single attribute was mentioned by American respondents, concerning either the past or the future. Discussion With regard to the adoption of aspects of the American HRM by Japanese companies, it is notable that the largest amount of items the Japanese managers raise are concerned with the decline of the seniority principle: “performance orientation” (by far the most often cited attribute by the Japanese), “result and objective orientation,” “performance and results-oriented remuneration,” and “turning away from the seniority principle.” These statements again reflect a significant reversal in the priority setting of Japanese HRM. In addition to the seniority principle, lifelong employment, and the formation of generalists have often been regarded as key elements of the traditional Japanese HRM. The items raised suggest that these two fundamental principles are also considerably on the wane. This is indicated by the attributes “turning away from lifelong employment, i.e. flexibility of recruitment, release of personnel, and change of employer,” “recruitment of experienced specialists for specifically advertised positions,” “managers are externally recruited and can be laid off again more easily” as well as “increased formation of specialists and turning away from the formation of generalists.” The movement away from these essential components of the Japanese HRM model illustrates the degree to which Japanese HRM is in upheaval. The previously mentioned attribute “due to

Table 3.5 Adoption from Japanese HRM USA

GER

Attributes (ordered by HRM categories)

Sum of Past Future Total Past Future Total totals

Strategies

1

0

1

4

0

4

5

strategic planning

1

0

1

0

0

0

1

lean management

0

0

0

2

0

2

2

others

0

0

0

2

0

2

2

Structures

2

0

2

1

0

1

3

organizational development

2

0

2

0

0

0

2

others

0

0

0

1

0

1

1

Processes

6

1

7

49

4

53

60

quality orientation and total quality management

3

0

3

12

1

13

16

quality circles

0

0

0

4

0

4

4

kaizen, i.e. continuous improvement

1

1

2

19

2

21

23

kanban, i.e. just-in-timeproduction

0

0

0

4

0

4

4

cost calculation

0

0

0

8

0

8

8

others

2

0

2

2

1

3

5

Recruitment and release of personnel

0

0

0

1

0

1

1

job security

0

0

0

1

0

0

1

Training and development

0

0

0

3

1

4

4

training of socially competent generalists

0

0

0

3

0

3

3

others

0

0

0

0

1

1

1

Employee assessment and promotion criteria

1

0

1

2

0

2

3

group orientation

1

0

1

1

0

1

2

others

0

0

0

1

0

1

1

Employee incentives

1

2

3

6

9

15

18

loyalty toward and identification with the company

0

2

2

1

2

3

5 (continued)

44

M. Pudelko and A.-W. Harzing USA

Attributes (ordered by HRM categories)

GER

Sum of Past Future Total Past Future Total totals

value orientation

1

0

1

1

4

5

6

corporate culture

0

0

0

4

3

7

7

Communication

0

0

0

0

0

0

0

Decision-making

3

0

3

3

4

7

10

participative and bottom-up decision-making

3

0

3

2

4

6

9

consideration of soft facts

0

0

0

1

0

1

1

Superior–subordinate relationship

3

1

4

18

5

23

27

team orientation

3

1

4

18

5

23

27

17

4

21

87

23

110

131

Across all categories

globalization and liberalization adoption of American management is unavoidable” is a further strong indication of a paradigm shift. In comparison, the attributes of the American HRM practices mentioned by the German HR managers as worth adopting seem to be far less “fundamental,” indicating a lesser need for major change. Therefore, despite the willingness to adopt certain characteristics of the American HRM model, there is no empirical evidence for a paradigm shift of German HRM. This clearly distinguishes the situation in Germany from that in Japan. Concerning the adoption of Japanese HRM practices by American and German companies, it is surprising how low the resonance of Japanese HRM is with the American HR managers. In view of the considerable discussion of Japanese management in the USA, one might have expected, in particular with regard to the past, a more pronounced influence of Japanese HRM on American firms (e.g. team orientation, more intensive training of workers, participative decision-making). Perhaps the stimulus of Japanese management was more evident with respect to production methods than HRM. Indeed, it is interesting to note that more than half of all items given by the American and German HR managers about Japanese practices address HRM only indirectly. They focus instead on practices that have been subsumed here under the term management processes (e.g. “kaizen, i.e. continuous improvement,” “quality orientation and total quality management,” “quality circles,” “kanban, i.e. just-in-time-production”). The large number of items raised in the context of these management processes suggests that this constitutes the main area of Japanese management that is considered in the West a valuable source from which to learn (see also Itagaki 2002). However, there is a significant decrease of 55 in the past to only 5 items in the future that have been subsumed here under the management processes label. Nevertheless, it is noteworthy that both Americans and Germans associate the

Japanese human resource management

45

advantages of the Japanese model more with incremental “fine-tuning” activities or processes. Japanese and Germans, on the other hand, consider the strengths of the Americans in more fundamental areas that have been subsumed here under the term management strategies (“mergers and acquisitions and selling of company divisions,” “globalization,” “management and strategy orientation,” “profit orientation and shareholder value”). Several reasons for the declining importance attached to key attributes of the Japanese model (kaizen, kanban, total quality management, quality circles, teamwork) may be suggested. It is possible that these attributes have already been adopted to some degree over the last few years by American and German HRM, and will, as a result, be less significant in the future as sources for orientation. There is the possibility, too, that the changing competitive environment has played a part. Fundamental developments such as globalization might require equally substantial responses from companies to maintain competitiveness. Hence, broader-based strategic responses, perceived by respondents as a particular strength of the American management, have become relatively more important; in turn, process-based incremental improvements, regarded by respondents as a strong point of the Japanese management, lose relatively in their significance. Finally, the crisis of the Japanese economy, the Japanese management model and Japanese HRM practices may have negatively influenced the regard held even for those aspects of Japanese HRM which might perhaps still be worth serving as sources of inspiration. In short, the data suggest that only Japan has a distinct desire to change its own HRM model in a rather comprehensive way and to adopt foreign practices in a substantial manner. This may be described as a paradigm shift, one that appears to equate to a shift toward Western, in particular American, management concepts. Follow-up The results of a series of follow-up interviews to this study with HR managers of Japanese companies in Japan, the USA, and Germany, as well as HR managers of American and German subsidiaries in Japan, lend qualified support to the notion of a paradigm shift. Sentences which were commonly uttered included: “Lifelong employment is dead,” “We need to be more performance oriented,” “We look much more to individual performance,” and “We look to the USA for orientation.” However, this move away from traditional Japanese HR practices and redirection toward Western techniques should, according to the interviewees, not be equated with wholesale abandonment of traditional approaches. Instead, what is chiefly expected is rather a hybrid approach and it is difficult at this stage to predict where the new equilibrium between traditional practices and Western methods will lie.

Analysis at subsidiary level Our study provides a perfectly balanced and controlled sample that includes not only headquarters in each of the three countries but also all subsidiary combinations. As a result, we were able to compare the HRM practices of nine different

46

M. Pudelko and A.-W. Harzing

groups of companies: headquarters in the USA, Japan, and Germany, subsidiaries of Japanese and German MNCs in the USA, subsidiaries of American and German MNCs in Japan, and subsidiaries of American and Japanese MNCs in Germany. Methods Data collection and sample Data from the subsidiaries were collected through an extensive mail survey in 2001–03. Again, questionnaires were sent to the heads of the HR departments. For each of the six groups of subsidiaries we provided two questionnaires, one in the home country language and one in the host country language. In order to secure consistency among the English, Japanese, and German versions, translation and back-translation procedures were used. A total of 617 HR managers participated in the subsidiary surveys. Consequently, taking the 232 participants of the HQ survey and the 617 participants of the subsidiary survey together, this study is based on responses from 849 HR managers. More detailed information on the number of respondents and the response rates for the subsidiary surveys are presented in Table 3.1. The lower response rates for the HQ compared to the subsidiaries reflect the fact that the top 500 companies of the three major economies in the world are very frequently targeted by surveys like ours (Harzing 1997). In order to test non-response bias, we compared responding and non-responding firms on size (number of employees) and industry. No significant differences were found on these variables. We therefore are reasonably confident that non-response bias is not a problem in our study. Our sample included a large variety of industries, both in manufacturing and in services. The overall median subsidiary size was 86 employees. Most of the subsidiaries (83 percent) were greenfields. We compared results by sector (manufacturing versus services), both for the overall sample and by country. Neither of these comparisons produced significant differences in terms of HRM practices. A correlation analysis between size and HRM practices produced a very weakly significant result. Differentiating by home country showed that for both Japanese and American MNCs, larger subsidiaries are more likely to follow home country practices. This result may reflect the strategic importance of larger subsidiaries. Finally, we compared HRM practices between greenfields and acquisitions, both for the overall sample and for each of the six subsidiary samples. In none of these samples did differences in HRM practices between greenfields and acquisitions attain statistical significance. Description of HRM models Respondents at subsidiary level were presented with the same set of six-point bipolar scales as the HQ respondents. However, for the subsidiaries we only considered for this analysis the scales referring to the HRM areas in the stricter sense (recruitment and release of personnel; training and development; employee assessment

Japanese human resource management

47

and promotion criteria; and employee incentives), while not considering the more organizational behavior-related scales (communication; decision-making; and subsidiary–subordinate relations). Again, respondents were asked to indicate, for each of these opposing statements, the practices they believed best characterized the human resource practices (found throughout all hierarchical levels) in their subsidiary. For each of the six groups of subsidiaries, an ANOVA analysis subsequently compared the mean scores of the subsidiary HRM practices with the HRM practices of the home and host country (as measured at HQ) across all four HRM areas listed above. The Cronbach reliability coefficient for this 12-item scale was α = 0.77. If a subsidiary’s mean score was not significantly different from the home country mean score, but was significantly different from the host country mean score, we assumed the presence of a country-of-origin effect, i.e. subsidiaries were aligning their HRM practices toward the management practices representative of the home country. If, on the other hand, a subsidiary’s mean score was not significantly different from the host country mean score, but significantly different from the home country mean score, a localization effect would be present, i.e. subsidiaries were aligning their HRM practices toward the management practices representative of their host country. Similarities of HRM practices to home or host country management practices over time To obtain a better understanding of trends with regard to seeking inspiration from other countries over time, we also asked respondents to indicate on a fivepoint scale whether their subsidiary’s HRM practices were more similar to home country practices or to host country practices. This question was repeated for the present, the past, and the future. Whereas this study design cannot be considered to be longitudinal in the strict sense, it does provide us with some indications of changes over time. Ultimately, several follow-up interviews with subsidiary HR managers in Japan, the USA, and Germany were conducted to discuss specific aspects of the survey responses in more detail. Results Description of HRM models When comparing HRM practices in subsidiaries with those in home and host countries, we assumed that subsidiary practices should form a kind of combination model that is located “in between” the respective home and host country models. Our main interest was to understand if there were country-specific patterns, with subsidiaries from one country adopting more home country practices (countryof-origin effect) and subsidiaries from other countries more often adopting host country practices (localization). Table 3.6 provides the results.

48

M. Pudelko and A.-W. Harzing

Table 3.6 Subsidiary, home, and host country means Home country mean

Subsidiary mean

Host country mean F-value

American subsidiaries in Japan

2.87

3.22

4.09

55.801 ***

American subsidiaries in Germany

2.87

3.08

3.25

8.211 ***

Japanese subsidiaries in the USA

4.09

2.74

2.87

94.300 ***

Japanese subsidiaries in Germany

4.09

2.89

3.25

52.871 ***

German subsidiaries in the USA

3.25

2.96

2.87

11.205 ***

German subsidiaries in Japan

3.25

2.73

4.09

70.381 ***

Subsidiary location

Note: *** ** , , and * indicate statistical significance at the levels of 1%, 5%, and 10%, respectively.

To our considerable surprise, our assumption of subsidiary practices being a kind of combination model of home and host country models, which for us had much face value, turned out to be incorrect. Instead of locating themselves “in between” home and host country, it became evident that subsidiaries frequently followed the American model, even, for example, Japanese subsidiaries in Germany and German subsidiaries in Japan. While this result was at first very surprising to us, we subsequently interpreted this outcome as yet another indication of the strong attractiveness of the American model, in particular to Japanese but also to German firms. This interpretation only confirms what we already had concluded from our HQ data. Given this apparent dominance of the American model on the subsidiary level, we labeled this phenomenon the dominance effect. In more technical terms, if a subsidiary’s mean score was significantly different from the home country mean score, but not significantly different from the mean score of American practices, we defined this as a dominance effect. More specifically, our results indicate that a clear dominance effect is present in two cases: Japanese subsidiaries in Germany and German subsidiaries in Japan. In both cases, subsidiaries resemble neither home nor host country, but instead follow American practices. For Japanese subsidiaries in the USA, we can only conclude that they follow American practices, but we cannot establish whether this pattern is caused by a dominance or localization effect. The same is true for German subsidiaries in the USA, although differences here are smaller than for Japanese subsidiaries. American MNCs show a combination of localization and country-oforigin/dominance effects.5 In Japan, the HRM practices of American subsidiaries are in between parent and host country practices and significantly different from both, but are closer to home country practices. In Germany, HRM practices of

Japanese human resource management

49

Table 3.7 Country-of-origin, localization, and dominance effects Significant differences Country-ofSubsidiary location at p < 0.05 origin effect?

Localization Dominance effect? effect?

American subsidiaries in Japan

Home country < subsidiary < host country

Partial

Partial

Partial

American subsidiaries in Germany

Home country < host country & subsidiary

No

Yes

No

Japanese subsidiaries in the USA

Subsidiary & host country < home country

No

Yes

Yes

Japanese subsidiaries in Germany

U.S. & subsidiary < host country < home country

No

No

Yes

German subsidiaries in the USA

Host country & subsidiary < home country

No

Yes

Yes

German subsidiaries in Japan

U.S. & subsidiary < home country < host country

No

No

Yes

American subsidiaries also lie between parent and host country practices, but are closer to (and not significantly different from) host country practices. Overall, we therefore find that while all three effects are present in our sample, the dominance effect appears stronger than the localization and country-of-origin effect. Table 3.7 and Figure 3.2 summarize these findings. To summarize this results section, in the only two cases where a dominance effect could be tested unambiguously (Japanese subsidiaries in Germany and German subsidiaries in Japan), this effect was indeed present. In two other cases (German and Japanese subsidiaries in the USA), a movement toward dominant American practices was apparent, but as the host country location was the USA, we could not establish whether this was a localization or a dominance effect. The only two cases in which a dominance effect was not present were American subsidiaries in Germany and Japan that at least partially localize their practices rather than fully transfer their dominant home country practices. However, as we will see below, even these subsidiaries are expected to reduce their localization in the future. Similarities of HRM practices to home or host country management practices over time While comparing the various subsidiary and HQ HRM models we discovered that the dominance effect, i.e. the adaptation of Japanese and German subsidiaries, irrespective of the host country location, toward American practices was

USA USA in JPN Expected move for country-of-origin effect Expected movement for dominance Expected movement for localization Real movement USA in GER Expected move for country-of-origin effect Expected movement for dominance Expected movement for localization Real movement

Japan JPN in USA Expected move for country-of-origin effect

2.87 USA HQ

3.08 3.22 3.25 GER HQ

4.09 JPN HQ

Expected movement for dominance Expected movement for localization Real movement JPN in GER Expected move for country-of-origin effect Expected movement for dominance Expected movement for localization Real movement

2.74 2.87 2.89 USA HQ

3.25 GER HQ

4.09 JPN HQ

2.73 2.87 2.96 USA HQ

3.25 GER HQ

4.09 JPN HQ

Germany GER in USA Expected move for country-of-origin effect Expected movement for dominance Expected movement for localization Real movement GER in JPN Expected move for country-of-origin effect Expected movement for dominance Expected movement for localization Real movement

Figure 3.2 Country-of-origin, localization, and dominance effects by home country

Japanese human resource management

51

the strongest. If the dominance effect increased now over time, we would expect Japanese and German subsidiaries in the USA to show an increasing resemblance to local practices, while American subsidiaries in both Japan and Germany would show a decreasing resemblance to local practices. As Table 3.8 and Figure 3.3 show, this is exactly what happens. While resemblance to local practices was fairly similar (F = .933) for all four groups in the past, it has diverged in the present (F = 21.998***) and is expected to diverge even more in the future (F = 63.415***). This divergence follows the dominance argument, i.e. more resemblance to local practices for subsidiaries of Japanese and German MNCs in the USA and less resemblance to local practices for American subsidiaries in Japan and Germany. The difference between future and past is highly significant for three of the four groups. Follow-up In the interviews with Japanese managers of Japanese subsidiaries in the USA, most of the respondents agreed that their subsidiaries were following more American than Japanese management practices. Even for the managers themselves it was difficult to assess if this was in the end due more to efforts to adapt to local standards (localization effect) or due to efforts to adapt to perceived global “best practices” (dominance effect).

Discussion The chief aim of this chapter was to investigate whether Japanese managers are seeking inspiration from a foreign HRM model which would assist them in reestablishing competitiveness. Reviewing the HQ data, the results provided several indications of a decline in the regard for Japanese HRM on the part of American, German, and even Japanese HR managers themselves. Furthermore, the data clearly suggested that the Japanese especially view American HRM practices as providing valuable inspiration for improving the domestic model. This conclusion has been strongly reinforced by our subsidiary data. It became evident that subsidiaries of Japanese MNCs have a very clear tendency to abandon their home country practices and move toward American practices. In Germany, this tendency provides a clear indication of dominance, while in the USA it may be interpreted as either dominance or localization. However, given the strong desire of Japanese MNCs, expressed at HQ level, to orient themselves toward American practices, it is likely that the adoption of American practices by Japanese subsidiaries in the USA is motivated by a dominance effect. German subsidiaries also have a clear tendency to adopt American practices. This change is, however, not as dramatic as for Japanese subsidiaries because German practices were closer already to American practices. The behavior of German subsidiaries in Japan shows a clear dominance effect as German subsidiaries appear unwilling to either adapt to the Japanese host practices or transfer German home practices; they instead embrace American practices. While American subsidiaries

4.33

3.22

3.07

German subsidiaries in the USA

Japanese subsidiaries in the USA

3.78

3.15

American subsidiaries 3.45 in Germany

Present

3.06

Past

American subsidiaries 3.32 in Japan

Subsidiary type

4.23

4.45

3.35

2.49

Future

Table 3.8 Extent of adaptation to local practices

.71

1.11

–.30

–.26

Difference present vs. past

.45

.12

.20

–.57

Difference future vs. present

1.16

1.23

–.10

–.83

Difference future vs. past

19.078***

18.553***

.485

–6.648***

Significance of difference future vs. past (t-values)

Japanese human resource management

53

4.4

3.9

3.4

2.9

2.4

Figure 3.3 Extent of adaptation to local practices

are the only ones that show some level of localization, they are also the only ones that engage in some level of transfer of their home country HRM system, especially in Japan, where local HRM practices are substantially different from home country practices. Consequently, our subsidiary data strongly confirm what we already concluded from the HQ data: Japanese managers are actively seeking inspiration from American HRM practices. Japanese subsidiaries might indeed lead the way and, therefore, reverse transfer of HRM practices, from subsidiaries to HQ, might become more important. Some support for this trend was found by Edwards et al. (2005), who reviewed several recent studies that show evidence of “reverse diffusion of employment practices” in both Japanese and German MNCs. We suggest that these findings are of practical relevance not only for the management of Japanese MNCs but also for foreign companies operating in the Japanese market. If Japanese companies themselves increasingly abandon traditional Japanese HRM practices, foreign companies need not attempt to be “more Japanese than the Japanese” and localize HRM practices. Our data for American and in particular German subsidiaries in Japan show that this conclusion increasingly is embraced by foreign companies. However, as Evans, Pucik, and Barsoux (2002: 222) observe, many foreign joint ventures in Japan represent “museums of Japanese management” as they employ obsolete HRM practices that local Japanese companies abandoned a long time ago, but which are still presented to the foreign HQ as the “Japanese” way of managing human resources. Overall, attributes of American HRM practices most valued by the Japanese respondents suggest a move toward stronger individualization of HRM practices (see also Watanabe 2003, Matanle 2003). A higher degree of diversity with regard to the treatment of the employees appears to be the goal, in order to better respond to individual differences in performance, skills, achievements, and the desires of

54

M. Pudelko and A.-W. Harzing

employees. If changes toward increased individualization inspired by Western (or more precisely American) HRM practices can be successfully introduced, then efficiency, competitiveness, and profitability might be enhanced. However, there can be little doubt that individualization of HRM practices implies a considerable clash with traditional Japanese HRM principles. One might also argue that it implies a clash with the underlying culture of Japanese society, known to be more group-oriented than individualistic (see, for example, Abegglen 1958, Hofstede 2001, Dore 2002). Inconsistencies, contradictions, frictions, and frustrations could be the result. Consequently, an almost exclusive focus on the American model might not necessarily be the optimum strategy for Japanese companies. The American model may be considered of value for Japanese corporations insofar as its particular strengths highlight the particular weaknesses of the Japanese system. Consequently, it might serve as an indicator of the direction that needs to be taken. However, the extent to which this direction should be followed will be rather difficult to ascertain from a model that lies in many ways at the opposite end of the spectrum, as suggested from the data represented in Figure 3.1. Accordingly, though individualization constitutes the leitmotiv of attributes that Japanese HR managers are willing to adopt from the American model, one might doubt that the degree of individualization of the Japanese model will ever come close to the American model, or, in fact, that it will ever “surpass” the degree of individualization of the German model. Indeed, this would contradict the cultural ground in which each HRM model is embedded (according to Hofstede’s scores for individualism – as well as uncertainty avoidance and masculinity – Germany is again “in between” those of the USA and Japan). One might argue that aspirations to emulate a management model that lies in many ways at the opposite extreme of own traditional practices were also at the core of the disappointments related to many efforts of American companies in emulating Japanese management techniques in the 1980s. With these experiences in mind, Japanese HR managers should be careful to not repeat similar mistakes. Knowledge of a wider range of models would give Japanese managers the confidence to realize that moving away from their own traditional model which shows increasing weaknesses does not necessarily mean to go from one extreme to another and to copy the details of a system that might be quite unsuited to the Japanese context. Current experience in “in-between” countries such as Germany might possibly offer a more realistic lead in providing fresh ideas on how the quest for greater individualization may be approached, and the extent and ways it may need to be tempered, when the context is one of strong cultural imperatives. This will encourage changes in management practices to be better tailored to the specific Japanese context. Having said this, this paper is far from suggesting that German HRM represents an ideal model that Japan should copy. First, depiction of the German model cannot be confined merely to its placing within a continuum “in between” the other two systems, therefore being somewhat closer to the Japanese model than the American system is. In several respects it has quite distinctive features, including a high

Japanese human resource management

55

degree of labor laws, regulations, contractual agreements with the unions, and participation rights of works councils, all of which limit the managerial discretion of German HR managers in quite distinct ways. Consequently, HRM in Germany has more of an operational orientation, with fewer opportunities to introduce strategic changes than the Japanese or American HRM models (Pieper 1990, Brewster and Holt Larsen 1993). These very specific aspects of the institutional industrial relations environment characterizing the system of co-determination are examples of what Japanese HR managers would certainly not want to adopt. Second, our data from both HQ and in particular subsidiaries made a strong case for the argument that the German model also is in fact moving toward more U.S.-style individualization (see also Streeck 2001), and therefore cannot act as a reform blueprint in any detailed sense. Finally, though Germany is the third largest economy and represents a prime example of a European social market economy and associated HR model, there exists considerable institutional and managerial variation within Continental Europe in the handling of human resources, and there are no strong grounds for favoring the German model over those of other European countries. All that is being argued is that, for Japanese companies, a more balanced or “equilibrated” HRM model might provide a valuable additional source of inspiration on ways toward increased individualization and other desired reforms, instead of relying solely on a model that is in many ways diametrically opposed to traditional Japanese approaches. Furthermore, Western concepts in management might serve as an indicator for the direction of change; however, how to go in this direction, i.e. how to implement change, can only be determined under close consideration of the specific Japanese context. This argument has also been very much emphasized by our interviewees. What is chiefly expected by our respondents is, therefore, rather a hybrid approach, but so far it is difficult to predict where the new equilibrium between traditional practices and Western-inspired methods will lie. And, indeed, the interviews with Japanese managers revealed that what was considered most troublesome to them was that even though there is an overall trend in which direction change goes (and this direction was largely approved), there is still no real consistency in the current situation. While some management practices are changing and others not (or less so), the results lead frequently to inconsistencies and contradictions within the system, only causing frictions within the organizations. The true challenge Japanese management is facing is, therefore, to overcome this transition phase with its frictions and inconsistencies, so that the management model can enter into a new state of stable equilibrium in which it is coherent and consistent in itself and well attuned to the global economic as well as domestic socio-cultural context (see also Pudelko 2009).

Conclusion It has been demonstrated that according to Japanese, American, and German HR managers, the Japanese HRM model has, for several reasons, substantially lost its appeal. In addition, it has been established that American HRM practices are seen

56

M. Pudelko and A.-W. Harzing

by the Japanese HRM experts as their chief source of inspiration. Furthermore, it has been shown that the common feature of those HRM practices that Japanese HR managers perceive as worth adopting from the American model is a move toward increased individualization of HRM. It has also been noted that this goal runs counter to traditional Japanese approaches, thus justifying the notion of a paradigm shift. Based on empirical evidence, this paper argues that, for Japan, the American system may serve as a powerful source of inspiration, highlighting the direction that change has to take. However, in order to establish to what degree to change, more “moderate” or “balanced” approaches (such as, for example, the German one) might provide additional sources of inspiration. In any case, no inspirations from abroad are likely to lead to positive results without taking into full consideration the Japanese socio-cultural context, when it comes to implementing change. Accordingly, the findings cast some doubt on the notion of a “best practice” model in guiding reform processes, if conceived as a single national model. The change process of Japanese HRM continues, unabated. As long as it has not reached a stable equilibrium, it is difficult to pin down. Yet, general directionality can be ascertained and inspiration from Western management certainly plays a key role in determining this directionality.

Acknowledgments Markus Pudelko would like to thank the British Academy and the Carnegie Trust for the Universities of Scotland for granting him multiple research grants which made possible the collection of the subsidiary data in the USA and in Japan.

Notes 1 This chapter is to a substantial degree an integration of two previously published journal articles: Pudelko, M. (2004) “HRM in Japan and the West: what are the lessons to be learnt from each other?”, Asian Business & Management, 3(3): 337–61 and Pudelko, M. and Harzing, A.-W. (2007) “Country-of-Origin, localization or dominance effect? An empirical investigation of HRM practices in foreign subsidiaries”, Human Resource Management, 46(4): 535–59, which received the Ulrich & Lake Award for Excellence in HRM Scholarship for the best publication of the year in Human Resource Management. However, given the specific focus of this chapter on Japan and the changes of its HRM model, partly substantial adaptations and modifications have been made. Furthermore, methodological details and detailed quantitative results have been omitted in this chapter and more focus has been put on the discussion and practical implications of the results. 2 In the literature, it is sometimes debated if one is entitled to speak about a specific “management model” referring to management practices within a given country or if the differences within one country are not at least as significant as differences between various countries. In accordance with a large body of literature (e.g. Thurow 1992, 1996, Garten 1993, Whitley 1992, 2000, Dore 2000) it is assumed here, however, that such differences between countries can be made and that the term “management model” or “HRM model” is, thus, justified. This is in particular so with such different countries as Japan, the USA, and Germany.

Japanese human resource management

57

3 An important exception to this is the rather considerable body of literature on HRM in foreign subsidiaries (e.g. with regard to Japan, Dore 1973, Trevor 1983, Schlunze 2002). But in this case, the focus is more on what can be adopted from one country to another within one multinational company and less what can be adopted between HRM practices of different countries. Having said this, it is recognized that these two questions can overlap as both kinds of adoption processes can inspire and influence each other. The degree to which adoption processes between different country models are actually inspired by learning processes within multinational corporations is a research question that certainly merits more attention. 4 All cited statements about transferable attributes of other HRM models are put in the text into quotation marks as they have been made by the questioned HR managers themselves and are not pre-formulated by the authors. However, for better clarity similar statements of the respondents have been summarized by the authors. In the text, the number of identical items is given in parenthesis. If not stated otherwise, the number refers to the total amount of statements (that is with regard to both the past and the future). In order to systematize the multitude of statements given, they are classified as one of the ten HRM categories depicted in Tables 3.4 and 3.5. The categories in the text are in italics. The categories 4–10 are those HRM areas already introduced in the description of the HRM models (see Figure 3.1). Those categories are preceded by three domains which are not explicitly referring to HRM. However, these domains are included here as a large number of statements raised could not be classified to a specific HRM category, but refer more to general (human resource) management aspects. 5 In the case of American MNCs, the dominance and country-of-origin effect work in the same direction, so we cannot distinguish between the two.

References Abegglen, J. G. (1958) The Japanese Factory: aspects of its social organization, Glencoe: The Free Press. Albert, M. (1991) Capitalisme Contre Capitalisme, Paris: Seuil. Aoki, M., Jackson, G. and Miyajima, H. (eds.) (2007) Corporate Governance in Japan: institutional change and organizational diversity, Oxford: Oxford University Press. Ballon, R. J. (2002) “Human Resource Management and Japan”, Euro Asia Journal of Management, 12(1): 5–20. —— (2006) “Organizational survival”. In: R. Haak and M. Pudelko (eds.) Japanese Management in the Search for a New Balance between Continuity and Change, Houndmills: Palgrave, pp. 55–77. Bartlett, C. A. and Ghoshal, S. (1989) Managing Across Borders: the transnational solution, Boston, MA: Harvard Business School Press. Bleicher, K. (1982) “Japanisches Management im Wettstreit mit westlichen Kulturen”, Zeitschrift Führung + Organisation, 51(7): 444–50. Brewster, C. and Holt Larsen, H. (1993) “Human resource management in Europe: evidence from ten countries”. In: A. Hegewisch and C. Brewster (eds.) European Developments in Human Resource Management, London: Kogan Page, pp. 126–48. Chen, C., Lee, S.-Y. and Stevenson, H. W. (1995) “Response style and cross-cultural comparisons of rating scales among East Asian and North American students”, Psychological Science, 6: 170–5. Crawford, R. J. (1998) Reinterpreting the Japanese Economic Miracle, Cambridge, MA: Harvard University Press. Dalton, N. and Benson, J. (2002) “Innovation and change in Japanese human resource management”, Asia Pacific Journal of Human Resources, 40(3): 345–62.

58

M. Pudelko and A.-W. Harzing

Dore, R. (1973) British Factory – Japanese Factory, Berkeley: University of California Press. —— (2000) Stock Market Capitalism: welfare capitalism. Japan and Germany versus the Anglo-Saxons, Oxford: Oxford University Press. —— (2002) “Will global capitalism be Anglo-Saxon capitalism?” Asian Business & Management, 1(1): 9–18. Edwards, T., Almond, P., Clark, I., Colling, T. and Ferner, A. (2005) “Reverse diffusion in US multinationals: barriers from the American business system”, Journal of Management Studies, 42: 1,261–86. El Kahal, S. (2001) Business in Asia Pacific, Oxford: Oxford University Press. Evans, P., Pucik, V. and Barsoux, J.-L. (2002) The Global Challenge: frameworks for international human resource management, Boston, MA: McGraw Hill. Frenkel, S. (1994) “Pattern of workplace relations in the global corporation: toward convergence?” In: J. Belanger et al. (eds.) Workplace Industrial Relations and the Global Challenge, Ithaca, NY: ILR Press, pp. 210–74. Garten, J. E. (1993) A Cold Peace: America, Japan, Germany, and the struggle for supremacy, New York: Times Books. Hanel, U. (1996) The Cranfield Network on European Human Resource Management: Ergebnisbericht 1995, University report, Technische Universität Dresden, Department of Business Studies and Human Resource Management. Harzing, A. W. K. (1997) “Response rates in international mail surveys: results of a 22 country study”, International Business Review, 6: 641–65. —— (2006) “Response styles in cross-national mail survey research: a 26-country study”, International Journal of Cross-Cultural Management, 6: 243–66. Hilb, M. (1985) Personalpolitik für multinationale Unternehmen. Empfehlung aufgrund einer Vergleichsstudie japanischer, schweizerischer und amerikanischer Firmengruppen, Zürich: Verlag Industrielle Organisation Zürich. Hofstede, G. (2001) Culture’s Consequences: comparing values, behaviors, institutions and organizations across nations, 2nd ed., London: Sage. Horiuchi, A. (1998) “Japan”. In: R. H. McLeod and R. Garnaut (eds.) East Asia in Crisis from Being a Miracle to Needing One?, London: Routledge, pp. 189–206. Ichniowski, C., Levine, D. I., Olson, C. and Strauss, G. (2000) The American Workplace: skills, compensation, and employee involvement, Cambridge: Cambridge University Press. Inohara, H. (1990) Human Resource Development in Japanese Companies, Tokyo: Asian Productivity Organization. Itagaki, H. (2002) “Japanese multinational enterprises: the paradox of high efficiency and low profitability”, Asian Business & Management, 1(1): 101–24. Jacoby, S. (2005) The Embedded Corporation. corporate governance and employment relations in Japan and the United States, Princeton, NJ: Princeton University Press. Kalleberg, A. L., Knoke, D., Marsden, P. V. and Spaeth, J. L. (1996) Organizations in America: analyzing their structures and human resource practices, London: Sage. Kato, T. and Morishima, M. (2003) “The nature, scope and effects of profit sharing in Japan: evidence from new survey data”, International Journal of Human Resource Management, 14: 942–55. Kochan, T. A. (1996) “American corporation as an employer: past, present, and future possibilities”. In: C. Kaysen (ed.), The American Corporation Today: examining the questions of power and efficiency at the century’s end, New York: Oxford University Press, pp. 242–68.

Japanese human resource management

59

Kono, T. and Clegg, S. (2001) Trends in Japanese Management: continuing strengths, current problems and changing priorities, Houndmills: Palgrave. Matanle, P. (2003) Japanese Capitalism and Modernity in a Global Era: re-fabricating lifetime employment relations, London: RoutledgeCurzon. Mueller, F. (1994) “Societal effect, organizational effect and globalization”, Organization Studies, 15: 407–28. Müller, M. (1999) “Unitarism, pluralism, and human resource management in Germany”, Management International Review, special issue 3: 125–44. Ornatowski, G. (1998) “The end of Japanese-style human resource management”, Sloan Management Review, 39(3): 73–84. Ouchi, W. G. (1981) Theory Z: how American business can meet the Japanese challenge, New York: Avon Books. Pascha, W. (ed.) (2004) Systematic Change in the Japanese and German Economies: convergence and differentiation as a dual challenge, London: Routledge. Peters, T. J. and Waterman, R. H. (1982) In Search of Excellence: lessons from America’s best run companies, New York: Warner Books. Pieper, R. (1990) “Introduction”. In R. Pieper (ed.) Human Resource Management: an international comparison, Berlin: de Gruyter, pp. 1–26. Pudelko, M. (2000a–c) Das Personalmanagement in Deutschland, den USA und Japan, (a) vol. 1: Die gesamtgesellschaftlichen Rahmenbedingungen im Wettbewerb der Systeme, (b) vol. 2: Eine systematische und vergleichende Bestandsaufnahme, (c) vol. 3: Wie wir voneinander lernen können, Köln: Saborowski. —— (2005) “Cross-national learning from best practice and the convergence-divergence debate in HRM”, International Journal of Human Resource Management, 16(11): 2,047–76. —— (2006) “A comparison of HRM Systems in the USA, Japan and Germany in their socio-economic context”, Human Resource Management Journal, 16(2): 123–53. —— (2009) “The end of Japanese-Style management?” Long Range Planning, 42(4): 439–62. Pudelko, M. and Mendenhall, M. (2007) “The Japanese management metamorphosis: what western executives need to know about current Japanese management practices”, Organizational Dynamics, 36(3): 274–87. Schaede, U. (2008) Choose and Focus. Japanese business strategies for the 21st century, Ithaca, NY: Cornell University Press. Schlunze, R. D. (2002) “Locational adjustment of Japanese management in Europe”, Asian Business & Management, 1(2): 267–83. Schmitt, M. and Sadowski, D. (2003) “A cost-minimization approach to the international transfer of HRM/IR practices: Anglo-Saxon multinationals in the Federal Republic of Germany”, International Journal of Human Resource Management, 14: 409–30. Smith, C. and Meiksins, P. (1995) “System, society and dominance effects in cross-national organisational analysis”, Work, Employment and Society, 9: 241–67. Smith, P. (1997) Japan: a reinterpretation, New York: Pantheon. Strauss, G. (2001) “HRM in the USA: correcting some British impressions”, International Journal of Human Resource Management, 12: 873–97. Streeck, W. (2001) “High equality, low activity: the contribution of the social welfare system to the stability of the German collective bargaining regime”, Industrial and Labor Relations Review, 54. 698–706. Thurow, L. (1992) Head to Head: the coming economic battle among Japan, Europe, and America, New York: Time Warner.

60

M. Pudelko and A.-W. Harzing

—— (1996) The Future of Capitalism: how today’s economic forces shape tomorrow’s world, New York: Morrow. Trevor, M. (1983) Japan’s Reluctant Multinationals, New York: St Martin’s Press. Vogel, E. F. (1979) Japan as Number One: lessons for America, Cambridge, MA: Harvard University Press. Wächter, H. and Muller-Camen, M. (2002) “Co-determination and strategic integration in German firms”, Human Resource Management Journal, 12: 76–87. Watanabe, T. (2003) “Recent trends in Japanese human resource management: the introduction of a system of individual and independent career choice”, Asian Business & Management, 2(1): 111–41. Wever, K. S. (1995) Negotiating Competitiveness: employment relations and industrial adjustment in the USA and Germany, Boston, MA: Harvard University Press. Whitley, R. (1992) “Societies, firms and markets: the social structuring of business systems”. In: R. Whitley (ed.), European Business Systems: firms and markets in their national contexts, London: Sage, pp. 5–45. —— (2000) Divergent Capitalisms: the social structuring and change of business systems, Oxford: Oxford University Press. Yamamura, K. and Streeck, W. (eds.) (2003) The End of Diversity? Prospects for German and Japanese Capitalism, Ithaca, NY: Cornell University Press. Yoshimura, N. and Anderson, P. (1997) Inside the Kaisha: demystifying Japanese business behavior, Boston, MA: Harvard Business School Press.

4

Expatriation and performance Ralf Bebenroth and Donghao Li

Abstract The purpose of this study is to analyze whether foreign-based affiliates staffed with expatriates outperform others who rely to a higher degree on local managers. This research investigates performance and expatriation with three mediating variables: the relative size of the affiliate, the level of ownership, and the age of the affiliate. The study indicates a positive correlation between expatriation and the performance of the Japan-based foreign MNC affiliates. Better performing affiliates tend to be led by expatriate CEO top managers and there are more expatriates on the board. The higher the ownership share of the affiliate, the higher the chance of having an expatriated CEO top manager and expatriated board members dispatched to the affiliate. Affiliates’ performance also correlates positively with the percentage of ownership. Concerning relative size and expatriation, the study finds a partial confirmation of expected relationships. The relative size of the affiliates correlates positively with the ratio of expatriate board members but negatively with performance. The age of the affiliate did not show any correlation with either expatriation or performance. Implications are discussed.

Introduction In the IHRM literature the question of whether an expatriate or a local manager should run a foreign affiliate has been discussed for more than 25 years (Tung 1982, Boyacigiller 1990, Schuler et al. 1993, Belderbos and Heijltjes 2005). As a result, there is a variety of literature available comparing expatriate advantages over host country nationals (Root 1986, Negandhi 1987, Banai 1992, Hendry 1994). Several reasons are cited for employing expatriates. Unavailability of suitably qualified local personnel is a predominantly cited reason, especially in the case of less developed countries. Globally orientated MNCs cite implementation and maintenance of a global perspective as the reason to send more expatriates to their foreign affiliates. Such MNCs also cite expatriation as a means of training for higher potential employees (Mueller-Carmen et al. 2004). Another reason cited is the cultural distance between the home country and the location of the affiliate. The larger the cultural distance from headquarters (HQ) to the foreign-based affiliate, the higher the uncertainty of doing business in that country. Thompson and Keating

62

R. Bebenroth and D. Li

(2004) show this in their paper – even if this relationship was not significant. Interestingly, Brewster (1995), who investigates Swedish managers in Britain and vice versa, comes to other results and argues that problems with expatriates occur more often at psychologically closer distances. There are reasons to rely on local managers. One of the reasons for a preference toward local managers is the relatively lower cost. For a high living cost country like Japan, expatriates are expensive. As expatriates want to maintain their previous lifestyles and are normally accompanied by their families, costs accrued to headquarters are higher. In the Japanese case, costs for international schools for children as well as yearly free trips home are being covered by the headquarters. In this sense, host country managers would be less expensive and ostensibly easier satisfied. Another reason for employing local managers is their familiarity with the local market, which is an advantage over expatriates. Especially in more decentralized decision-making circumstances, there is more local knowledge needed, so in this instance a higher percentage of local managers would be preferred. In Japan, the cultural distance including the language barrier, particularly to those from Western countries, is especially high. So the adjustment problems for expatriates from Western countries can also be considered as rather high. Significant research exists on MNC expatriate problems, also including those of Japanese companies. Many of the researchers argue that Japanese MNCs have a strong tendency to control subsidiaries through expatriates (Bartlett and Yoshihara 1988, Kopp 1994). In this study, we analyze performance impacts of the expatriation behavior of Japan-based foreign MNC affiliates. For this, we employ the theoretical concept of Edstrom and Galbraith and the principal agent theory. Our research is twofold. First, we investigate performance. Do Japan-based foreign MNC affiliates staffed with expatriate managers outperform others who rely (more) on locals? Subsequently, we explore expatriation, with three mediating variables: the size of the affiliate, the ownership share, and the age. Our research sheds significant light on this gap in the literature. Finally, studies in this area focus primarily on expatriate top managers and are based only on the top director as one individual (Thompson and Keating 2004). Two studies in this field carried out by Boyacigiller (1990) and Tan and Mahoney (2006) also investigate the ratio of expatriates to all employees in the subsidiaries. The study conducted by Gong (2003) is – so far as the authors are aware – the only one in the field of Japanese companies that analyzes not only the CEO top manager but also the ratio of expatriate board members. We also include board members in our study to argue that not only does the CEO top manager influence performance but also the other (non-local) members on the board of directors. Such board members also have power to some extent, so that they can influence the performance or other determinants of the affiliate. However, in contrast to Gong (2003) who studied Japanese affiliates based in the USA, we focus our research on Japan-based foreign MNCs. In the following, we present the theoretical background, describe the methodology,

Expatriation and performance

63

and develop hypotheses. After presenting data and variables, results are discussed. Finally, we close the study with our key findings.

Theoretical background The theoretical part of our study relies on two frameworks, first, on the motives developed by Edstrom and Galbraith and, second, on agency theory. Edstrom and Galbraith (1977) developed a framework for executive staffing policies that provided concrete reasons why headquarters should send expatriates to affiliates located in another country. According to them, there are three motives: filling positions, improving management development, and fostering organizational development. The first motive, to fill positions, occurs when suitably qualified local candidates are not available to fill a required position. In our case it would mean that the Japan-based foreign MNC affiliate has had difficulty finding appropriate Japanese managers. This first motive is often concerned with technical expertise or with skills such as coordination skills between the Japan-based foreign MNC affiliate and their headquarters. Kopp (1994), in a multi-country study of Japanese, European, and American firms, notes that they all may face difficulties in attracting high-caliber local nationals to work for a foreign firm. The study further noted that there was a danger that local employees might feel frustrated at the perceived difficulties at advancement, as frequently only headquarters nationals can obtain the top positions in a firm. Bartlett and Yoshihara (1988) state that expatriates are an indispensable asset in foreign-based MNCs. In contrast to the study of Welch et al. (2007), their study also notes that it is not enough that headquarters managers travel frequently to their foreign-based MNC (so called “traveling executives”) and conclude that it is indispensable to send executives for a longer time period to foreign affiliates. The second motive centres on the idea of management development. In this regard, the MNC would still prefer to send expatriates even when qualified host country managers are available in the country where the affiliate is located. In our case, such a policy by headquarters could be enacted in order to enable expatriate managers to gain an international understanding of doing business in Japan. Promising employees might be sent out as expatriates to Japan-based entities in order for them to receive valuable international experience. After repatriation, they would be ready for more important tasks worldwide, or at least to become in later years a kind of bridge maker between the Japan-based MNC and the headquarters. Barber and Pittaway (2000) investigate expatriation for multinational hotel companies. According to them, expatriation nowadays is more popular for many employees than was previously the case. The third motive for transferring managers to affiliates in foreign countries, as argued by Edstrom and Galbraith (1977), is less related to the individual development of managers but rather to organizational development. Organizational development occurs when the MNC headquarters sends expatriates abroad for coordinating and/or controlling reasons. This is supported by Delios and Björkman

64

R. Bebenroth and D. Li

(2000), who state that expatriate managers preferably have either the role of knowledge transfer or to be sent out to Japan for controlling reasons (Tungli and Peiperl 2009). This means that even if enough qualified local managers are available (the first motive) and there is no need to develop managers (the second motive), the underpinning reason for sending a manager to an overseas affiliate can frequently be based on this third motive. That should be the case especially for a high-cost area like Japan, where headquarters might prefer to elect their “own” staff for controlling or increasing influence on their affiliates. Kumar and Steinman (1996) investigate the behavior of sending Japanese managers to German-based affiliates. They find evidence that know-how transfer and coordination by the headquarters are the most important tasks for Japanese managers in Germany. That would be an argument for organizational development. In contrast to this, the motive of management development, permitting employees to receive international experience, was not considered as important (Kumar and Steinman 1996: 495). We investigate the field of performance in this study. To achieve this, we employ agency theory in order to provide a theoretical framework for performance explanations, as this dimension was not offered in the Edstrom-Galbraith study. Agency theory states that principals delegate work to agents and agents perform tasks on behalf of the principals; this theory can be traced back to Jensen and Meckling (1976). Jensen (1986) also argues for different ways to make agents work for their principals: to align them, to bond them, or to control them (Jensen 1986). Depending on the sort of principal–agency relation (Ouchi 1979), the transferring cost will differ (Coase 1937). There is a trade-off between sending expatriates and employing local host managers. That is to say, although expatriates have “costs”, the benefits they bring might outweigh the costs involved and lead to a rather better performance. Especially in our case with Japan-based foreign MNC affiliates, expatriation seems rewarding, as we investigate this asymmetry problem for headquarters of a high-cost Japan. Therefore, according to agency theory, the principal must find it financially worthwhile in order to send the agent, in our case the expatriate, to a Japan-based MNC. In this line of argument, if the expatriate cannot fulfill control functions or coordination tasks, there are insufficient reasons to send the expatriate to Japan. We base our research hypotheses on these two frameworks. In Table 4.1, we summarize the cited research as connected to Japan, the focus country for our study.

Methodology and hypotheses We empirically investigate performance and expatriation of 643 Japan-based companies. After investigating performance and expatriation, we control for three mediating variables: the size, the ownership share, and the age of the affiliate.

Expatriation and performance

65

Table 4.1 Motives by Edstrom and Galbraith and agency theory Motives by Edstrom and Galbraith Management development

Organization development

Kumar and Necessity to train Steinmann managers (not (1996) very important)

Gain of international experience for Japanese managers (not very important)

Know-how (not covered) transfer and coordination with the headquarters (very important)

Kopp (1994)

Local Japanese managers were sent to headquarters (other way around)

Reason for taking local nationals is the lack of sufficient international management skills by headquarters managers

(not covered)

Expatriates are better for controlling the foreign MNC than frequent travelers

Cost problem most important for expatriation

Effective management is crucial to business success

Expatriates have important impact on job performance

Research

Position filling

Difficulty of attracting highcaliber local nationals Complaints of local employees of shortage in advancement

Bartlett and Yoshihara (1988)

Frequent traveling Expatriates executives cannot bring linkages replace expatriates of worldwide organizational processes

Barber and Growing demand Pittaway for labor in fast(2000) growing industries in Japan and Korea

Expatriation is regarded as a career opportunity

Agency theory

Source: Own data.

Performance and expatriation Affiliates in culturally distant locations may be more difficult to control from headquarters directly than, for example, an expatriate (Pfeffer 1983). In this sense, headquarters save financial resources at their foreign affiliates through an expatriation. Therefore, when expatriates are sent to the affiliates, it will lead to a better performing affiliate. Furthermore, in many cases expatriates bring valuable firm-specific knowledge and other abilities to the affiliate, while bridging any differences between the headquarters and its affiliates. In our study of foreign affiliates in Japan, this idea suggests that in some cases it might just be “the face” of a headquarters representative that improves performance in an affiliate because customers and/or employees are motivated by a so-called “international atmosphere.”

66

R. Bebenroth and D. Li

On the other hand, an expatriate can face many difficulties, especially when sent to a country like Japan. This is not only because of the language, as it is reported that expatriates in Japan are barely able to integrate themselves adequately with the employees in Japan and face other problems of integration as well (Kopp 1994). Finally, some of them return home before their contract has expired, which can arguably be a demonstration of failure. However, sending expatriates to a Japanbased foreign MNC affiliate has more advantages and we therefore suppose that expatriates are ultimately more beneficial to their headquarters. Our hypotheses of expatriates and the affiliate performance are as below. • •

Hypothesis 1.1: If the CEO of the Japan-based foreign MNC affiliate is an expatriate top manager, the better the performance of the affiliate will be. Hypothesis 1.2: The higher the expatriate board member ratio in the Japanbased foreign MNC affiliate, the better the performance will be.

Size We investigate CEO and board members’ expatriation by the size of the Japanbased foreign MNC. To do this, we use the relative company size (by dividing the number of employees in the Japanese affiliate to the total number of MNC employees) as has been done by researchers in other countries (e.g. for Ireland see Thompson and Keating 2004). According to Edstrom and Galbraith (1977), organizational development becomes increasingly important when the size of the affiliate increases. In other words, as the affiliate in Japan becomes more important for the MNC, it should be more interested in controlling the affiliate by sending expatriates to it (Hamill 1989, Boyacigiller 1990, Harzing 2001). In the next step, we investigate size compared with the affiliate’s performance. The larger the relative size of the affiliates the higher should be the commitment on the part of headquarters to have a good performing affiliate (Gong 2003). Furthermore, in case of a relatively high investment by the headquarters in an affiliate, the exchange of ideas and products with the headquarters should be more active. All these factors, stemming from high investment by the MNC in the affiliate, should increase the performance of the affiliate. Therefore, we investigate whether size has a correlation with the performance of the affiliate. Our hypotheses are as below. •

• •

Hypothesis 2.1a: The larger the relative size of the Japan-based foreign MNC affiliates, the higher the chance of finding an expatriate CEO top manager as the leader. Hypothesis 2.1b: The larger the relative sizes of the Japan-based foreign MNC affiliates, the higher the expatriate board member ratio. Hypothesis 2.2: The larger the relative size of the Japan-based foreign MNC affiliates, the better the performance will be.

Expatriation and performance

67

Ownership According to Edstrom and Galbraith (1977), a higher ownership share leads to an organizational development motive for sending parent country nationals to affiliates. With a relatively high investment in a given foreign subsidiary (as measured by the size of the investment divided by the size of the headquarters), more emphasis should be placed on that foreign market. In this sense, according to the organizational development motive proposed by Edstrom and Galbraith, if the investment is high expatriates should help to control the affiliate and help to improve the communication to headquarters. In spite of problems and pitfalls for expatriates, it is assumed that expatriates lead affiliates to a better performance. Also according to agency theory, relatively high ownership leads to a need for a reduction of misalignment problems. Reduction of these misalignment problems can be best covered by expatriates sent by the headquarters. It is supposed that the headquarters would invest more resources if there is a fair chance of making profit out of the investment. The higher costs of the investment and higher risk involved with the investment should be compensated by higher performance of the affiliate. This indicates that expatriates should be sent to the affiliate in contrast to hiring locals when the investment is rather high. Our study, therefore, assumes that the expatriate top manager and board members become more prevalent as the ownership share increases, a result that has the potential to lead to a better-performing affiliate. Our hypotheses are as below. •

• •

Hypothesis 3.1a: The higher the ownership share of the headquarters, the higher the chance of finding an expatriate CEO top manager in the leading position. Hypothesis 3.1b: The higher the ownership share of the Japan-based foreign MNC affiliates, the higher the expatriate board member ratio. Hypothesis 3.2: The higher the ownership share of Japan-based foreign MNC affiliates, the better the performance will be.

Age Our fourth field of research is connected to the experience and knowledge in the Japan-based foreign MNC. Underpinning the motive of position filling, there is often the notion that expatriates are more prevalent in younger entities. It can also be argued that younger foreign enterprises in the market have more difficulties in attracting high-caliber Japanese executives. One of the reasons could be that Japanese executives are more attracted by well-known companies, in cases where they plan to work for a foreign enterprise. Yet another reason could be that communication with headquarters might be more important for younger affiliates in Japan. In this case, an expatriate would be more appropriate to fill the position as is stated by Edstrom and Galbraith (1977). In line with agency theory, it could also

68

R. Bebenroth and D. Li

be stated that recently established affiliates have more urgent problems to solve. This situation would require headquarters’ support and therefore a headquarters might rely more on expatriates for communication reasons, since the communication network with headquarters has to be built up from the very beginning. This leads to the assumption that headquarters take greater care with younger affiliates. Younger affiliates should have, therefore, more expatriates and a better performance. In contrast to this, the extent of prior market knowledge could be one of the decisive factors for placing Japanese managers in the leading position of Japanbased foreign MNC affiliates (Gupta and Govindarajan 2000). Therefore, our hypotheses are as below. •

• •

Hypothesis 4.1a: The younger the Japan-based foreign MNC affiliates, the higher the chance of finding an expatriate CEO top manager in the leading position. Hypothesis 4.1b: The younger the Japan-based foreign MNC affiliate, the higher their expatriate board member ratio. Hypothesis 4.2: The younger the Japan-based foreign MNC affiliates, the better the performance will be.

To sum up, Figure 4.1 provides a summary of all hypotheses tested about performances, size, ownership, and age of the affiliates.

Data and variables We gathered our data mainly through the Gaishikei-kigyo soran (2003) digital database. This source lists more than 3,240 Japan-based foreign affiliate companies.

Relative Size

H.2.1a

CEO

H.2.2

H.1.1 H.3.1a H.4.1a

Ownership

H.3.2

Performance

H.2.1b H.3.1b

Board ratio

H.1.2 H.4.1b

H.4.2

Age Control variable: Capital

Figure 4.1 Model and summary of all hypotheses

Expatriation and performance

69

As we wanted to research the relative size of the companies, we also needed to obtain data about the company headquarters. We therefore eliminated all companies for which MNC headquarters data could not be retrieved. This left us with 1,223 Japan-based foreign MNCs. We then eliminated all affiliates that did not reveal information about the number of their employees, sales or their ownership. We were finally left with 643 Japan-based foreign MNC affiliates, on which we conducted our empirical research. In the case of the ownership regressions, we were able to collect data for only 566 companies. All information on executive staffing used in this research targeted the top management level, including all board members. In this sense, we concentrated on two areas. First, we investigated whether an expatriate as CEO top manager led the affiliate. Second, we investigated the number of all (other) board managers and divided it by the number of expatriates on the board, so that we arrived at the ratio of expatriate board members in the Japan-based foreign MNC affiliates (something that has been conducted so far only by Gong [2003] for outbound Japanese investments). The nationalities of the managers were classified by their names as either expatriate or local Japanese manager. We measured the size of the companies as the relative size (affiliate size/whole group size) as other researchers have done (Gong 2003). We did this because only with this measure can the real impact of a Japanbased foreign MNC affiliate be observed. We admit, however, that for the biggest global players, we face problems measuring relative size. We took the logarithm for the number of employees as well as for sales and measured performance as other researchers have done in this field by dividing logarithm sales with the number of employees. In the statistical analysis we worked with two different models. For our research on top managers we took binary data, expatriates versus locals, and used a logistic regression model. This model relates to the probability of having an expatriate to a set of explanatory variables X. Prob (expatr. top=1) = Exp ( β0 + βi Xi ) / (1 + Exp ( β0 + βi Xi ))

(4.1)

Ln (board expatriation) = β0 + βi Xi + ε

(4.2)

Here X stands again for independent variables such as size, age, ownership, and the control variable of capital, and i stands for the number of independent variables.

Results Our descriptive results are presented in Table 4.2. The average ratio of top management expatriates for our 643 Japan-based foreign MNC affiliates is 33 percent. That means 212 affiliates rely on foreign expatriates as their leading top manager. The average ratio of expatriate board members is 40 percent, which means that Japanbased foreign MNC affiliates on average have expatriates making up 40 percent of their board members. Divided by countries of origin, we note that American companies dominate in

70

R. Bebenroth and D. Li

our sample, with 318 Japan-based affiliates. Germany comes second, with 77 companies and then Great Britain, France, and Switzerland, with around 50 companies each. However, their sending behavior is quite different. American companies have expatriate CEO top managers in only 19 percent of their Japan-based MNC affiliates, whereas French companies have 54 percent expatriate CEO top managers in their Japan-based MNC affiliates. Germany and Switzerland are somewhere in the middle, with 36 percent and 41 percent of CEO top managers respectively (see Table 4.6 in the Appendix). Although the mean of the relative size, which is defined as Ln (number of employees in affiliate/number of MNC employees), is –5.08, the mean of Japan-based foreign MNC affiliate is 105 employees (not documented in the table). As for the board size, we find a mean of 6.56 members, with 2.14 being foreign expatriates and 4.42 Japanese locals (see Table 4.5 in the Appendix). We find the average ownership rate rather high at a level of 75 percent, indicating that the headquarters normally control their Japan-based MNC affiliates through a majority shareholding. In only 96 Japan-based foreign MNC affiliates (17 percent) ownership of MNC by the headquarters is below 50 percent; 389 affiliates have their MNC parent company holding above a 50 percent ownership share, and in 81 Japan-based foreign MNC affiliates (14 percent), parent companies hold exactly 50 percent ownership. For these 81 affiliates, the mean for expatriate CEO top managers is 15 percent, and the mean for expatriate board members is 28 percent, indicating low levels in both cases (not presented in tables). The average age of operation for Japan-based foreign MNCs is 27 years, with the youngest being one year and the oldest investment going back 117 years (not documented here). The mean of the performance variable is 4.37 and was defined as Ln affiliate sales/affiliate employees (see Table 4.2). Our control variable, capital, is an average of 7,588. As we also use the logarithm conversion in our analyses, Ln (capital) is an average of 6.66 (not documented in the table). In regard to industry sector, we can see that finance companies prefer to send more expatriates to their Japan-based affiliates. This result is similar to the findings of Thompson and Keating for foreign subsidiaries in Ireland. In our sample of 108 Japan-based foreign bank affiliates expatriates made up 56 percent of the boards (not reported here). In the first part of our econometric analyses, we ask a simple question: is expatriation at all connected to the performance of the affiliates? We find support for this hypothesis in our first two regression analyses (H. 1.1 and H. 1.2). Expatriate CEO top managers and a higher ratio of expatriate board members do suggest a better performance of the Japan-based foreign MNC affiliate. In the case of CEO top managers this holds to 1 percent and for expatriate board members to 5 percent (see Models 1 and 2 in Table 4.4). The second part of our econometric research deals with our first mediating variable, the relative size of the Japan-based foreign MNC. Regarding our hypotheses H.2.1a and H.2.1.b, we found mixed results, except that the board ratio of expatriates was significantly higher in bigger Japan-based foreign MNCs (5 percent significance). That means that the bigger the affiliate investment in Japan compared to the size of the whole group, the more expatriate board members are sent to it. On

0.47 0.33 2.05 1.90 1.70 0.27 0.76 1.31

0.33

0.40

–5.08

9.95

4.86

0.75

3.05

4.37

1 Expat. top

2 Expat. board ratio (%)

3 Relative size (LN)

4 MNC size (LN)

5 SUB size (LN)

6 Ownership

7 Age of SUB (LN)

8 Performance (LN)

0.46***

0.34***

0.13***

0.09**

–0.08**

–0.28***

–0.10**

–0.04

–0.20***

–0.38

2

–0.01

–0.75

0.64***

1

–0.23***

0.08**

–0.01

0.50***

–0.63***

3

0.36***

0.13***

0.13***

–0.11**

4

–0.13***

0.24***

–0.13***

5

0.05

–0.09**

6

0.004

Cox & Snell R2 0.133

0.147

***

0.028

3.574***

Model 2

Note: * for 10%, ** for 5%, and *** for 1% significance.

Adjusted R

0.071

Capital (LN)

2

–0.038

–.006

Model 1

Age of affiliate (LN)

Ownership

Relative size (LN)

Variable

0.133

0.151

***

0.029

3.578***

–.022

Model 3

Expat. CEO top manager

0.020

–0.137

***

–0.045

0.096**

Model 4

0.206

–0.056

–0.013

0.446***

Model 5

–0.05

7

0.213

–0.074*

–0.017

0.444***

0.092**

Model 6

Expat. board member ratio

Table 4.3 Logistic regression models and multiple regression models for CEO top manager and board member ratio to expatriation

Note: * for 10%, ** for 5%, and *** for 1% statistical significance; s.d. = standard deviation.

S.D.

Mean

Variable

Table 4.2 Descriptive analysis and correlations

0.038

Adjusted R2 0.115

0.236

***

–0.300***

Model 3

0.032

0.183

***

0.078*

Model 4

***

0.032

0.182

–0.059

Model 5

Notes: * for 10%, ** for 5%, and *** for 1% statistical significance. Relative Size = Ln (affiliate employees/MNC employees). N = 643, except for ownership, N = 566. Performance = Ln (sales/affiliate employees).

0.039

0.102**

0.106***

Expat. top manager

0.190

***

Model 2

Expat. board ratio

0.171

***

Model 1

Capital (LN)

Age of SUB (LN)

Ownership

Relative size (LN)

Variable

Performance

Table 4.4 Regression models for expatriate CEO top manager and expatriate board member ratio to the performance

0.127

0.249***

–0.036

0.081**

–0.315***

Model 6

Expatriation and performance

73

the other hand, we could not find any significant correlation between the relative sizes of the Japan-based foreign MNC affiliate and the existence of an expatriate CEO top manager. We also did not obtain the desired result for our Hypothesis 2.2. In contrast to our expectation, the smaller the relative size of the Japan-based foreign MNC affiliate, the better was their performance (see Models 3 and 6 in Table 4.4, both with 1 percent significance). This result means that the performance as measured by Ln affiliate sales/number of affiliate employees statistically decreases in line with the relative size of the Japan-based foreign MNC affiliate. In the third field we analyzed the ownership share, hypothesizing that a higher ownership share leads to a higher chance of finding an expatriate CEO top manager (H.3.1.a) and of having more expatriate board members (H.3.1.b). This is strongly supported in the case of top managers (see Models 2 and 3 in Table 4.3) as well as for expatriate board members (see Models 5 and 6 in Table 4.3), each with 1 percent significance. Moreover, our hypothesis that a high ownership share leads to a better performance of the investment (H.3.2) also finds statistical support (see Models 4 and 6 in Table 4.4). In our last area of research, we investigated company age in regards to expatriation and performance. We did not receive any supportive results with our regression analysis. Only when tested by correlation did we find some evidence that younger companies tend to send more managers to their Japan-based foreign MNC affiliate (5 percent significance, see Table 4.2). We can state, therefore, that the performance of the Japan-based MNC affiliate is not overly influenced by the length of its operation (see Table 4.7 in the Appendix).

Discussion We can say with some degree of confidence that expatriate-staffed foreign MNC affiliates in Japan outperform companies who rely solely on local Japanese managers. As we pointed out in our theoretical section, there are several motives supporting this inference. Notwithstanding the fact that expatriates cost much more than their Japanese counterparts and many expatriates face difficulties with integration (such as the language, cultural practices, and the like), expatriates sent to Japan may bring better performance to the affiliate and help to control it better. This refers to the motive of organizational development stated by Edstrom and Galbraith (1977). Agency theory also supports this notion, by noting that a reduction of misalignment problems leads to a better performance. In addition to this, expatriation seems to be more effective than, for example, bureaucratic controlling measures implemented via the headquarters. We then included mediating variables such as the relative size, ownership, and age. For the relative size of the company, we find only part confirmation in regards to expatriation. In contrast to our hypothesis of the size and performance, the smaller affiliates are the better performing entities. For ownership, we received statistically positive and significant results for expatriation and concerning performance. These results make sense from the viewpoint that MNCs are increasingly motivated to

74

R. Bebenroth and D. Li

control their affiliates, what is known as organizational development according to Edstrom and Galbraith (1977). For age, however, we did not receive any confirmation in our regression analyses, either for expatriation or the firm’s performance. This research also has some shortcomings. Our research design is based on the separation between expatriates and Japanese top managers. It was not possible to be sure whether some of the identified parent country nationals were in fact third country nationals (even if Gong [2003] reported no difficulties concerning these problems). Also it was not possible to investigate so-called local hire employees. These are employees contracted locally even if they are not Japanese. In recent years there are increasing numbers of foreigners living in Japan being employed at Japan-based foreign MNCs who are significantly aware of local market conditions. In addition and with regard to performance, we also have to admit that expatriates might be sent by preference to better performing companies. If expatriates can decide for themselves about expatriation, for their successful future return to the headquarters it might be advisable for them to join an affiliate that already performs well. Otherwise, the chances of further progress to higher positions might be reduced. In addition, our measure of performance was conducted by taking affiliate turnover compared with the number of affiliate employees. This could be criticized. However, we did this for two reasons. First, as companies are forced through different tax systems to shift profits to different countries, profit or the profit rate would be difficult to use in our case (Harzing 2001). Second, the explanation power of top managers and the ratio of board members to the performance was minimal. This can be seen on the low adjusted R2 of 0.039–0.127 at Table 4.4. We followed the research of Gong (2003), who used this measure for outbound Japanese investments as well. Future research should cover longitudinal data. Furthermore, it would be interesting to research these questions at a more industry-specific level. A questionnaire method could retrieve more detailed information which cannot be gleaned from sources such as the Gaishikei-kigyo soran.

Conclusion This research on Japan-based foreign MNCs used a sample of 643 (566) MNCs. We found evidence that Japan-based foreign MNCs perform statistically significantly better when having a foreign CEO and a higher ratio of expatriated managers on their board. Therefore, it seems advisable to staff expatriates in Japan-based MNCs in order to increase the performance of the investment. According to our theoretical models, we can explain this phenomenon through organizational development (Edstrom and Galbraith 1977) and also by agency theory, in that expatriates in spite of their high costs lead to a better performing affiliate. This effect could have several causes: (1) expatriates help to control the cost of the investment more effectively than Japanese managers are capable of doing; or (2) expatriates can motivate the affiliate’s staff by, for example, providing an “international atmosphere” resembling what is found at the headquarters. Moreover, when solving

Expatriation and performance

75

technical problems or aligning with headquarters, expatriates will help to increase the performance of the Japan-based MNC. Relatively bigger firms have significantly more expatriate board members (5 percent significance) but do not outperform the others. The ownership share relates positively, and is significant for expatriation and also for the performance of the affiliate. The higher the MNC ownership for a Japan-based foreign affiliate, the higher the chance of finding an expatriate top manager, and a higher ratio of expatriate board members in that affiliate. Furthermore, performance of the Japanbased foreign MNC also increases with a higher ownership share. Finally, concerning the age of the operation, we could not obtain any significant results in our regression as to expatriation or to performance. Only when measured for correlation can we show that younger Japan-based foreign MNC affiliates tend to have more expatriates on their board.

Acknowledgments This work was delivered by the first author at the Academy of International Business 2009 in San Diego. We are indebted to Jaffer Hussainee for proofreading this contribution and for his many valuable comments on earlier drafts.

Appendix (Tables 4.5–4.7) Table 4.5 CEO top manager and board members in numbers Mean

SD

Min.

Max.

Expatriate top (%)

0.33

0.47

0

1

Expat. board (no.)

2.14

1.86

0

11

Locals (no.)

4.42

4.46

0

37

Board size (no.)

6.56

4.89

1

37

Table 4.6 Expatriated CEO top managers for the most represented countries in Japan Country

Average expat.

No. of companies

Standard deviation

United States

.19

318

.39

Great Britain

.22

54

.42

Switzerland

.41

32

.50

Germany

.36

77

.48

France

.54

37

.51

Total

.26

518

.44

Note: The other remaining countries in our sample have less than 25 affiliates operating in Japan and are therefore not listed.

76

R. Bebenroth and D. Li

Table 4.7 Support of hypotheses H.1.1: CEO and performance

supported 1%

H.1.2: Board ratio and performance

supported 5%

H.2.1.a: Size and CEO

not supported

H.2.1.b: Size and ratio

supported 5%

H.2.2: Size and performance

not supported

H.3.1.a: CEO and ownership

supported 1%

H.3.1.b: Board ratio and ownership

supported 1%

H.3.2: Ownership and performance

supported 5%

H.4.1.a: CEO and age

not supported

H.4.1.b: Board ratio and age

not supported

H.4.2: Age and performance

not supported

References Banai, M. (1992) “The ethnocentric staffing policy in multinational corporations: a selffulfilling prophecy”, The International Journal of Human Resource Management, 3(3): 451–72. Barber, N. and Pittaway, L. (2000) “Expatriate recruitment in South East Asia: dilemma or opportunity?” International Journal of Contemporary Hospitality Management, 12(6): 352–9. Bartlett, C. A. and Yoshihara, H. (1988) “New challenges for Japanese multinationals: is organization adaptation their Achilles’ heel?” Human Resource Management, 27(1): 19–43. Belderbos, R. A. and Heijltjes, M. G. (2005) “The determinants of expatriate staffing by Japanese multinationals in Asia: control, learning and vertical business groups”, Journal of International Business Studies, 36: 341–54. Belderbos, R. A. and Sleuwaegen, L. (1996) “Japanese firms and the decision to invest abroad: industrial groups and regional core networks”, Review of Economics and Statistics, 78: 214–20. Borg, M. and Harzing, A. W. K. (1995) “Composing an international staff”. In: A. W. K. Harzing and J. Ruysseveldt (eds.) International Human Resource Management, London: Sage, pp. 179–204. Boyacigiller, N. A. (1990) “The role of expatriates in the management of interdependence, complexity and risk in multinational corporations”, Journal of International Business Studies, 21: 357–81. Brewster, C. (1995) “The paradox of adjustment”. In: J. Selmer (ed.), Expatriate Management: new ideas for international business, London: Quorum Books, pp. 115–35. Coase, R. (1937) “The nature of the firm”, Economica, 4: 368–405. Delios, A. and Björkman, I. (2000) “Expatriate staffing in foreign subsidiaries of Japanese multinational corporations in the PRC and the United States”, International Journal of Human Resource Management, 11(2): 278–93.

Expatriation and performance

77

Edstrom, A. and Galbraith, J. R. (1977) “Transfer of managers as a co-ordination and control strategy in multinational organizations”, Administrative Science Quarterly, 22: 248–63. Gaishikei kigyo soran (Foreign affiliated companies in Japan, a comprehensive directory) (2003), Toyo keizai sinposya. Gong, Y. (2003), “Subsidiary staffing in multinational enterprises: agency, resources, and performance”, Academy of Management Journal, 46: 728–39. Gupta, A. K. and Govindarajan, V. (2000) “Knowledge flows within the multinational corporation”, Strategic Management Journal, 21: 473–96. Hamill, J. (1989) “Expatriate policies in British multinationals”, Journal of General Management, 14(4): 18–33. Harzing, A. W. (1999) Managing the Multinationals: an international study of control mechanisms, Cheltenham: Edward Elgar. —— (2001) “Who’s in charge? An empirical study of executive staffing practices in foreign subsidiaries”, Human Resource Management, 40(2): 139–58. —— (2004) “Composing an international staff”. In: A. W. Harzing and J. Ruysseveldt (eds.) International Human Resource Management, 2nd edn., London: Sage, pp. 251–82. Hendry, C. (1994) Human Resource Strategies for International Growth, London: Routledge. Jensen, M. (1986) “Agency cost of free cash flow, corporate finance, and takeovers”, The American Economic Review, 76(I. 2): 323–9. Jensen, M. and Meckling, W. (1976) “Theory of the firm: managerial behavior, agency cost and ownership structure”, Journal of Financial Economics, 3(4): 305–60. Kopp, R. (1994) “International human resource policies and practices in Japanese, European and United States multinationals”, Human Resource Management, 33(4): 581–99. Kumar, B. and Steinmann, H. (1996) “Japanische Fuehrungskraefte in Deutschland– Entsendung, Einsatz und Arbeitszufriedenheit”, Zeitschrift fuer betriebswirtschaftliche Forschung, 6: 493–516. Mueller-Carmen, M., Mayerhofer, W., Ledolter, J., Strunk, G. and Erten, C. (2004) “Pure Rhetorik? Populaere personalwirtschaftliche Handlungsempfehlungen der 1990er Jahre und ihre Umsetzung – eine international vergleichende empirische Analyse”, Zeitschrift fuer Personalwirtschaft, 18(2): 164–82. Nakamura, S. (2005a) “Nikei kaigai kogaisha no genchika ni kan suru kenkyu (1) The localization of human resources in Japanese overseas subsidiaries – from the aspect of human resource management by headquarters” (in Japanese), Takamatsu University Research Bulletin, 43: 37–63. —— (2005b) “Nikei kaigai kogaisha no genchika ni kan suru kenkyu (2) The localization of human resources in Japanese overseas subsidiaries – from the aspect of human resource management by headquarters” (in Japanese), Takamatsu University Research Bulletin, 43: 65–98. Negandhi, A. R. (1987) International Management, Newton, MA: Allyn and Bacon. Ouchi, W. (1979) “A conceptual framework for the design of organizational control mechanisms”, Management Science, 25: 833–48. Pascha, W. (2005) “Japan als Standort in Asien – Regionale Konfigurationsentscheidungen aus deutscher Sicht”. In: P. K. Bellmann and R. Haak (eds.) Management in Japan. Herausforderungen und Erfolgsfaktoren für deutsche Unternehmen in einer dynamischen Umwelt, Wiesbaden: Deutscher Universitäts-Verlag, pp. 71–87. Pfeffer, J. (1983) “Organizational demography”. In: L. L. Cummings and B. M. Staw (eds.) Research in Organizational Behavior, vol. 5, Greenwich, CT: JAI Press, pp. 299–357.

78

R. Bebenroth and D. Li

Root, F. R. (1986) “Staffing the overseas unit”. In: J. J. Famularo (ed.) Handbook of Human Resources Administration, New York: McGraw-Hill. Schuler, R., Dowling, P. and DeCieri, H. (1993) “An integrative framework of strategic international human resource management”, The International Journal of Human Resource Management, 4: 717–64. Tan, D. and Mahoney, J. T. (2006) “Why a multinational firm chooses expatriates: integrating resource-based, agency and transaction cost perspectives”, Journal of Management Studies, 43(3): 457–84. Thompson, K. and Keating, M. (2004). “An empirical study of executive nationality staffing practices in foreign-owned MNC subsidiaries in Ireland”, Thunderbird International Business Review, 46(6): 771–97. Tung, R. L. (1982) “Selection and Training Procedures of US, European and Japanese Multinationals”, California Management Review, 25(1): 57–71. Tungli, Z. and Peiperl, M. (2009), “Expatriate practices in German, Japanese, U.K., and U.S. multinational companies: a comparative survey of changes”, Human Resource Management, 48(1): 153–71. Welch, D. E., Welch, L. S. and Worm, V. (2007). “The international business traveler: a neglected but strategic human resource”, International Journal of Human Resource Management, 18(2): 173–83.

5

Human resource management and employment systems in Asia Directions of change and new challenges Philippe Debroux

Abstract Reforms of the human resource management system have proceeded at an accelerating pace in East and South-East Asia since the 1980s. It could be said that the reforms have been strongly influenced by concepts and practices that originated in the United States: more strategic importance given to the human resource function with involvement of all employees and managers in the devising and implementation of practices; introduction of appraisal based on individual merit and pay-for-performance systems with a drastic decline of the traditional elements of age and tenure; adoption of the concept of flexible enterprise with a clear categorization of employees in terms of status, career prospects, and working conditions; nurturing of a unitarist corporate culture minimizing or removing organized labor. The adoption of such systems has deeply changed the HRM and business strategy of a large number of Asian firms.

Introduction Asian companies intensified their search for more advanced systems of human resource management from the 1980s onward. These attempts were prompted by their growing exposure to international competition that forced them to reconsider key tenets of their traditional employment practices. In a period of market liberalization and rapid technological changes it was amplified by the companies’ restructuring spurred by a growing number of mergers and acquisitions, management buy-outs, spin-offs, and the spread of downsizing and outsourcing. Another reason behind the search for better HRM was the influx of foreign companies into Asia, especially in the cases of South-East Asia and China. The growing demand for specialized knowledge and more systematic management requires the nurturing of high-skilled managers and other professionals, who are stimulated by attractive monetary and non-monetary incentives packages. Asian companies now attach more strategic importance to HRM. From developed to developing Asian countries they have introduced a number of concepts and

80

P. Debroux

practices that had been perceived as having been instrumental in the transformation of the leading Western firms, especially in the United States. Up until the financial crisis at the end of the 1990s in Asia the seniority-based relational-type HRM was dominant, albeit with variations from country to country. This was pivotal for employment stability and influenced all HRM practices from recruitment, evaluation, training, retrenchment, promotion, pay, and career development (Bae and Rowley 2004). Afterward, the U.S.-oriented individualistic HRM dimensions such as individual fixed-term contracts, individual performance evaluation and career development, downsizing and retrenchment, and freedom to hire and fire have been gradually penetrating East Asian management. As a result, HRM practices and employment systems have been drastically transformed. Companies are managed with a different mindset and the mutual psychological contract linking employees and management has evolved in the direction of more contingent types of relationships. However, it is not yet clear if companies will follow the prescriptive approach based on strategic integration, commitment, flexibility, and quality adopted by the large American companies (Legge 1995). For the time being the situation is rather complex and a homogeneous employment system has yet to emerge in any of the countries in the region. In all of them companies struggle to develop an HRM system that would be dynamic while integrating appropriately all their human resources. In management–labor relationships strategies are always multi-pronged. They vary from “responsible autonomy” to “consultations” and “control.” At one and the same time different strategies can be applied to different groups of employees within the same company. So, there is always a mix of “hard” and “soft” elements in any HRM strategy. In this respect, East and South-East Asian companies have to find a solution to the same issue of internal consistency confronting Western companies. They are increasingly likely to face the formation of a dual structure of employment. They will manage skilled employees that can be (and are likely to request to be) “empowered.” They will continuously improve their capabilities and it will be possible to conclude and manage with them a psychological contract based on individual performance, employability, and high commitment. Those employees will work alongside atypical workers of different categories, sharing income instability, some of them at the bottom remaining “deskilled” workers, expected to be just “cheap” and “flexible.” In general terms, such polarization may cause social problems. But it could also damage corporate management and, thus, profitability. Therefore, it may become an imperative for employers to think about a psychological contract with all employees, not just their privileged groups.

Adoption of human resource management concepts in Asia A parallel could be made with the massive entry of American companies into Europe in the 1950s. They provided the catalyst for the modernization of local companies in giving European businesses an opportunity to learn new management methods (model effect) that spread out thanks to the mobility of those who had worked in the American multinationals (transfer effect). In Asia, too, the

Human resource management and employment systems in Asia

81

number of trained managers who had once worked for foreign companies began to increase significantly from the second half of the 1980s (Takeuchi 1999). The rise in the number of those who graduated from European or American universities and business schools – both among current and prospective management personnel – is also creating a corporate climate receptive to Western, especially American, standards. Asian students in American universities, especially from India, China, Korea, and Japan, top every year the list of the countries sending students to the United States. After returning home, they become candidates for managerial posts in foreign-owned and major domestic firms. Successors of major family businesses in South-East Asia, too, often study abroad. Generally, American and European companies’ Asian subsidiaries enjoy popularity with highly educated Asian young graduates, not just with those who studied abroad but also, increasingly, the graduates of the elite local universities. Although their position is not as strong as in their heyday in the 1980s, Japanese multinationals also continue to be important players in the whole East and SouthEast Asian region and their importance in the diffusion of HRM concepts and practices cannot be neglected. The emphasis placed on long-term, stable employment, and associated human resource practices such as promotion by seniority, on-the-job training, and job rotation systems, for example, have long been regarded as important sources of firm-specific advantages for Japanese companies. Those practices are said to allow for the generation and promotion of decision-making based on consensus, cross-functional capabilities, long-term relations, and colearning with suppliers and customers (Sano 1990). They are also considered as instrumental in the development of loyalty of employees toward the organizations through the nurturing of relationship-based psychological contracts (Rousseau 1995). Up until the beginning of the 1990s it was strongly believed that these HRM practices and the Japanese-style work organization on which they are based would become dominant in the whole East and South-East Asian region’s HRM system. It is true that in the development of cross-border regional networks throughout Asia, notably in China but also in the other countries, Japanese multinational companies have imposed management practices such as strict quality-control systems, flexible production runs, and continuous improvements in production methods. In that sense, their influence has been significant in the upskilling of local firms and the upgrading of their management capabilities. However, due to the relative decline of the Japanese economy during the last 15 years the key tenets of their HRM practices are unlikely to ever become the template in the region. Like multinationals from other countries, in Asia they face problems of skilled labor shortage, a high staff turnover rate, and a low level of organizational loyalty. Moreover, Japanese companies are often seen, rightly or wrongly, as having an autocratic and bureaucratic management style. They do not offer as attractive monetary rewards as American and European companies, especially in the first part of a career. Localization of management in Japanese companies’ Asian subsidiaries has progressed during the last decade and they now offer many more managerial opportunities than in the past. But they continue to offer a slower progression in the managerial hierarchy than Western companies,

82

P. Debroux

adopting a long-term career development perspective that does not seem to fit with the expectations of many young Asian executives. As a result, practically in no country of the region does the number of students wishing to enter Japanese companies exceed the number of those hoping to find a job at an American or European one. In fact, Japanese companies themselves are changing their practices. The role of internal markets has been slowly reduced, lifetime employment is being eroded, and more flexible approaches to management are adopted in many companies. In this regard, it was observed in a recent study that the management style they adopt in China is close to the American one in many respects (Jie Yu and Meyer-Ohle 2006). In view of the success of the American economy perceived as induced by an innovative drive propelled by HRM practices, in the whole region the United States has been looked upon during the last 15 years as the leader in the field. American management concepts and practices have been considered by many companies in the region as their guide or source of inspiration in the transformation of existing HRM systems. It explains the interest in practices such as the balanced score card, the Six Sigma method of production process, the 360 degrees evaluation, and human capital-related accounting by leading Asian companies, including the Japanese ones. Like their counterparts in the United States and Europe, Asian companies are influenced by the new concepts of HRM that focused in the last 30 years on the development of “high performance working systems.” The strategic role of the HRM function as opposed to the traditional administrative, welfare, and industrial relations-focused roles has become more important. Among other leading companies, Huawei in China (Samsung Economic Research Institute 2009), TSCM in Taiwan (His-An Shih 2001), Panasonic in Japan (Khan 2005) or Samsung Electronics in South Korea (Umashanker 2005) have developed proactive HRM systems whose roles and structures are constantly upgraded and transformed. They have a flatter hierarchical structure and have introduced empowerment schemes. Conforming to the prescriptions of the HRM models (Storey 1995), the percentage of Asian companies transferring human resource management responsibility from specialists to line managers has been increasing since the 1980s. In order to become learning organizations they are said to encourage challenging discussions among managers irrespective of the hierarchical rules in order to break conformism and create the dynamics of organizational change (Benson and Rowley 2004). On the one hand, they adopt models such as the “matching model” and others, putting emphasis on a tight fit between organizational strategy, organizational structure, and HRM system to manage increasingly diversified human resources. Those models represent an approach toward people-management systems, strongly insisting on managerial autonomy and legitimizing managerial control over employees (Boxall 1992) and was called for those reasons the “hard” face of HRM (Legge 1995). But, on the other hand, they are also influenced by other human resource management theories, notably by the “Harvard Model” (Guest 1995) and other frameworks such as the resource-based model developed in the United States and Europe since the mid-1990s (Hyman 2001) that started to challenge the “hard”

Human resource management and employment systems in Asia

83

side “matching model.” These models develop approaches of HRM giving more importance to a “soft” side of HRM, putting emphasis on the employer–employee relationship (Boxall 1992). To be efficient HRM systems must not only create a fit with the firm’s strategy but also foster a “high commitment” mindset that can be developed in combining the individualistic dimensions of the HRM paradigm such as individual performance evaluation and rewards, and empowerment, with collective dimensions such as common goal and value, teamwork, information sharing, and training and development (Legge 1995). As a result, in many Asian companies, both in developed and developing Asia, the development is observed of hybrid systems with the two dimensions somehow mixing pragmatically. At first glance, the key dimensions of the “soft” HRM paradigm are not alien to East and South-East Asian organizations. Some of its aspects were inspired by the Japanese management practices described before that exerted a significant influence in the 1960s and 70s. They overlap with others that are said to be engrained for a long time in the traditional cultures and value systems of Asian societies (Dessler and Tan Chwee Huat 2009). But if Asian companies have indeed always nurtured a number of collective values in their human resource management practices it is difficult to mix them as such in the new HRM paradigm precisely because of their links with specific socio-cultural characteristics. The collective elements promoted by the new “high performance work systems” are (ideally) based on teamwork dynamics, empowerment in flat hierarchical structures, and proactive management of conflicts (Legge 1995). They do not aim to reproduce the Japanese “community of fate” in which the employees identified with the organization in a long-term perspective and that was based on the internal labor market logic assuring continuity and stability of employment with high mutual relationship-based commitment (Debroux 2006). They are not similar either to the traditional HRM systems common in East and South-East Asian countries, expected to be benevolent and assure stable employment to diligent and obedient employees. The value system of the “high performance work systems” is closely linked to the U.S. institutional and socio-cultural environment. It assumes considerable organizational independence and autonomy from its environment (weak presence of organized labor, minimal interference from the state, little or no socio-culturally based responsibility of the organization toward its employees beyond legal compliance) and that it is the right of individuals to do the best for themselves without external interference. They promote employees’ loyalty but they do not exclude their mobility. Individual performance and employability are the rules of the game for the two parties, although teamwork is also considered as a key element of the system. Compared to that, with a number of variations, the relationships between the state and organizations are stronger in East and South-East Asian countries than in the United States, leading to institutional arrangements that may limit the freedom of the organizations in term of employment practices. Tripartite arrangements involving the unions are not as elaborate as in Europe but they do exist in Japan, Korea, Malaysia, and Singapore and play a significant role in the evolution of the labor environment. On the whole the “high performance work systems” are based on a corporate mindset at the opposite of a company environment where

84

P. Debroux

intra-group harmony is based on conflict avoidance; hierarchy cannot be bypassed easily; deference to authority is the norm and humility and self-restraint are considered as virtues, all characteristics that are, by and large, often associated with traditional HRM philosophy in East and South-East Asia. Regardless of the political system, it appears among other similar examples in the traditional Japanese and Korean management philosophy and practices, but also in Indonesia’s Pancasila (Five Principles) emphasizing work in harmony and conflict avoidance; in the Thai concept of Men Pen Rai, reflecting the desire to keep peaceful relationships; or in the National Shared Values in Singapore, reminding people of the need for mutual respect and tolerance (Torrington and Tan Chwee Huat 1998). In Japan three pillars had been identified as the foundation of the HRM system: namely long-term job guarantee, seniority-based wage and promotion system, and in-house unions (Sano 1990). The poor state of the Japanese economy and demographic pressures related to an aging work force had built the pressure for reform since the 1980s. A growing mismatch between traditional HRM and business needs was observed. Moreover, the attitude by younger workers toward the organization and work was changing. Evolution toward increased numerical, temporal, and financial flexibility was formalized in the Nikkeiren report (Shin Jidai no Nihonteki Keiei – Chosen subeki Hoko to Sono Gutai Saku) published in 1995. It put emphasis on the diversified portfolio approach of human resources based on the concept of flexible firm developed by Atkinson (1984). This led to changes where employers are provided with both more external numerical and temporal flexibility and higher internal functional and financial flexibility than before. Since the 1990s Japanese companies have made resolute steps to adjust labor costs according to short- and long-term economic trends and to their business strategies. They transferred redundant employees to affiliated companies, launched early retirement schemes for the elderly ones and started to cut or at least limit the number of full-time permanent ones. They increased the share of various types of atypical workers and operate nowadays with a much larger percentage of some categories of those workers than in the 1990s. The best Japanese companies, such as Toyota, Canon, Panasonic, and others, continue to offer a long-term job guarantee to their regular employees but it goes with an evaluation, reward, and promotion system based on individual performance where elements of age and tenure have been discarded at all levels of the hierarchy. They allow larger reward differentials resulting from appraisal based on objective metrics, strongly requested by a growing segment of the young generation of managers. In most of these companies there is an explicit “fast track” system rewarding the best employees more rapidly and explicitly in monetary terms and career advancement (Debroux 2006). As a result, the level of uncertainty in terms of job stability and reward and career evolution is higher in a fast-changing corporate environment. However, almost no Japanese company wants to go back to the rigidities of the former system in terms of appraisal and rewards and career development patterns. They can no longer afford practices that had become so ambiguous and blurred by subjective considerations that they ended up rewarding incompetence and frustrating and discouraging the best performers.

Human resource management and employment systems in Asia

85

Practices such as long-term job guarantees and seniority pay and promotion could also be found in large Korean companies (Bae and Rowley 2004). Loyalty was important, as in Japan, although it was more focused on individual relationships rather than linked directly to the organization (Kim and Briscoe 1997). Significant changes occurred after the financial crisis in 1997. It induced drastic changes by the government and the business community. IMF intervention created an environment where flexible labor market regulation and company-level employment relations became more easily institutionalized than before. At the same time, companies introduced policies on labor-cost control and autonomy to recruit and dismiss employees. On the whole, it could be said that South Korea, too, is shifting from an organizational concept emphasizing equality and community toward respect for an individual, individual equity and market principles (Dessler and Tan Chwee Huat 2009). At least in trend-setting companies such as Samsung Electronics and LG, long-term job guarantee and seniority-based pay and promotion have been gradually replaced by a more flexible employment system putting emphasis on performance and ability (Bae and Rowley 2004). The recruitment and promotion system in Korea used to attach almost as much importance to academic credentials and seniority as in the Japanese companies (Bae and Rowley 2004). Similar to Japan, academic origin is still important in recruitment, as is in-house training and promotion. Yet, unlike in the past, companies do not attach the same priority to recruiting young graduates of the elite universities as they used to do. Korean managers were in fact always more mobile than the Japanese ones but it could be said that the difference between the two countries in this respect is widening. The need for rationalization of the HRM system explains the move to more recruitment-on-demand practices and more flexible adjustments to labor demands. Korean companies now actively search all year long for experienced managers and high-skilled workers in the labor market (Bae and Rowley 2004). In this regard, today’s Korean labor market can be placed somewhere in between that of the U.S.A, with its developed specialized education, backing a recruitment system based on the external labor market and merit-based promotion, and of Japan, where, despite recent changes, recruitment of new graduates remains the norm and backs up the still very dominant recruitment and selection approach based on the logic of internal labor market (Debroux 2003). In major South Korean conglomerates (chaebol) professional managers without connection with the founding family can now expect to be given the opportunity to be promoted to senior managerial posts (Bae and Rowley 2004). The South Korean pattern, therefore, can be placed somewhere between a typical Japanese company, where almost all managers are salaried, and a Southeast Asian family-owned conglomerate where important positions are still largely occupied by family members despite recent changes that will be described later. In China, deregulation of the labor market has led to a shift away from the assignment of employees to the organizations, and a greater reliance on the external labor market. Besides educational credentials like in Japan and Korea, skills and motivation are now the major criteria for selecting recruits. Material rewards, rather than a pledge of job security and benefits in kind, are used as the major work incentive.

86

P. Debroux

The trend toward more performance-driven reward systems with less companysubsidized welfare services is gaining strength, not only in joint ventures and wholly-owned foreign subsidiaries but also in local companies. Although it is not a general trend yet, companies readily adopt proactive HRM practices in matters such as retrenchment, performance evaluation and standards, pay and promotion (Jie Shen and Edwards 2006). In South-East Asia the emphasis on harmony, respect for elders, acceptance of hierarchy and group-oriented interests over individual interests mentioned earlier had a strong influence on HRM philosophy and practices (Asma 2001). Many organizations had adopted paternalistic HR management systems integrating those elements. Seniority was important for reward and promotion, and employers were hesitant to dismiss employees due to considerations of harmony in the workplace and local community. Recruitment and selection were most often based on personal relationships. The major change after 1998 was to introduce stricter HR measurement. In Thailand it led to an increase of lay-offs. It occurred first in the multinationals present in the region but it was followed also by large national companies and family-owned businesses. Individual factors such as skills and performance became increasingly important determining factors for rewards (Lawler and Atmiyanandana 2004). The case of Malaysia also exemplifies this trend. The new initiatives gradually emphasized the managerial right to recruit and dismiss, short-term contract, individual performance-oriented pay and promotion, and downsizing and retrenchment (Smith and Abdullah 2004). South-East Asian family-owned businesses used to have a wall dividing executives, mostly members of the founding family, from not only rank-and-file workers but also salaried managers. However, the situation is gradually changing with corporate modernization and opening to external capital (Tselichtchev and Debroux 2009). The Asian crisis was a catalyst converting, albeit incompletely, family-dominated conglomerates into institutionally owned ones. Many top managers still come from founding families and key managerial positions are usually given to relatives, but they are supported by increasing numbers of selected and promoted salaried managers. For example, in the CP Group in Thailand all the heads of business divisions are salaried managers (Takeuchi 1999). In that sense, as the number of salaried managers is increasing, the major companies of SouthEast Asia are shifting towards the Korean pattern.

The need for a new psychological contract The examples mentioned above clearly indicate that many changes have been undertaken, with the HRM system in all countries in the region going in the direction of adoption of American standards of HRM. However, be it in Japan, Korea, South-East Asian countries, or China, it is not easy to find a balance between seemingly antagonistic concepts and practices that promote both individualism and collective values. There are few HRM practices linked to criteria of evaluation and reward, or related to the flexible firm concept that can be considered as “best practices” in general terms. Adapting to the reforms may not be a problem

Human resource management and employment systems in Asia

87

for MBA holders and other elite employees whose reward and career development are boosted by reforms promoting recognition of individual rather than group performance and creating larger reward differentials. These HRM practices definitely mean a transition from the traditional relational to a more transactional-based psychological contract between management and workers. The mutual expectations are changing all around the region (Bae and Rowley 2004). Paternalistic corporate cultures, with symbols such as seniority, company songs, and slogans, no longer appeal to talented and ambitious individuals. They share many of the values present in the new HRM systems. There is a trend toward more contingenttype relationships, more driven by the external labor market. They do not perceive their companies as benevolent employers any more and do not expect them to be so. They welcome HRM systems that explicitly recognize individual achievement, rationalization, and efficiency and that consider such recognition to be the manifestation of fairness to their employees. The problem, however, is that the benefits of the implementation of the highcommitment model is most often limited to managers and a relatively small group of other core strategic workers. It does not include (or much less in almost all cases) the other employees who are not clearly benefiting from its adoption or at least perceive that they do not. The gap between managers and the other workers is widening in many companies in terms of compensation and access to fringe benefits. The twotier system, treating the working elite and the others very differently, reflects the fact that the new HRM system is seeking to achieve two apparently contradictory objectives. On the one hand, the development of human resources is expected to pave the way for a kind of employee–management partnership that is profitable for both parties. In the long-term perspective it is considered as a key success factor. Core employees’ participation in decision-making is encouraged and they are delegated rights and responsibilities that are thought could positively influence company performance (Tomer 2001). However, while pursuing differentiation strategies, companies relentlessly stick at the same time to cost-reducing practices, seeking more numerical and financial flexibility. For many employees, not benefiting from the core employee status because their contribution is not considered as strategic, or for those who perceive performance-based systems as a threat to their jobs, it is very difficult to assimilate the new work culture. It happens in spite of the attempts on the part of companies to develop a strong unitarist-type corporate culture that would replace the old, paternalistic one for all categories of employees. The results so far are not always unsuccessful. Many schemes linking individual performance more directly to appraisal and reward have been put in place, which concerns rank-and-file employees in both domestic and multinationals operating in Asia. Communications between management and the workers are also more direct than before and considered to be more efficient. Not only in Japan but also in Korea and in most South-East Asian countries the age and tenure factors are considered as less important. Rank-and-file employees are often pleased to see their efforts more explicitly rewarded than before and to receive concrete gratification for it. In many companies it has created a rather high organizational commitment. The traditional benevolent type of management has not been replaced by a stronger

88

P. Debroux

institutionalization of labor relations. Conflicts are de-emphasized as conforms to the HRM dimensions (Storey 1995) and the role of trade unions is minimized or completely non-existent. In the case of Japan and Korea it reflects the weakening of their positions since the 1990s but also their acceptance (more belatedly but nevertheless also in Korea since the beginning of the decade) of key tenets of the new HRM system, notably the reform of the appraisal and reward system but also the need for moderated demands for wage increases. Still, the abstract emphasis on companies’ values and missions typical of HRM systems cannot easily replace the stable psychological contract of the former traditional relationships. Doubts are expressed about the effectiveness of such systems in the long term unless they can provide sufficient security and career predictability, and a minimum of participation in the decision-making process at the level of the workplace (Caspersz 2006). Job-hopping of skilled workers is already a serious problem in Malaysia, Thailand, and Indonesia. In factories but also in workplaces like call centers and business process outsourcing (BPO) the turnover rate is quite high. It surely reflects the labor market fluctuations and other factors, but one of them is probably the lack of talent development initiatives and attractive career planning systems offered by companies (Lynton 2006). It creates a vicious circle because high labor mobility reduces the companies’ motivation to maintain or improve in-house training and education, and may even hinder their efforts in this area. As a consequence, especially in countries where specialized education cannot cope with the rapid market and technological changes, which is the case in most developing Asian countries, increased labor mobility seems to have widened the supply–demand gap for many skilled workers categories. It eventually drives up wages, and thus, pushes labor costs higher. In Japan companies have to convince employees of all categories that “objective” rules and metrics would treat and evaluate them fairly (Debroux 2003). The trend of the reform toward a more individualized employment system has often had a reverse effect such as losing tacit information and lower productivity as individual workers attempt to improve their performance at the expense of collaborative efforts. The structural adjustment and company reform program have been painful and achieved with significant human cost in a country where the social safety net is much thinner than in the European welfare states. This is exemplified by the dramatic worsening of working (and standards of living for those who lose their jobs and are unable to find another one) conditions for many “periphery-type” workers, especially since the beginning of the financial crisis in 2008. But longer working hours, stagnation of disposable income and decline of fringe benefits also characterize the working conditions for many permanent employees. This puts Japanese companies in delicate situations. They would like to develop HRM systems, giving them higher flexibility in all its dimensions. But, to cope with the dire socio-economic situation they have to make adjustments. Further liberalization reforms of the labor market have stalled in the last five years for political reasons. Companies continue to operate in a political, business and social environment that puts the brakes on rapid changes. The legal framework, such as laws that protect employees from dismissal, remains deeply entrenched and

Human resource management and employment systems in Asia

89

significant changes cannot be expected in the foreseeable future. Regulations on atypical workers seem to offer more flexibility on the one hand, but on the other they maintain severe management constraints (or create new ones). Companies have to keep motivated workers from core to periphery, good and bad performers who have always worked in a system where their position was largely secure and endeavors evaluated collectively without large reward differentials. As a consequence, companies continue to offer a certain level of job and income security to many employees that they no longer consider to be core strategic employees. This is all the more necessary because it seems that the large majority of Japanese employees in all age groups desire to have a career linked to some kind of longterm job stability (Debroux 2006). As in the case of Japan, Korean companies are moving very cautiously, so as not to break the fragile psychological contract existing between the two parties (Bae and Rowley 2004). They look increasingly for consensus with the unions in order to avoid costly labor conflicts. In China, it appears that some of the prescriptive aspects of the HRM paradigm are changing management mindsets only slowly. In most Chinese companies HRM remains quite inward looking, with a focus on wages, welfare, and promotion as found in the conventional personnel arrangements, rather than strategic concerns on long-term development of human capital that are normally associated with the HRM paradigm (Warner 2003). In South-East Asia, it was observed that the system of short-term fixed contract systems adopted by multinationals but also by local family-owned businesses had the consequence that the management team became less loyal to the family owners and short-term cash gain became the major incentive factor for both managers and employees (Smith and Abdullah 2004). Therefore, as in other South-East Asian countries such as the Philippines and Indonesia, in order to keep the HRM system efficient and stable the “soft” part of HRM (in the traditional sense of the term and not linked to the high-commitment model) has been maintained along the lines of key aspects of the region’s cultural and value systems, such as managerial concern to help employees to digest the new managerial measures (Smith and Abdullah 2004). The same comments could be made about Thailand. Although there are increasing numbers of professionally trained managers working in family businesses, traditional cultural values still dominate HRM practices (Lawler and Atmiyanandana 2004). The feeling of economic and social insecurity it creates is liable to cause a backlash against further HRM system reforms. This is especially true because no East and South-East Asian country, including Japan, has a social safety net comparable to that of the Western European welfare states. A structural feeling of insecurity may result in recurrent industrial unrest and have a negative impact on consumption and investment climate. This partly explains why, although wage differentials are larger than before in almost all Asian countries, on the whole, they remain small by Western standards (Towers Perrin 2008). In Japan, the differential between average employee and top managers’ salaries is about 1 to 15. To go beyond this would be difficult to accept for the employees. In China, despite the drive towards labor market deregulation, the pay system is still influenced by the egalitarian culture and the wage differential remains low (Fang Lee Cooke 2004). The same

90

P. Debroux

is also true in South Korea, although the differential is somewhat larger than in Japan (Towers Perrin 2008).

The shortage of skilled human resources The trend toward the formation of a knowledge-based economy is gaining strength in Japan and Korea and also starting to transform the economies of Malaysia, Thailand, China, and even Vietnam, eager to shift away from labor-intensive industries, climb up the added-value chain, and transform their innovation system. The necessity of upgrading human capital is one of the most urgent tasks and exerts a strong influence on HRM practices. East and South-East Asian countries are eager to speed up innovation by promoting the activities of research institutions, universities, and businesses engaged in R&D. Innovation strategies require nurturing and attracting a world-class workforce with a scientific background. Also, servicing and upgrading of the regional economies increases the demand for expertise in such areas as finance, marketing, and legal affairs. All this stimulates domestic companies to adopt HRM practices attuned to the needs of workers with highly specialized skills. A kind of labor price bubble is observed in some markets such as India, Thailand, and especially China. The high cost of young highly qualified human resource in some fields (finance, marketing, logistics, HRM) reflects the demand–supply imbalances on the regional labor markets. Many more skilled and knowledgable workers are needed than their educational institutions can provide for the moment. Compensation levels for managers in China is higher than could be expected looking at its per capita GDP. Labor costs in Hong Kong have become the highest in the region, even higher than in Japan (Bucknall and Ohtaki 2005). Despite its huge population, East and South-East Asia is already suffering from a shortage of skilled labor. Declining birth rates are likely to lead to the reduction of the productive-age population and are the region’s looming demographic time-bomb, pressing most countries in the region to reshape their employment systems. In a large number of East Asian countries the educational infrastructure and support systems have failed to keep up with the demand for human resources. In some of them, the current low dependency ratio is boosting economic growth. However, this “demographic window of opportunity” will start to close in the not so distant future. It closed in Japan at the beginning of the 1990s. In South Korea, China, and Thailand it will happen within the next ten years. The Philippines, Malaysia, Indonesia, and Vietnam still have about 25 to 35 years left (Bloom and Canning 2004). This is a challenge not only for policy-makers, but also for Asian companies and their established recruitment, training, and retention practices. Asian companies must maintain their competitive cost advantage while attracting the best talent and offering career opportunities that match those offered elsewhere in the world. The problem is not limited to managerial personnel. It concerns all types of skilled workers, including those who are doing the jobs outsourced from developed countries. Lower-cost locations, like India, the Philippines, Vietnam, and China, are now outsourcing bases for such high value-added services as medical diagnostics, architecture-related design, accounting, and software development

Human resource management and employment systems in Asia

91

(Bibby 2003). Under these conditions the shortage of skilled workers may become a major growth constraint. Thailand – a country where students traditionally preferred liberal art degrees – is putting special emphasis on training engineers and scientists, preparing a policy shift to encourage more students to get science and engineering degrees. Malaysia is seeking to widen the range and enhance quality of education, as well as to improve vocational training. Several new universities were set up in the last 20 years in both the eastern and western parts of the country. The government is also encouraging foreign universities to establish Malaysian branches. Nevertheless, thousands of young Malaysians have to go abroad to get higher education. According to a recent company survey, about 50 percent of the firms covered consider inadequate worker skills to be the biggest obstacle for doing business in the country (The World Bank Group 2006a). Indonesia faces the problem of a high unemployment rate for people under the age of 25 (The World Bank Group 2006b). The major reason is low learning achievement. Educational institutions remain inadequate, not to mention their insufficient capacity while population growth rates remain high. In fact, some Asian countries do provide large numbers of college graduates with engineering degrees. However, a mismatch between supply and demand is observed. In China and Vietnam about 80 percent of the new graduates in engineering are said not to have mastered basic practical skills and need comprehensive in-house training before being assigned a job (Lynton 2006). China’s pool of young engineers considered suitable to work in a multinational corporation is about 160,000 people – no more than in the UK, although in 2005 it had about 600,000 engineering graduates, compared to just 70,000 in the United States. The country is also short of some 750,000 professional managers (Lynton 2006). China’s most acute problem is the shortage of senior managers with leadership capabilities in such areas as marketing, sales, and human resources management. Especially for people over 40 it is difficult to become efficient senior managers because they were educated and worked in the totally different environment of a conventional communist state. Hong Kong and Singapore suffer from the scarcity of high-skilled sales and marketing personnel. Singapore made a tremendous effort in that direction but Hong Kong is in a much more difficult position to find enough people with the requisite skills for the knowledge-based economies it plans to develop. Family-owned companies in South-East Asia have only a small group of professional managers outside the families, and their shortage impedes the rise of efficiency and competitiveness. One of the professions most neglected so far was of human resource manager. With the exception of the Philippines, Singapore, Hong Kong, and Malaysia, where HRM professionals play more or less a visible role, established employment practices and the emphasis on the internal labor market, notably in Japan, did not allow a perception of the job of human resource manager as requiring certified specialized knowledge. However, the shortage of professional managers does not lead so far to a convergence toward a more important role of MBA-type human resources in the management of large companies, of the kind that has been observed in the United States for quite a long time already and since the 1980s in Europe. In East and

92

P. Debroux

South-East Asia the concept of a manager as a professional with a special degree is still quite new, although the number of educational institutions teaching management at graduate level is now rapidly increasing. In North America there are some 700 schools accredited by the American Assembly of Collegiate Schools of Business, providing about 200,000 MBA graduates per year. In Western Europe there are about 100 business schools comparable with their American counterparts, and the annual number of MBAs is around 45,000. For its part, Asia has only about 30 schools of a comparable standard with about 15,000 MBA graduates, and very few of those schools, even in Japan, are able to compete in the international marketplace with leading business schools such as Harvard, Wharton, MIT, INSEAD or IMD. In Japan, the best private and public universities offer executive MBA-type programs. However, in large Japanese companies there are no moves to consider the recruitment of MBA holders as an important element in HRM restructuring. The situation is not significantly different in the other countries, from Korea, Singapore to China and the other ASEAN countries. The Japanese government has devised ambitious plans to boost the national innovation system. Fifteen years of reforms have made large and medium-sized Japanese companies more open to new ideas and more competitive on world markets. They skillfully manage worldwide production and marketing networks, and their R&D operations abroad now contribute significantly to the growth of some of them. They can manage alliances to take advantage from the open technology environment, utilize corporate venture capital to support promising start-ups and optimize the talent of their brightest employees (Jackson and Debroux 2008). Following Japan, Singapore was one of the first countries in the region to start the shift toward a knowledge-driven economy. Ambitious projects are emerging or are envisioned for the next decade in India, South Korea, Taiwan, and China. Leading Asian cities are creating life-science centers/hubs, such as Singapore Biopolis, a science park for biomedical and other knowledge-based industries, or Hyderabad, with its project of life sciences to match its IT Industry. China, Korea, and Taiwan are building biotechnology clusters to attract back to their countries the expatriate scientists trained overseas. Formal university–industry partnerships and university spin-offs used to be rare just ten years ago but the situation is changing fast in countries such as Korea, Singapore, China, Taiwan, and Japan. In China, too, universities and research institutes have contributed a great deal to the growth of local industry. Malaysia, Taiwan, and Hong Kong are impressed by some of the Chinese success stories such as Lenovo and Tongfang and are eager to emulate them. Growth of East Asian economies over four decades was propelled by the rapid expansion of their industrial sectors. Recent changes in the international organization of manufacturing suggest the need to reduce reliance on the sector. R&D can still provide the basis for growth based on production of high-added-value products but service sectors are bound to grow as a relative percentage of national income. In East and South-East Asia, many services are still provided relatively inefficiently and their Total Factor of Productivity is still lower than the OECD average. So, following Japan, Korea, Singapore, and Taiwan look to improvement of the innovation system, not only in manufacturing but also in services.

Human resource management and employment systems in Asia

93

Companies wanting to attract knowledge workers must be able to promote values and norms emphasizing the importance of creativity, individual initiative, knowledge sharing, commitment, and trust, while developing compensation and career development structures that can motivate those workers and optimize their talents. Especially if they confirm their eagerness to recruit knowledge workers from Western countries as well, they will have to recognize that management of knowledge workers is different from that of other workers. They are likely to be demanding in terms of monetary and non-monetary rewards, push for an active role in formulating strategies, and claim wide access to information. To accommodate those requirements, East Asian companies will have to change their HRM practices. As observed by Welford (2006), non-discrimination policies have not yet become a standard for most Asian companies. The sorts of policies found in Western multinationals (and often mandated by law in their home countries) are not very common. In many respects, the law in most countries in Asia is incomplete in its coverage of discrimination issues. One important aspect of diversity management is the gender issue. As decreasing birth rates are expected to cause serious labor shortages, Asian countries will have to change their work organization so that it can accommodate the needs of female and elderly workers, as well as to accept more immigrant workers. Gender discrimination still exists in some Asian countries, although its most blatant examples seem to be fading away. It is still difficult for women to enter into the managerial field and those who succeed continue to face many obstacles to progress in the hierarchy and to be given authority and responsibility commensurate with their capabilities. As a result their talents are under-optimized in all countries in the region, with the two Asian members of the OECD, Japan and Korea, remaining distinctive laggards in this respect (Rowley and Yukongdi 2008). As time goes by, more and more people in Asia are choosing and will choose different lifestyles and working patterns, depending on their preferences, ideals, and personality. It is observed that, so far, in most Asian countries great importance has not been attached to theses issues or they have not been approached in a positive way. For instance, as observed by Welford, such aspects of diversity as unconventional sexual orientation have been looked upon with suspicion and dismay. Generally, East Asian countries’ basic policies on diversity-related issues were rather more reactive than proactive: they limited themselves to making statements about their commitment to non-discrimination on the basis of gender, race, or religion (Welford 2006). The idea that the region’s emerging multinational corporations should promote, not restrain, the workforce diversity to raise their global competitiveness is quite new. If one examines the profile of employees in sectors such as information technology, financial services, law, consultancy, accounting, and academia, it is found that large segments of the population are under-represented in those fields. A proactive approach to diversity could simultaneously reinforce economic competitiveness, help to solve the existing labor shortages and open career opportunities for traditionally disadvantaged people. Workplace diversity involves recognizing the value of individual employees’ differences and managing them in a productive way. It is more a question of

94

P. Debroux

behavior and attitude than of ethnicity, skin color, and gender. In Asia, it is often more common to see employees being expected to fit into a uniform corporate culture where individuality can become stifled. Emphasis is still put on monitoring of managerial tasks rather more than on nurturing. For the time being it has been observed that the room for managers’ initiatives and risk-taking remains limited, as most companies still adhere to a set of standardized rules as a norm. On the whole, Asian firms’ HRM practices are said to still be far away from what Storey (1992) called “impatience with rule,” or the “can do” outlook associated with the high-performance model of HRM (Benson and Rowley 2004).

Conclusion Basic principles of human resource management are becoming more and more similar throughout the world. HRM is becoming increasingly sophisticated and multidimensional. On the other hand, though the foundation is becoming similar, companies in East Asia are experimenting with different approaches, methods, and techniques, suited to their specific conditions and needs. Asian specificities as well as differences between East Asian countries themselves, rooted in national cultures, history, law, institutions, and organizational structures, definitely remain. There is nothing wrong with this situation per se. It is not necessarily a product of institutional and organizational inertia. To work well, HRM has to be carefully adjusted to socio-economic, cultural, and political realities in each particular nation. Large local and foreign companies are modernizing their HRM systems faster than the states and the societies as a whole get ready to accept the change. But, it would be wrong for them to let the state apparatus alone solve the issues resulting from the implementation of their policies. First of all, public authorities may be unable to solve the problems on their own. Second, it may force them for social and political reasons to implement policies that would be detrimental to economic welfare (recourse to protectionism, for example, in order to protect categories of population that do not fit any more into the job strategies of companies) or that could even end up curbing civil liberties (restriction to the right of association in order to keep labor costs low, for example) as Malaysia and Indonesia did for a while in some export-oriented industries. The issues of nurturing high-skilled workers, of devising stable and efficient HRM systems for them, are very complex and both public authorities and companies devote huge resources in this respect. In many Asian countries demographic pressure is getting stronger by the day, as is the unemployment rate of some segments of the population. It is the responsibility (and the long-term interest) of both parties to work together to create an HRM system that would be efficient economically and fair socially to all segments of the population.

Human resource management and employment systems in Asia

95

References Asma, A. (2001) “Influence of ethnic values at the Malaysian workplace”. In: A. Abdullah and A. Low (eds.) Understanding the Malaysian Workforce: guidelines for managers, Kuala Lumpur: MIM, pp. 1–24. Atkinson, J. (1984) “Manpower strategies for flexible organisations”, Personnel Management, 16(8): 28–31. Bae, J. and Rowley, C. (2004) Change and continuities in South-Korean HRM in the Asia Pacific Region: convergence reconsidered, London: Frank Cass. Benson, J. and Rowley, C. (2004). Conclusions: changes in Asian HRM – implications for theory and practice”. In: J. Benson and C. Rowley The Management of Human Resources in the Asia Pacific Region: convergence reconsidered, London: Frank Cass. Bibby, A. (2003) “Designs for Western living in the East”, Financial Times, September 2: 15. Bloom, D. and Canning, D. (2004) Global Demographic Change: dimensions and economic significance, Cambridge, MA: Harvard Initiative for Global Health Working Paper Series 1. Boxall, P. F. (1992) “Strategic human resource management: beginning of a new theoretical sophistication?” Human Resource Management Journal, 2: 60–79. Bucknall, H. and Ohtaki, R. (2005) Mastering Business in Asia: human resource management, MERCER Human Resource Consulting, Singapore: John Wiley & Sons. Caspersz, D. (2006) “The ‘Talk’ versus the ‘Walk’: high performance work systems, labour systems, labour flexibility and lessons from Asian workers”, Asia-Pacific Business Review, 12(2): 149–61. Debroux, P. (2003) Human Resource Management in Japan, Aldershot: Ashgate Publishers. —— (2006) The Shift Towards a Performance- based Management System: from Noryokushugi to Seikashugi, London: Palgrave. Dessler, G. and Tan Chwee Huat. (2009) Human Resource Management: an Asian perspective, Singapore: Pearson. Fang Lee Cooke (2004) “HRM in China”. In: P. S. Budhwar (ed.), Managing Human Resources in Asia-Pacific, London: Routledge. Guest, D. E. (1995) “Human resource management, trade unions and industrial relations”. In: J. Storey (ed.) Human Resource Management, a Critical Text, London: Routledge. His-An Shih (2001) “The transformation of human resource system at Taiwan Semiconductor Manufacturing Company”, Change in Management Practices in Asia, 2001 LVMH/ INSEAD Euro Asia Centre Conference. Hyman, R. (2001) Understanding European Trade Unionism: between market, class and society, London: Sage. Jackson, K. and Debroux, P. (2008) Innovation in Japan, London: Routledge. Jie Shen and Edwards, V. (2006) International Human Resource Management in Chinese Multinationals, London: Routledge. Jie Yu and Meyer-Ohle, H. (2006) “Working for Japanese Companies in China: a Qualitative Study”, Proceedings of the 23th Annual Conference of the Euro-Asia Management Studies Association, Seoul, November 22–25, 2006. Khan, A. (2005) Matsushita’s Turnaround, ICFAI Knowledge Center. Kim, S. and Briscoe, D. (1997). “Globalization and a new human resource policy in Korea: transformation to a performance-based HRM”, Employee Relations, 19(5): 298–308.

96

P. Debroux

Lawler, J. and Atmiyanandana, V. (2004). “HRM in Thailand: a post-1997 update”. In: J. Benson and C. Rowley The Management of Human Resources in the Asia Pacific Region: convergence reconsidered, London: Frank Cass. Legge, K. (1995) Human Resource Management: rhetoric and realities, London: Palgrave. Lynton, N. (2006) Chindia’s Workforce Worries, in BusinessWeek Online, June 31, 2006 Insight. Nikkeiren. (1995) Shin Jidai no Nihonteki Keiei – Chosen subeki Hoko to Sono Gutai Saku, Tokyo: Nikkeiren. Rousseau, D. M. (1995) Psychological Contracts in Organizations: understanding written and unwritten agreements, London: Thousand Oaks. Rowley, C. and Yukongdi, V. (2008) Women Managers in Asia, London: Routledge. Samsung Economic Research Institute. (2009) Huawei: development and corporate culture. Samsung. Sano, Y. (1990) Human Resource Management in Japan, Tokyo: Keio University Press. Smith, W. and Abdullah, A. (2004) “The impact of the Asian financial crisis on HRM in Malaysia”, Asian Pacific Business Review, 9(3 and 4), Autumn: 402–21. Storey, J. (1995) Human Resource Management: a critical text, London: Routledge. Takeuchi, J. (1999) Human Resources Management Systems of Asian Companies, Sakura Institute of Research. The World Bank Group (2006a). Doing Business in Asia. Washington DC: World Bank. The World Bank Group (2006b). World Development Report 2006: development and the next generation, Washington DC: World Bank. Tomer, J. (2001) “Understanding high-performance work systems: the joint contribution of economics and human resource management”, The Journal of Socio-Economics, 30: 63–73. Torrington, D. and Tan Chwee Huat (1998) Human Resource Management for South-East and Hong Kong, Singapore: Pearson Prentice Hall. Towers Perrin (2008) Worldwide Total Remuneration 2007–8, Towers Perrin. Tselichtchev, I. and Debroux, P. (2009) Asia’s Turning Tides, Singapore: John Wiley & Sons. Umashanker, R. (2005) Jong Yong Yun, Samsung Electronics’ CEO Competing through Catastrophe Culture, ICFAI Business School Case Development Centre. Warner, M. (2003) “China’s HRM revisited: a step-wise path to convergence?” Asia Pacific Business Review, 9(4): 15–31. Welford, R. (2006). “Celebrating diversity in the workplace”, CSR Asia Weekly, 2(29).

6

Demystifying the relationship between intercultural adjustment and effectiveness in international assignments Reflections on Japanese expatriate managers Beatriz Maria Braga and Edson Keyso de Miranda Kubo

Abstract Intercultural adjustment has been considered a determinant factor of expatriates’ success on international assignments and the model of international adjustment of Black et al. (1991) has been the main reference for empirical research and practical recommendations in the academic literature on expatriation. According to this model, intercultural adjustment is a multidimensional construct that involves three dimensions: work (the new job requirements), interaction (relationships with host people), and general (foreign culture and living conditions), and if the expatriate does not achieve intercultural adjustment, failure – characterized by a premature return – is most likely. However, a literature review shows that the Japanese expatriates, taken as examples of success in international assignments due to their lowest failure rates in the world, do not seem to be concerned with achieving the interaction and general dimensions of adjustment. This apparent contradiction and some possible explanations for the Japanese “case” are presented in this chapter.

Introduction Black et al. (2006) emphasize that internationalization is a requirement for competitiveness for most organizations nowadays and that international assignments of short and long duration are some of the ways of providing the people that carry out the international strategy. Expatriates are executives that are sent by a multinational company to live and work in a foreign country for a period of more than one year (Caliguri 2000) and since expatriation is not only a strategic decision but also a costly process, academic research has been focused on the determination of the success factors for international assignments (Black and Gregersen 1991, Takeuchi et al. 2008).

98

B. M. Braga and E. K. de Miranda Kubo

Most empirical research on expatriation assumes that without intercultural adjustment, that is, adjustment to the host country, the expatriate will not succeed. It is common to find the following premise: “Expatriates will adapt their behaviors, norms, and values to fit in and ultimately succeed in the cross-cultural environment” (Lee and Liu 2006: 305). Failure in expatriation, generally defined in the literature as the premature return of the expatriate (Tung 1987) and/or an inadequate performance, has been strongly associated with the concept of adjustment and represents a high cost to the company (Lee 2007). Aycan (1997) emphasizes that failure could be caused by the expatriate’s inability to adjust and to the lack of an adequate pre-departure preparation process provided by the MNC. In this sense, to avoid failure and simultaneously promote success in expatriation, the literature on expatriation constantly focuses on the aspect of intercultural adjustment through practices and polices of international human resource management (IRHM) that would help overcome these problems. Almost all the literature on expatriation has been dominated by empirical work that studies the North American expatriates who, according to the literature, have problems of adjustment and, supposedly, a high failure rate (Black et al. 1991, Aycan 1997, Sanchez et al. 2000, Scullion and Brewster 2001, Andreason 2003, Toh and DeNisi 2005). Therefore, a lot of criticism has been raised about the literature on expatriation so far, from the point of view of the development of the construct of adjustment and its applicability for most contexts (Harzing 1995, Scullion and Brewster 2001, Bhaskar-Shrinivas et al. 2004, Vianen et al. 2004). The literature has also pointed out that expatriates of Japanese multinational companies show lower failure rates when compared with American multinationals and they are presented as cases of success in international assignments (Tung 1987, Harzing 1995, Yamazaki and Kayes 2007). Therefore, it seems that the study of the expatriation process of Japanese companies may offer the possibility to better understand the construct of adjustment. In this paper, the authors investigate and aim to demystify the assumption that intercultural adjustment plays the central role in the expatriation success and, in this way, intend to make a theoretical contribution to the development of the construct of adjustment, by questioning its elements and also by pondering on the adjustment of Japanese expatriates. This paper is divided into three main parts. After this introduction, a literature review about intercultural adjustment and the contradictions about this concept are presented. After that, the literature on Japanese expatriate managers is reviewed; in the third part, the authors point to issues and arguments found in the literature review that might explain the Japanese success and which contradict the extant literature on intercultural adjustment and which, in this way, may open new venues for research on the construct.

Demystifying the relationship

99

Literature review International human resource management and the strategy of expatriation Organizations expatriate executives for several reasons, including control, managerial expertise, and penetration in a new market (Shaffer et al. 1999). Evans et al. (2002) pondered on the purposes of expatriation and affirmed that expatriation can manifest itself in two types of international assignments: demand-driven (DD) and learning-driven (LD). According to the authors, the expatriate job is usually linked to the first purpose (DD), in which the employees are sent abroad to solve a problem or for control reasons. However, the authors state that a growing number of assignments focus on the individual learning and organizational learning and that many international assignments combine elements of both types of expatriation, but in most cases it is clear which dimension is dominant. Traditionally, most expatriates are assigned abroad for a long period of time (usually three years or longer) as corporate agents of the parent firm in order to implement or monitor the subsidiaries’ operations. In this case, the demand of their services is driven primarily by knowledge transfer or control requirements, and thus the expatriates serve a corporate agency role. Expatriates substitute or even complement the parent firm’s role concerning the surveillance of local operations and play three basic roles: to fulfill key positions, managerial development, and organizational development. From the perspective of the resource-based view (RBV), it would be possible to mention a lot of factors to justify the utilization of expatriates: they would be, in principle, technically more capable to perform the tasks, they would have more experience in international management and more managerial expertise, and so on. Although expatriates have the competences that would raise the capacity of a company to control and coordinate, research also revealed that the expatriates actually do not always perform according to the parent firm’s expectation; but, even then, multinationals continue their expatriation programs, as the following citation illustrates: “multinational firms use expatriates even when these expatriates do not necessarily perform well” (Tan and Mahoney 2006: 465). The integration of the agency theory and cost transactions theory helps us understand this paradoxical situation. Expatriates reduce the transaction costs that are contractual costs related to control of local operations. This is due to the easy access that an MNC has to the expatriates so that it can easily observe and offer support to their managerial behaviors: same culture, same language, quick communication, and lack of interference, etc. (Tan and Mahoney 2006). In this way, an MNC would be more tolerant or complacent about an expatriate who has not performed in a satisfactory way in the beginning of their international mission. In this sense, the strategic perspectives of RBV, transaction costs and agency theory can help us understand that expatriation, although expensive, is necessary. Thomas and Lazarova (2006) observed that research on expatriation of executives

100

B. M. Braga and E. K. de Miranda Kubo

from the original country to the subsidiaries is a constant theme, especially when it deals with their intercultural adaptation. There is a widespread supposition, according to the authors, that there is a strong correlation between the adaptation of executives and organizational performance. However, the authors affirmed that these works have not really focused on the process of adaptation or adjustment, but, rather, on its antecedents and results. Scullion and Starkey (2000) have already observed that extant research related to international transfers is not useful when it comes to determining the underlying factors in phenomena such as expatriate adjustment and performance because most works are quantitative and attempt to explain the process of assignment through models and formula. The authors suggest more qualitative research is required to grasp the dynamic process of specific phenomena such as adjustment, for example. In the following section, the studies of the determinant factors of success in international assignments will be presented. Adjustment and success in international assignment In general, research on the effectiveness of expatriation is designed under the theoretical assumptions derived from the international model of adjustment of Black et al. (1991a). These authors reviewed 12 years of the domestic and international literature on adjustment and proposed an integrated model of analysis that denominated the international model of adjustment. In this model, intercultural adjustment is generally defined as the process of adaptation to living and working in a foreign culture. It is the perceived degree of psychological comfort and familiarity a person has with the host culture (Black 1988, Black et al. 1991). According to the authors the adjustment would be determined by: a)

job factors such as clarity, discretion or level of autonomy, conflict, and role novelty; b) organizational factors such as the supervisor, colleagues, logistical support, organizational culture, and socialization processes; c) non-related job factors such as spouse adjustment and individual factors that are self-efficacy, relationship skills, and perception ability. According to the model, the intercultural adjustment is seen as a multidimensional construct composed of three dimensions: a) work adjustment (adjustment to the new demands at work); b) interaction adjustment (socialization with individuals in the host country); c) general adjustment (adjustment to the foreign culture and living conditions).

Demystifying the relationship

101

These dimensions of adjustment are taken as positively related with the expatriate performance in the international mission and with the intention to remain in the foreign country. Nonetheless, for Aycan (1997), psychological comfort is just one of the factors of adjustment. According to this author, under the specific context of the international assignment, the adjustment is conceptualized as the degree of fit between the expatriate and the new environment that involves factors inside and outside work. In addition to these, the psychological adjustment and socio-cultural adjustment were proposed as the most immediate predictors of work adjustment. “It was argued that expatriates will be effective in and committed to their new job to the extent that they experience low stress and high integration with the new cultural milieu” (Aycan 1997: 451). Many other studies were dedicated to investigating the factors that influence the intercultural adjustment, which is assumed to be essential for success in expatriation (Stahl and Caliguri 2005). In one of these, Stroh, Dennis, and Cramer (1994) tested empirically the international model of Black et al. (1991) and proposed, from the findings, that the main limitation of this model is the lack of consideration for the expatriate’s willingness to experience the international assignment (Guiguet and Silva 2003). And, although the authors showed that the correlation between the adjustment and the expatriates’ willingness to accomplish the international mission was high (0.46), they continued to support the need of intercultural adjustment as the main pillar of the Black et al. model: “the more adjusted expatriates are, the more likely they will be to complete their foreign assignments” (Stroh, Dennis, and Cramer 1994: 189). Shaffer, Harrison, and Gilley (1999) also tested and validated the Black et al. model. The authors affirmed that they contributed to the expansion of the model by testing, in a large sample of expatriates, differences concerning the moderate effects of individual and position factors in the intercultural adjustment. Individual factors consisted of previous experience and fluency in the local language and position factors were composed of the expatriate hierarchical level, functional area, and vector of expatriation. Expatriation vector refers to the type of the expatriate, who can be from the parent country, third country or even an inpatriate (a employee from the subsidiary that is assigned to work in the parent company). In their results, the authors showed that previous experience and language fluency allow the expatriate to be more independent from the central office, characteristics that enhance local support and facilitate the adjustment. However, language fluency could also intensify the role conflicts, since the expatriate becomes aware of the conflicting demands between headquarters and the subsidiaries. As for positional factors, it was found that according to the hierarchical level of the expatriate, more autonomy would be required to reach work adjustment (CEOs for example), since their work is more conceptual and composed of strategic decision-making. Perhaps, for middle and lower management, a more detailed job description would be necessary. The functional area presented the lowest moderate effect among the proposed factors, although the authors affirmed that for technical expatriates, fluency in the host language would be essential for interaction

102

B. M. Braga and E. K. de Miranda Kubo

adjustment, when compared to expatriates in managerial positions. When it comes to type of expatriate vector, the authors observed that for a third country expatriate, culture novelty would not have a negative impact on his/her adjustment since the expatriate has more cultural sensibility. For expatriates, support from colleagues and role clarity were essential for their adjustment, considering the three dimensions of adjustment from the model of Black et al. (1991). In their conclusions, Shaffer, Harrison, and Gilley (1999) reaffirmed that adjustment determines success or effectiveness in international assignments. According to them, the maximization of effectiveness in international assignments depends on the investigation of factors that influence intercultural adjustment. But the authors remarked that an implicit assumption from Black et al.’s model is that it would be equally applicable to all expatriates and would be, therefore, a universal model. The application of a universal model would clearly result in research that would not consider relevant specificities for certain contexts and that would not help advance the conceptual development of the adjustment construct. In another empirical study on nine multinational companies in the hotel sector, Shay and Baack (2006) based themselves on the assumption of adjustment as a precondition to gather critical knowledge, expertise, and necessary skills for global competences and utilized the Black et al. model to analyze the relationship among the three dimensions of adjustment and found a significant relationship between the expatriate general adjustment and work adjustment. According to the authors, without adapting to the general culture of the host country, the expatriate would not have the conditions to adjust to work and to perform effectively. In their conclusions, Shay and Baack (2006) suggest that the initial focus of international assignments should be on the characteristics of the general and environmental culture and not on the job responsibility. It is important, however, to emphasize that Shay and Baack investigated the hotel industry, in which businesses are very much connected to aspects of the general culture such as gastronomy, entertainment, shopping, etc., and that results could be different if the sample was made up of other types of industry. In general, it is noticeable that intercultural adjustment basically refers to the adaptation to a culture that is different from the expatriate’s original country and that the works about this theme based themselves on the assumption that the intercultural adjustment is a precondition for success and effectiveness in international assignments. The expatriates should quickly adapt themselves to the local cultural reality (Bueno, Domingues, and Del Corso 2004). Adaptation is a crucial aspect because “If an expatriate cannot adapt to a foreign environment, analysis of other factors affecting expatriate performance is meaningless” (Newman, Bhatt, and Gutteridge 1978: 660). According to the authors, the inability of the expatriates to adjust to the local social culture has a high cost in terms of managerial performance, productivity in foreign operations, relationship with clients, and efficiency in operation. In case of failure, there are also invisible costs such as a loss of self-confidence and selfesteem in managerial ability and the lack of prestige among their colleagues. Some studies apparently questioned the relationship between intercultural

Demystifying the relationship

103

adjustment and expatriate performance. This is the case of Shaffer and Harrison (2005), who pointed out that even though a good adjustment would not result in the expatriate’s premature return, it would not guarantee the effectiveness of the expatriate performance. Although the authors seemed to deny the main accepted assumption, they affirmed at the end of their research that a poor “intercultural adjustment” produces thoughts of withdrawal from the international assignment, turnover, and the premature return of the expatriate to the original country. If an expatriate is experiencing poor adjustment, one of the simplest and most direct responses is to redirect attention and personal efforts away from his/her current position. Responses to maladjustment may take the form of withdrawing psychologically from the assignment or from the job, taking longer to get up to speed at work or failing to develop and maintain good relationships with HCN colleagues. (Shaffer and Harrison 2005: 1,457) Therefore, even if in the beginning of their work they seemed to contradict this basic accepted assumption, in their conclusion they affirmed that without intercultural adjustment there would be less adherence to work and a lack of commitment which, in turn, would to lead to poorer performance. The following citation illustrates their point: “Insofar as maladjustment represents increased stress associated with relocation to a new environment (work and cultural), we believe that expatriates who do not adjust have fewer resources and energy to allocate to their jobs” (Shaffer and Harrison 2005: 1,457). In fact, the belief that adjustment is essential for effectiveness in international assignments has its roots in the famous but not validated U-curve adjustment theory (UCT), from Black and Mendenhall (1991). According to the authors, this theory has been the basis for understanding intercultural adjustment that guided several studies, although there was no empirical evidence to validate them. The expatriates may initially experience fascination for the new culture (honeymoon stage), secondly the cultural shock, thirdly the “adjustment stage”, and finally the “mastery stage.” According to Winkelman (1994), the “mastery stage” is synonymous with “adaptation” or “acculturation phase.” The UCT implies that adjustment would be not only previous to, but also a precondition for, the intercultural adaptation. A conceptual differentiation between adjustment and adaptation is necessary to reflect on the intercultural effectiveness of expatriates in international assignments. Beyond the lack of empirical evidence, methodological limitations, and lack of consensus in relation to the concept of adjustment, the main influence of this theory in the following studies about intercultural adjustment was the assumption that the greater the cultural distance between the host country and the original country, the lower the level of self-efficacy1 of the individual. And, on the other hand, the greater the difference between the general and organizational culture of the host country and the original country, the greater and the more severe would be the cultural shock. This would result in inappropriate behaviors that would result

104

B. M. Braga and E. K. de Miranda Kubo

in poor relationship with clients, lack of opportunities in business, problems with labor unions, and damage to the company’s reputation: The greater the attention paid to HCNs as models, the greater the likelihood that individuals will vicariously learn appropriate and inappropriate behaviors. Also, individuals with high levels of self-efficacy would likely be more willing to experiment and try to imitate new behaviors. (Black et al. 1991: 244) When the authors combined the UCT with the Social Learning Theory, they showed how the UCT suggests the imitation of behaviors and the need of modifications of behavior and attitude toward the local culture so that the individual will finally achieve the self-efficacy and then the adjustment. A situation in which an expatriate is not able to adjust is synonymous with inappropriate behaviors that will impact on performance and general results. Black and Gregersen (1991) also utilized the UCT as a reference point for understanding the spouse adjustment when they assumed that expatriates’ spouses would also be influenced by the honeymoon stage. After this initial fascination with the new culture, there would be a decrease in the morale level so that after some trials, the individual would finally learn the appropriate and inappropriate behaviors: “This learning usually results in adjustment to the new culture”(Black and Gregersen 1991: 465). Based on the UCT, the authors stated that the level of uncertainty and their respective symptoms of cultural shock will only reduce if the expatriates can learn what is appropriate and inappropriate in the new culture. Moreover, the literature review shows that it seems to be a general recommendation that expatriates should identify themselves with the local culture during their international assignments. Multicultural identities of expatriates Studies on adjustment indicate that the development of a multicultural identity could be an effective way for the expatriate to cope with the stress and anxieties of international assignments. In fact, the expatriate model developed by Sanchez, Spector, and Cooper (2000), for example, proposes that the expatriate will pass through a profound personal transformation during that time and that there must be openness in order to succeed in international assignments. Identity crisis would be the main factor of stress in the experience of an international assignment for all expatriates. According to these authors, the expatriates face situations in the new environment in which they need to adapt their behaviors, to absorb values, habits, and new codes and even to modify their own style of management when necessary. The executive will gradually feel like excluding his/her original cultural identity in order to benefit from the adjustment and this situation can generate an inner tension. In order to overcome this phase, the expatriate must divide his/her identity to incorporate the local culture without harming the essence of their original identity. Expatriate executives must develop mechanisms to deal

Demystifying the relationship

105

with this paradox – identifying with the host country culture and, at the same time, preserving their original culture. For these authors, expatriation requires suitable reactions from the expatriate, since he/she operates in two different cultures, and they affirm that “A successful adjustment implies a final identification midway between the host and parent cultures” (Sanchez, Spector, and Cooper 2000: 101). The authors propose the concept of the bicultural expatriate, someone that has overcome the fear of losing his/her identity and has developed the ability to build an identity that enables him/her to become proficient in two cultures; someone that has already overcome the culture shock and adjusts perfectly to an environment that is different from his original culture (Sanchez, Spector, and Cooper 2000). The authors also emphasize that the bicultural expatriate represents the ideal model of cultural identification and adjustment that leads to effectiveness in international assignment. The implications of this research can be seen in the processes of candidate selection for expatriation in organizations which are not only more based on technical competence but also on the profile of openness to the new culture. And, according to the authors, this could explain, in part, the supposedly high failure rate of North Americans in international assignments which would be due to an inability to develop this bicultural identity due to the lack of willingness and courage to undergo the profound personal transformation associated with an international assignment that is essential for a healthy expatriate adjustment. But although the proposal of developing bicultural executives would seem to be the aim for solving the problem of adjustment, Freitas (2000) argues that adapting to life in another country is not only a matter of cultural identification or cognitive elements. In other words, having knowledge about a certain country’s culture, habits, values, and so on does not guarantee that a person will be able to live well in this country. The author also argues that an expatriate is someone that, differently from a tourist, must face and accommodate discomforts and frustrations. The model of bicultural executive, desirable as it seems, should not downplay organizational policies that, according to the author, would be effective in facilitating expatriates’ intercultural adjustment. IHRM’s policies concerning international assignment The proposal of a bicultural or global executive suggests that organizations could adopt IHRM policies that would facilitate the selection and training of such executives for international assignments. In their international model of adjustment, Black et al. (1991) also analyzed the variables that composed the anticipatory adjustment, which can be defined as the factors that would facilitate adjustment in the host country. According to the authors, the anticipatory adjustment is composed of two main factors: individual and organizational. Individual factors are made up of training and previous experience of the candidate that help build accurate expectations about the international assignment. These factors would reduce the level of insecurity and uncertainty of

106

B. M. Braga and E. K. de Miranda Kubo

the candidate. The organizational factors refer to the mechanisms and criteria of selection. Candidates chosen not only on the criteria of technical competences, regarding experiences and technical abilities in the work, but mainly through tests to identify the level of intercultural competences, which the authors do not specify, would adjust more easily and rapidly in the host country. According to their model, individuals selected only according to the technical competences would have difficulties in adjustment, since this construct requires intercultural competences. Still according to their model, intercultural training would be another action that could reduce uncertainty concerning the international assignment. Stroh, Dennis, and Cramer (1994) reinforced the original ideas of Black et al. (1991) concerning the need for policies aimed at career development of the expatriate and also at the spouse’s adjustment, so that organizations could reduce the level of failure or the expatriate’s premature return and simultaneously improve the adjustment in international assignments. However, later studies presented contradictory findings regarding selection and intercultural training. This is the case of the study conducted by Florkowski and Fogel (1999), for example, in their empirical research with 22 MNCs, 11 of which were from the United States and Europe. They concluded that individuals who were selected only by the technical competence criteria were more task oriented, prioritized the local subsidiary’s technological capacity and infrastructure, were more committed and not particular about intercultural relationships. In this way, these individuals could perform well without suffering the stress from local ethnocentrism that the authors specified as lack of support, information restriction, and difficulties of reception from the locals. The authors concluded that selection criteria based only on technical competence was important to insulate the expatriates from the local ethnocentrism. The authors also criticized the Black et al. (1991) model, because it only described the cultural differences between the host country and the original country but did not take into account the individual’s willingness to deal with the challenges of a different environment. Black and Gregersen (1991) also conducted empirical research on the effects of intercultural training that focused on the expatriates’ spouses. Although they had previously affirmed that intercultural adjustment was a result of local cultural learning and, especially, the comprehension of new behaviors, they discovered a contradiction in their findings: “Firm-provided cultural training was significantly related to spouse general adjustment but not to interaction adjustment” (Black and Gregersen 1991: 471). Since learning the appropriate behaviors would mean effective relationships between the expatriates’ spouses and the local people, it was expected that intercultural training would positively impact the spouses’ interaction adjustment which, according to the findings, did not happen. Bell and Harrison (1996) analyzed the degree of interdependence among the three dimensions of adjustment of Black et al.’s model (work adjustment, interaction adjustment, and general adjustment) and as a result, they stated that: “We also believe that interaction adjustment is the most fundamental dimension of the three, as both work and general adjustment are based on interactions” (Bell and Harrison 1996: 64). They also suggested that any intercultural training without a

Demystifying the relationship

107

significant impact on interaction adjustment would compromise the other forms of adjustment and will lead the expatriate’ spouse and the expatriate to fail in the international assignment. The literature review on IHRM policies toward intercultural adjustment showed that intercultural training is the general recommendation or solution to guide the expatriate to adjustment. Although there is an emphasis on intercultural training, recent research does not indicate clearly the intercultural training design or its content. Moreover, other important policies such as repatriation and career planning should not be forgotten in a scenario where mobility plays a crucial role (Aguzzoli, Antunes, and Lengler 2007, Freitas 2008, Homem and Tolfo 2008). So far, the literature review on international assignments, a topic that has been studied for decades, suggests that it is an important but still controversial field of research. Some of the authors who have criticized works on the topic are presented in the next section. Critics of research on international assignments It seems that most recent works on international assignments only attempted to expand the model of Black et al. without modifying its essence (Vianen et al. 2004). To the extent that literature on international assignments is reviewed, it is notorious, for example, for its concern with expatriates’ high failure rates. Harvey et al. (2001) affirm that, besides the high failure rate, there is also a high and continuous rate of rejection of expatriation proposals by candidates, especially in the case of North Americans, when the designation is to a developing country, such as India, China, Indonesia, Thailand, Malaysia, Turkey, and the Philippines, among others that are geographically and culturally distant from the United States. Nevertheless, according to Harzing (1995), research on adjustment is based on the misquotation and misinterpretation of some of the first and most cited works on this topic. These errors historically overemphasized the adjustment construct as the determinant factor of success in international assignments. The author verified that most studies base their premises and conclusions on the high failure rates in international assignments, giving the North American case as an example and citing Tung’s research. However, the author reminds us that Tung (1981) found that only 7 percent of the North American companies fall below a failure rate of 20 to 40 percent in expatriation. In addition to this misquotation, according to the author, premature return may not be the more adequate indicator of expatriate failure because the expatriate may stay until the end of the international assignment without being effective in performance, and this can be more damaging to the company than premature return. Besides, even if the expatriate remains for the assigned period, when he/she comes back to the original country, he/she has to adapt again to the original culture. This may represent a more difficult challenge than the expatriation because when the repatriation process fails, the whole expatriation cycle would be incomplete. According to Harzing (1995), the only thing that can be said from Tung’s research is that the failure rate in international assignments of North American expatriates

108

B. M. Braga and E. K. de Miranda Kubo

are, in general, higher the than that of western Europeans and the Japanese. The author also mentioned that the group of Japanese multinationals included the highest percentage of companies with a premature return below 5 percent (76 percent for Japanese and 59 percent for European MNCs) and, for this reason, they could be considered to have more success in international assignments. However, Harzing’s observations seem to be ignored by the many researchers that continue to emphasize and erroneously cite Tung (1981) and the high failure rate in international assignments. Moreover, researchers continue to associate failure with premature return and to an ineffective intercultural adjustment process. According to Scullion and Brewster (2001), another notorious aspect of the literature on international assignments is ethnocentrism. In their research on expatriates in Europe, the authors found that the North American studies were based on a limited database since “Much of the research knowledge on the management of expatriates currently available in the international literature is drawn from research focused on North American MNEs” (Scullion and Brewster 2001: 346). Besides that, the authors added, different research traditions among North Americans and other countries’ academics may have led the former to often ignore research which is not reported in U.S. journals. The authors also emphasize that American organizational theory assumes an implicit universality and do not take into account the cultural diversity of values, despite the large body of research substantiating the impact of such diversity on organizational behavior. The emphasis on a universal model of adjustment derived from this context would also indicate the ethnocentrism in the North American research on global staffing. Scullion and Brewster (2001) considered the European expatriates more international than the Americans and they also continue to support the relationship between intercultural adjustment and the success in international assignment. In a meta-analysis of the last 23 years of research on the theme of adjustment, Bhaskar-Shrinivas et al. (2004) affirmed the below. a)

The samples utilized for researching the concept of adjustment of expatriates so far are practically dominated by expatriates that speak English and that were sent from developed to developing countries. b) Empirical research in the field of international assignments has produced a lot of paradoxical results that demand new analysis; the authors give as examples statements such as adjustment is critical because it eventually plays into expatriate psychological strains and performance, although there is no empirical evidence for all cases, and also the assumption is that the model is universally applicable to all expatriates. And although the authors have accepted the ethnocentrism of the literature on expatriation in these 23 years, they also could not detach themselves from its influence and, in general, they reaffirm its assumptions, recommendations, and conclusions such as the below.

Demystifying the relationship

109

a) Without adjustment, performance on work will be unsatisfactory. b) Unsatisfactory work in international assignment originates from a poor adjustment. c) The intention to prematurely quit the assignment depends on adjustment. d) Failure in expatriation is measured by the premature return; premature return would be the only measure for expatriate failure. As a conclusion to this section, some points deserve attention in the literature review on intercultural adjustment. a)

The concept of adjustment is defined and operationalized in several ways, but it always seems to include a psychological comfort with the new environment and the interaction adjustment besides the work adjustment. b) The expatriates’ adjustment is a determinant of the expatriation success. c) Acquiring a bicultural identity would be a fundamental requirement for adaptation in a foreign culture. d) Selection based on interpersonal abilities and intercultural training would be IHRM practices that would favor a better adaptation process for the expatriate. e) The expatriate’s family plays a very important role in the expatriation process and may be responsible for the premature return. f) Most research conducted so far concerns North American expatriates. g) Most studies are quantitative and fail to focus on the adaptation process itself.

The Japanese expatriate managers Tung (1981) and Harzing (1995) have commented that the Japanese multinationals show lower failure rates in international assignments when compared to Americans and Europeans. And also, according to the literature (revised in the first part of this article), it would be possible to attribute the success of Japanese multinationals in international assignments to the intercultural adjustment of their executives and this would mean that Japanese expatriates achieve work adjustment, interaction adjustment, and general adjustment (Newman et al. 1978, Bell and Harrison 1996, Aycan 1997, Shay and Baack 2006). However, empirical research published by Japan Overseas Enterprises Association (JOEA) in 2007, based on a survey of 324 Japanese executives around the world, showed that of the reasons given for stress and concern of Japanese expatriates, adjustment to local customs represented only 24.1 percent, while personnel and labor management in the host country represented 64.2 percent. Table 6.1 shows the research findings. The need to adjust to life in general and to the cultural environment outside the work environment is not taken as a major cause of stress for the expatriates in this survey. It can be inferred that either the Japanese expatriates do not consider the general adjustment as something essential, or the Japanese expatriates can

110

B. M. Braga and E. K. de Miranda Kubo

Table 6.1 Reasons for stress and suffering in your life abroad What makes you suffer more or reasons for stress

Percentage (324 expatriates)

Personnel and labor management

64.2%

Accomplishment of the business targets

47.5%

Communication with local employees

46.6%

Preparation of middle managers

38.6%

Adjustment to the local customs

24.1%

Source: Japan Overseas Enterprises Association (JOEA) (2007), p. 65.

easily adjust to the local culture and, for that reason, they do not worry about their adjustment. If the first option is right, that is, the Japanese expatriates do not consider the general adjustment as something essential, and given the fact that they have a low rate of premature return, this would certainly contradict the literature which posits that without general adjustment it is not possible to achieve the work adjustment and, hence, the expatriate’s effectiveness would be compromised by unsatisfactory performance, as presented in first section of this chapter. Some research findings seem to suggest that Japanese expatriates, for one reason or the other, do not in fact need to achieve general and interaction adjustment in order to have work adjustment, and remain throughout the pre-established time of their expatriation period, which means, for some authors, success in expatriation. These research findings are presented below. Takeuchi, Yun, and Russell (2002) conducted empirical research with 177 Japanese expatriates and their wives in the United States in which they tried to measure the relationship between the cultural novelty, defined as the degree of difference between the cultural environment of the original country and the host country, and the adjustment of these expatriates. The authors found in their results a weak correlation between the culture novelty and the adjustment of the Japanese expatriates. Therefore, the authors suggest that work adjustment is the central aspect of the intercultural adjustment of the Japanese expatriates. Tung (1984) was one of the pioneers of empirical research on programs of human resources and staffing. This research aimed at comparing the human resource development programs of a sample of U.S. and Japanese multinationals and also pondering the implications for U.S. multinationals. The author conducted an empirical study on 35 Japanese MNCs in the United States and found that Japanese multinationals utilized extensively more expatriates in the middle management and top management for one or more reasons. First, the stage of evolution of Japanese multinationals may be significant. Second, the Japanese system of management requires constant consultation and communication between the parent headquarters and the overseas

Demystifying the relationship

111

subsidiary. Hence, it may be difficult for foreigners to operate within the system. Third, because many of the senior executives in Japanese corporations do not speak English, and conversely most foreigners do not speak Japanese, there is a language barrier. Besides language, there are conceptual barriers; the control mechanisms in Japanese organizations are usually implicit rather than explicit. Hence, it may be difficult for foreigners to have an implicit understanding of the company’s philosophy, which is central to smooth operations in industrial organizations. (Tung 1984: 140) The author concluded that Japanese MNCs have a long-term orientation toward international assignments, since their Japanese expatriates fill in key positions for a long time when compared to U.S. expatriates. This situation enables the Japanese MNCs to create and preserve their organizational culture and entails a comfortable environment for their expatriates. Besides the development of human resource development programs, one of the most critical reasons for failure in international assignment is, according to the author, the family adjustment. This is also the case for the U.S. expatriates, but it does not appear to be so for the Japanese. The author affirmed that: “Most Japanese MNCs did not perceive the family situation factor as having a major impact on the incidence of failure abroad” (Tung 1984: 141). This would imply, according to the author, that some cultural aspects may also play an important role in explaining the case of Japanese multinationals and deserve more attention in future research. Finally, the author concluded that factors concerning long-term orientation in an international assignment, utilization of a large number of expatriates to fill in key positions, and cultural aspects should be taken into consideration to explain the success of Japanese multinationals abroad. Tung’s research (1984) suggests that there is a formation of a Japanese expatriate executive community that, through sharing the same cultural values, make the Japanese management system viable. In empirical research, Yamazaki and Kayes (2007) aimed at investigating how the Japanese expatriates changed their learning modes during their international assignments, utilizing a typology that was developed by the experiential learning theory (ELT) from Kolb (1976). In the first stage, it was observed from a survey with 267 questionnaire respondents who were Japanese expatriate managers from 44 multinationals in the United States that the Japanese expatriates were more reflexive and tended to learn through feeling. In the second stage, a survey with 126 American local managers was conducted to see how the Japanese expatriates differed from the U.S. counterparts in the same multinationals in the United States. Results showed that the learning modes of American local managers were more characterized by logic, reason, and actions and also by taking responsibilities and risks to accomplish the tasks. The results suggested that although Japanese expatriates with two years or more length of stay in the United States showed different strategies of learning, since

112

B. M. Braga and E. K. de Miranda Kubo

they utilized more intuition and sensibility than Americans, they turned out to be similar to American managers in their dependence on taking responsibilities and risks to accomplish the tasks. According to the authors, the research results suggested that Japanese expatriates needed to follow a more active experimentation learning mode that is characterized by action and taking risks, in order to adapt to the U.S. business environment in which this mode of learning is predominant. However, some contradictions can be found in this research. The authors showed in their descriptions that Japanese expatriate managers have difficulties with local language, train their American employees according to headquarters’ philosophy and, even when facing pressure from host employees such as strikes, they continue to strictly obey the parent firm’s decision. And this seems to indicate that they do not depart from their way of doing things, that is, through reflection, intuition, and sensibility, characteristic of a high-context culture; they seem to learn from the local context only as much as they need to get the work done. Among the few studies that approached the Japanese expatriate executives, Nicholson and Imaizumi (1993) affirmed that the concept of adjustment should be viewed carefully, because it is an “umbrella” that potentially invokes a series of personnel consequences, such as stress, level of work adaptation, relationship, and local culture. The authors also affirm that: “Maximizing well-being and adjustment is too loose a formulation to be helpful” (Nicholson and Imaizumi 1993: 132). The authors researched the adjustment of Japanese expatriate executives of five Japanese enterprises in the financial sector: three commercial companies and two insurance companies in London. A higher degree of interaction was expected among the Japanese expatriates and the English employees inside and outside the office since the nature of the work in this sector requires constant communication, dealing with clients, and so on. In this way, the sample of Japanese expatriates would be exposed to the demands of adjustment to the local culture. Nonetheless, the authors affirmed that Japanese expatriates spent more time interacting with other Japanese outside of work (70 percent) than with non-Japanese (18 percent). The authors observed that the Japanese did not try to explore the local culture. From the descriptive data, we have a picture of expatriates that are generally more positive about their assignment, patchy in their preparation, more insulated from the host culture in their non-work than work lives and under some adjustment pressure. (Nicholson and Imaizumi 1993: 124) The extract suggests again that the general adjustment or adjustment to the local culture is not so important for Japanese expatriates and that they would be more insulated from possible cultural shocks outside the work environment than inside. However, in the same research the authors implicitly deny this possibility of difficulty in work adjustment when they state that Japanese expatriates, even under a different cultural environment, can minimize the possible cultural conflicts with host employees through the utilization of an expatriate community: “Expatriates

Demystifying the relationship

113

can remain fairly insulated from the host culture to the degree that they continue to work with and alongside other Japanese, but not exclusively, in a Western culture” (Nicholson and Imaizumi 1993: 130). According to this extract, Japanese expatriates would not be exempt from adjustment problems in Western cultures, but working with other Japanese expatriates would contribute to creating a familiar environment that would insulate them more from cultural shocks. In a large empirical study involving 62 American managers in Japan, 70 Japanese managers in the United States, and 36 Americans and 123 Japanese managers in Thailand, Steining and Hammer (1992) concluded that the U.S. expatriates reported to be more satisfied with the international experiences than the Japanese expatriates. The authors stated that, from the expatriates’ responses in the United States and Thailand, the Japanese expatriates rated themselves significantly lower in their ability to communicate effectively with locals than the American expatriates. Also according to the authors, leaving aside the possibility of bias in the data, one might be led to conclude that those studies which have commented very favorably on the success achieved by Japanese firms in managing their expatriates may have used as their criteria, for example, variables such as premature return which, by the nature of the pressures imposed by Japanese society reflect better on Japanese enterprises than American enterprises, and which may mask the anxieties and difficulties felt by the individual expatriate managers. Wong (1996) conducted a qualitative study in a large Japanese retail company in Hong Kong, with a sample of six Japanese expatriates and 30 local employees. The objective was to discover how the Japanese multinationals adapted the organizational culture to the host country. The author analyzed two mechanisms that the multinational utilized for managing the organizational culture. The first and more important mechanism, according to the author, was the HRM policies and practices, and the second, the cultural artifacts. The Japanese organizational culture was considered to be strong but was not easily disseminated because there were different HRM practices, such as benefits, performance evaluation, and career planning, for the expatriates and for the local employees. This duality in the HRM practices interfered in the functionality of the cultural artifact mechanism because a lot of locals reported to have less access to the information on strategic decision and few opportunities to express their opinions on management, since they had to follow the expatriates’ decisions. While the Japanese expatriates were evaluated in terms of behavior, through the seniority criteria, the local employees were evaluated on the basis of their performance and reports. The author affirmed that Japanese multinationals tended to use the Japanese expatriates to play a “culture control” role in the foreign subsidiary and while the expatriates were fully aware of the desired type of the organizational culture, about 80 percent of the local employees were not. The Japanese expatriates in Hong Kong were dedicated to disseminating the company’s philosophy that was based on the seicho-no-ie (The House of Growth) as spiritual philosophy of work. The author shows that the Japanese organizational cultural artifacts such as chorei,2 Zen meditation, and the attempts to connect the

114

B. M. Braga and E. K. de Miranda Kubo

local employees’ work to the religious practices were made by the expatriates in order to manage the organizational culture in this subsidiary. The author also doubted that the spiritual education could play the role of integrating the local employees in the desired culture by the multinational. Moreover, the receptiveness concerning the religious approach in training and ceremonies was greater in the lower level than the middle level and high management level. In 1993, the company had established an educational center for training employees, with focus on affective values and with the intention to change the newcomers’ attitudes. Amante (1993) studied 28 subsidiaries of Japanese multinationals in the Philippines, a developing country in which the Japanese expatriates were supposed to have difficulties in adjusting and remaining for a long time according to Tung (1984). The author found that Japanese executives represented almost half (44.4 percent) of the total executive posts and in the management level 36.1 percent were Japanese and this percentage was still low when compared to other subsidiaries in other Asian countries. This suggests that a great percentage of Japanese expatriates fill the management-level positions in many developing countries. The author cites the barriers of communication between Filipino employees and Japanese due to the formal manner and hierarchical expressions of Japanese language and also points out that Japanese expatriates strive to lead the local employees to adapt to the Japanese organizational culture, especially when it comes to the concept of work. The Filipino employees felt completely lost about following the Japanese way, the focus on total devotion to work and the formalism in communication. According to the author, HRM of Japanese enterprises in the Philippines face structural and institutional barriers. There is a high turnover among the employees in the Philippines, which involves the whole labor market and makes it difficult for the development of an internal pool of labor competences. Compensation is a very important issue and subject to the standards of the local minimum salary. As for institutional barriers, there is a recurrent legal approach to deal with labor conflicts, due to the long-term history of jurisprudence related to the struggles between labor and managers. All these practices are very distant from Japanese practices but, even so, the expatriates try to make the employees adapt to their way of working. Japanese organizations utilize a series of rituals of their organizational culture to standardize decision-making processes, to stimulate internal communication and to promote harmony (wa) in the organizational climate (Rao and Hashimoto 1996). Since it is a high-context culture, with an extensive use of indirect and language expressions that may have underlying meanings and intentions, the Japanese language becomes essential for the dissemination of expectations and interpretations to all members of the organization. The tacit communication, or Japanese telepathy (ishin denshi), with gestures and interpretations of contexts, allows understanding without the exchange of a single word. Moreover, the employees of Japanese companies are, according to Nakane (1970), not only technically trained, but morally trained. The Japanese companies emphasize loyalty and moral attitudes that are always consistent with the company ideal, which implies a low rate of turnover. Rao and Hashimoto (1996) conducted an empirical study with 202 Japanese

Demystifying the relationship

115

expatriates of 115 enterprises in Canada. Japanese expatriates who had Japanese and Canadian subordinates were chosen in order to verify the different strategies of influence that these expatriates used to implement for managing their subordinates of both nationalities. The research findings showed that Japanese expatriates had to use more intercultural influence in their interaction – which included strategies of reason, assertiveness, sanctions, and reciprocity – with Canadian subordinates than with Japanese employees. For example, according to the authors, the Japanese expatriates needed to adapt their communication system to work better in a low-context culture. In this way, the Japanese managers needed to utilize more reasoning and more written communication in order to deal with Canadian employees. Another hypothesis confirmed in the research is that the Japanese expatriates would need to utilize more sanctions to deal with Canadian subordinates. The Japanese society, characterized by collectivism, would take harmony (wa) as a virtue to be held by all group members that would reduce the need of the Japanese expatriates in utilizing sanctions. The authors also affirmed that the intercultural influence of Japanese organizations could be more organizational than interpersonal, deriving from the organizational culture and structure. In this way, in Japanese organizations, the organizational culture leads employees to obedience, without the need for interpersonal influence from the manager. According to Nakane (1970), the emphasis on group harmony and the dependence on indirect communication suggest that the Japanese managers utilize coalitions and pressures from the group to influence Japanese subordinates. In this sense, the interdependence among the employees is high in Japanese organizations. This interdependence is usually manifested as the formal decision-making system (ringi) and through the particular way the managers use coalitions to influence and encourage subordinates, without an exchange of favors. According to Nakane (1970), the sense of duty, derived from Confucianism, is pervasive in Japanese society and employees. In their comparative study of the adaptation of expatriates involving Japanese and American managers, Steining and Hammer concluded that: “the cultural background of the expatriate sojourner may be more important than the particular countryspecific environment in influencing cross-cultural adaptation” (1992: 77). Schneider and Asakawa (1995), through a psychoanalytic perspective, attempted to understand the differences between Japanese and Americans as regards the challenge of international assignments. They pointed out that most studies have attributed the low failure rate of Japanese expatriates (as compared to North Americans, for example) mainly to HRM practices, such as better selection, training, and communication with expatriates. The authors’ proposal was an attempt to rescue the childhood experiences, socialization practices, and the impact of the educational system in the development of the personality and behavior that can be related to the expatriates’ attitudes toward international assignments. Schneider and Asakawa did not use Black et al.’s model and suggested that the differences in reactions of Japanese expatriates toward the challenge of the

116

B. M. Braga and E. K. de Miranda Kubo

international assignments would be in factors such as the formation of the Japanese ego, their identity, and childhood experiences. After reviewing literature about social and cultural aspects of Japanese society, they concluded that for Japanese, egoism is related to the company’s ego and not to the individual ego. All forms of individualism or separation are discouraged and the distinction between “I” and “others” becomes vague. The authors also observed that Japanese children learn from the beginning that the worst punishment is to be left outside the house, without any contact with the inner side and they also learn to take off their shoes before entering a house, differentiating the outside from the inside; the sense of being part of the group becomes so strong that maybe, for that reason, the identification with the multinational becomes stronger than with the local company. The work of Schneider and Asakawa (1995) and Steining and Hammer (1992) suggests that Black et al.’s model should be revisited in order to explain the case of Japanese expatriates. Their studies respectively observed that socialization and national culture are strong factors that influence the sense of duty of Japanese expatriates. The commitment of Japanese expatriates to fulfill the international mission exists even before the “in-country adjustment” or international assignment. In exploratory research about Japanese expatriate executives in Brazil, Kubo (2008) also found that the intercultural adjustment, in the expatriates’ opinion, does not seem to be so essential to their effectiveness in international assignments. Their perception of adjustment was not related to the learning of local customs or even to the adaptation to the local culture. One of the Japanese expatriate executives, from an automotive organization, also mentioned that the adjustment is related to the process of how the Brazilian employees learn the Japanese organizational culture. The sixth survey about the work and life of Japanese expatriates who live abroad was done in 2004 by The Japan Institute for Labor Policy and Training (JIL) and published in 2005. It showed that expatriates are mostly sent for long-term assignments: 92.1 percent of 1,443 Japanese expatriates stay from three to six years abroad (3–4 years: 46.3 percent; 5–6 years: 45.8 percent). These data corroborate other research results mentioned in this paper and reinforce the idea that Japanese, in general, are expatriated for demand-driven purposes. This survey’s findings also showed the positions that the expatriates occupied in the different regions, by type of industry and by industry scale, as presented in Table 6.2. According to Table 6.2, the percentage of expatriates that fill top positions (P + EC) is significant – 54.5 percent for the total of the sample; when department managers are added, this figure increases to 73.6 percent. As far as regions go, top and department management in South America and Africa account for 84.3 and 84.2 percent of the expatriates respectively. And when expatriation per industry scale is considered, it seems that smaller (less than 10 people; 10 to 30 people) and big (more than 1,000 people) companies have more expatriates in top and department positions than middle-sized (100–500 people) companies. These data also confirm some other research previously mentioned when they find that Japanese MNCs tend to fill a high percentage of the executive positions with expatriates (Tung 1984, Amante 1993).

Table 6.2 Japanese expatriates in their international assignment: actual position (in %) Total (persons) P

EC

DM

SC

CS

CE C-C

U

100 (1,443)

39.9

14.6

19.1

14.3

3.7

2.3

4.9

1.1

Asia subtotal

100 (790)

41.8

14.6

21.9

13.7

2.3

0.9

3.8

1.1

China

100 (258)

55.8

10.1

17.8

11.6

2.7

0.4

1.2

0.4

Other Asia

100 (532)

35.0

16.7

23.9

14.7

2.1

1.1

5.1

1.5

Middle and Near 100 (47) East

19.1

4.3

29.8

27.7

4.3

–

Europe

100 (279)

39.1

11.8

11.5

16.8

6.1

6.5

7.2

1.1

North America

100 (153)

30.7

20.3

16.3

15.0

9.8

3.9

3.3

0.7

South America

100 (108)

46.3

23.1

17.6

5.6

0.9

–

5.6

0.9

Africa

100 (19)

57.9

–

26.3

5.3

–

–

5.3

5.3

Oceania

100 (47)

42.6

10.6

14.9

19.1

2.1

4.3

4.3

2.1

Total Region

14.9

–

Expatriation p/type of industry Manufacturing

100 (762)

39.6

16.4

18.1

12.6

3.0

2.0

7.1

1.2

Nonmanufacturing

100 (662)

40.3

12.6

20.2

16.0

4.6

2.7

2.4

1.0

Unknown

100 (14)

35.7

14.3

14.3

28.6

–

–

7.1

–

10 persons (less) 100 (169)

62.1

8.9

10.7

11.2

2.4

2.4

1.8

0.6

10–30p (less)

100 (172)

52.9

9.3

18.6

12.8

2.9

1.7

0.6

1.2

30–100p (less)

100 (339)

37.8

16.2

19.8

13.9

5.9

2.1

3.5

0.9

100–500p (less)

100 (391)

34.0

15.6

18.7

17.4

4.3

3.1

5.6

1.3

500–1000p (less)

100 (128)

32.8

17.2

21.9

14.1

3.9

1.6

8.6

–

1,000 (more than)

100 (195)

30.3

17.9

23.1

13.8

1.0

1.5

10.8

1.5

Unknown

100 (49)

36.7

14.3

24.5

12.2

2.0

4.1

2.0

4.1

Expatriation p/industry scale

Source: JIL (2005), p. 83. Note: P President; EC Executive Class; DM Department Manager; SC Section Chief; CE Common Employees; C-C Counselor-Coordinator; U Unknown.

118

B. M. Braga and E. K. de Miranda Kubo

JIL (2005) also recognized a significant growth in the number of expatriates that fill top management positions. In addition to this, the research report mentions that independently from function and hierarchical positions, there is an increasing trend in the number of expatriates that dedicate themselves to the management of the whole subsidiary. The increasing number of Japanese expatriates on international assignments to fill key positions for a long term and the focus on the transference of knowledge and on the dissemination of the organizational culture suggest that the Japanese multinationals would be more concerned about the managerial control of their subsidiaries than on the intercultural adjustment of their expatriates. This means that Japanese multinationals utilize mainly the demand-driven type of expatriation. So far, the literature review about the Japanese expatriates has shown the below. a)

There are indications that, for Japanese expatriate managers, adjustment to local culture is not very important for effectiveness in the international assignment. b) Japanese expatriates do not seem to be concerned about the general adjustment and interaction adjustment. This apparent lack of concern for these two dimensions of adjustment does not match the literature recommendations on the effectiveness for international assignments. c) In contrast to the North Americans, Japanese executives take on international assignments to developing countries without apparent problems of intercultural adjustment. d) The formation of a Japanese expatriate community helps to create an environment that minimizes the cultural shock effects derived from local culture. e) Japanese MNCs tend to adopt demand-driven expatriation to fill key positions and for long periods of time.

Conclusions According to the literature review on international assignments and expatriates, it was observed that research considers the expatriate’s adjustment to the foreign environment as the determinant factor of success in an international assignment. However, the success of Japanese expatriates in their international assignments and their apparent lack of concern for adjusting to local cultures raises some questions about this assumption. Black et al.’s model, presented as universal according to the literature review, has shown limitations in its applicability and ethnocentrism in its assumptions. Also, the great number of studies that have wrongly interpreted Tung’s (1981) findings reinforce the idea that adjustment as a construct still needs to be further developed in order to explain the case of Japanese expatriates, and maybe others who have not been studied yet. Although intercultural training has been considered the main way to develop

Demystifying the relationship

119

competences that enable adjustment and, in this way, success in the international assignment, it was also observed in the literature review that the success of Japanese expatriates did not seem to be related to their intercultural competences. Besides, the Japanese expatriates, apparently, do not develop a bicultural identity, which is considered to be relevant for good performance in international assignments; on the contrary, they usually isolate themselves from local cultures, form an expatriate community and educate the local employees in their philosophies of work, actions that do not seem to promote the development of intercultural competences or a bicultural identity. The literature review shows some points that deserve attention in the Japanese case: Japanese multinationals have a preference for demand-driven expatriation; there is a preference for long-term expatriations; expatriates fill key positions in subsidiaries; and the strong organizational culture has many artifacts to socialize the newcomers and the employees in the Japanese practices and to increase awareness about what is expected from them in local operations. It seems, therefore, that Japanese expatriates do not feel psychologically uncomfortable in a foreign environment because they may feel very much ‘at home’ when at work. Another possible explanation for the Japanese effectiveness is the fact that the Japanese expatriates come from a high-context culture and, therefore, they are used to dealing with ambiguity or stressful situations without losing the focus on work demands. The sense of group and duty of Japanese society enforces commitment in whatever situation they face and, therefore, even if the expatriates do not adapt to the local culture they remain to the end of the international assignment. Therefore, the analysis of the Japanese “case” suggests that a strong organizational culture and the willingness to remain to the end of the assignment may, indeed, be relevant factors for success. But even more, as mentioned, success may not mean just staying, but performing well, and this seems to be the case of the Japanese expatriates which, again, leads us back to the organization’s culture and practices. The Japanese executives probably know that if they stay and perform well, they will have their compensation when they return. And this is not always true for executives from other nationalities, as the literature for repatriation shows (Black et al. 1992). In conclusion, it can be observed that the analysis of the literature on adjustment places a great amount of responsibility on the individual: it is up to him/her to have the adequate abilities to adapt to the local environment and to interact with people at work; the expatriate family has to adapt, no matter how; the expatriate has to acquire a bicultural identity – one may wonder whether a third expatriation would require a tricultural identity – and the expatriate has to remain for the expected period in order to be successful. However, analysis of the literature on Japanese expatriates shows a great emphasis on the collective, and this may be provided by the organization, by means of its HRM practices, such as trying to expatriate a great number of Japanese executives to the same subsidiary and, in this way, assuring that they will have some support from their own community, or by carefully planning the expatriation and repatriation process so that the expatriate knows that the effort will be worthwhile, or by setting very clear job tasks, roles, and objectives,

120

B. M. Braga and E. K. de Miranda Kubo

that is, providing all the necessary at-work support, so that the expatriate may be better able to handle other problems. Most of the Japanese expatriates, then, stay for the prescribed period, as the low failure rates show. For them, remaining may not be a matter of choice as it is for Western executives. They know that remaining is expected of them and it is such a natural behavior that leaving may not even cross their minds.

Notes 1 Individual self-efficacy is a degree of belief that an individual has on his/her success in executing a certain type of behavior. 2 Morning meeting to sing the company’s song, to divulge results, and to read the philosophical principles of the company.

References Aguzzoli, R. L., Antunes, E. D. and Lengler, J. F. B. (2007) “Gestão de Pessoas: como Multinacionais Brasileiras Gerenciam seus Trabalhadores no Exterior”, Anais do Encontro Anual da Associação Nacional dos Programas de Pós-Graduação em Administração, Rio de Janeiro, Brazil, 31: 1–15. Aguzzoli, R. L., Manfredini, V. and Lengler, J. F. B. (2007) “O Estágio dec Internacionalização e sua influência sobre a Gestão de Pessoas”, Anais do Encontro Anual da Associação Nacional dos Programas de Pós-Graduação em Administração, Rio de Janeiro, Brazil, 31: 1–16. Amante, M. S. V. (1993) “Tensions in industrial democracy and human resource management: a case study of Japanese enterprises in the Philippines”, The International Journal of Human Resource Management, 4(1): 129–58. Andreason, A. W. (2003) “Expatriate adjustment to foreign assignments”, International Journal of Commerce & Management, 13(1): 42–60. Aycan, Z. (1997) “Expatriate adjustment as a multifaceted phenomena: individual and organizational level predictors”, The International Journal of Human Resource Management, 8(4): 434–55. Bell, P. M. and Harrison, D. A. (1996) “Using intra-national diversity for international assignments: a model of bicultural competence and expatriate adjustment”, Human Resource Management Review, 6(1): 47–74. Bhaskar-Shrinivas, P., Harrison, D. A., Shaffer, M. A. and Luk, D. M. (2004) “What have we learned about expatriate adjustment? Answers accumulated from 23 years of research”, Academy of Management Best Conference Paper, IM, A1–A6. Bjorkman, I. and Stahl, G. (2006) “International human resource management research: an introduction to the field”. In: I. Bjorkman and G. Stahl (eds.) Handbook of Research in International Human Resource Management (Introduction), Cheltenham: Edward Elgar. Black, J. S. (1988) “Work role transitions: a study of American expatriate managers in Japan”, Journal of International Business Studies, 19(2): 277–94. Black, J. S. and Gregersen, H. B. (1991) “The other half of the picture: antecedents of spouse cross-cultural adjustment”, Journal of International Business Studies, 22(3): 461–77. Black, J. S., Gregersen, H. B and Mendehall, M. E. (1992) “Toward a theoretical framework of repatriation adjustment”, Journal of International Business Studies. 23(4): 737–60.

Demystifying the relationship

121

Black, J. S., and Mendenhall, M. (1991) “The U-Curve Adjustment Hypothesis revisited: a review and theoretical framework”, Journal of International Business Studies, 22(2): 225–47. Black, J. S., Mendenhall, M. and Oddou, G. (1990) “Cross-cultural training effectiveness: a review and a theoretical framework for future research”, Academy of Management Review, 15(1): 113–36. Black, J. S., Mendenhall, M. and Oddou, G. (1991) “Toward a comprehensive model of international adjustment: an integration of multiple theoretical perspectives”, Academy of Management Review, 16(2): 291–317. Black, J. S., Ferzandi, L. A., Gregersen, H., Harrison, D. A. and Shaffer, M. A. (2006) “You can take it with you: individual differences and expatriate effectiveness”, Journal of Applied Psychology, 91(1): 109–25. Bueno, J. M., Domingues, C. R. and Del Corso, J. M. (2004) “O processo de expatriação na Integração de Culturas-O Caso Renault do Brasil”, Anais do Encontro Anual da Associação Nacional dos Programas de Pós-Graduação em Administração, Curitiba, Brazil, 28: 1–16. Caliguri, P. M. (2000) “Selecting expatriates for personality characteristics: a moderating effect of personality between host national contact and cross-cultural adjustment”, Management International Review, 40(1): 61–80. Evans, P., Pucik, V. and Barsoux, J. L. (2002) The Global Challenge: framework for international human resource management, New York: McGraw-Hill. Florkowski, G. W. and Fogel, D. S. (1999) “Expatriate adjustment and commitment: the role of host-unit treatment”, International Journal of Human Resource Management, 19(5): 783–807. Freitas, M. E. (2008) “How do Brazilian executive expatriates live abroad?” 2nd LAEMOS Colloquium [CD-ROM], Rio de Janeiro, Brazil, 8: 1–18. —— (2000) “Vida de executivo expatriado: a festa vestida de riso ou de choro”, Anais do Encontro Anual daAssociação Nacional dos Programas de Pós-Graduação em Administração, Florianópolis, Brazil, 24: 1–12. Guiguet, J. M. S. and Silva, J. R. G. (2003) “O processo de adaptação dos expatriados e a importância relativa dos aspectos socioculturais”, Anais do Encontro Anual da Associação Nacional dos Programas de Pós-Graduação em Administração, Brazil, 27: 1–17. Harvey, M., Speier, C. and Novecevic, M. (2001) “A theory-based framework for strategic global human resource staffing policies and practices”, International Journal of Human Resource Management, 12(6): 898–915. Harzing, A. W. K. (1995) “The persistent myth of high expatriate failure rates”, The International Journal of Human Resource Management, 6(2): 457–74. —— (2001) “Of bears, bumble-bees, and spiders: the role of expatriates in controlling foreign subsidiaries”, The Journal of World Business, 36(4): 366–79. Homem, I. D. and Tolfo, S. R. (2008) “Práticas de Gestão Internacional de Pessoas: Compensação e Seleção de Expatriados em uma Multinacional Brasileira”, RACEletrônica, 2: 202–17. Japan Institute for Labor Policy and Training (2005) Dai 6 kai Kaigaihakensha Kinmushanoshokugyou to seikatsu ni kansuru chosakekka. Accessed March 3, 2009, at www.jil.go.jp/institute/research/documents/research009.pdf#page = 83. Japan Overseas Enterprises Association (2007) Kaigaihakensha Handobuko: kei Kenshaga kataru shokuba komiunitinojitsuyou nouhau. Tokyo: Chunanbei. Kolb, D. A. (1976) “Management and learning process”, California Management Review, 18(3): 21–31.

122

B. M. Braga and E. K. de Miranda Kubo

Kubo, E. K. M. (2008) Japanese Expatriate Managers in Japanese Subsidiaries in Brazil: why not learning-driven? 2nd LAEMOS Colloquium [CD-ROM], Rio de Janeiro, Brazil, 3: 1–13. Lee, H. W. (2007) “Factors that influence expatriate failure: an interview study”, International Journal of Management, 24(3): 403–13. Lee, H. W. and Liu, C. H. (2006) “Determinants of the adjustment of expatriate managers to foreign countries: an empirical study”, International Journal of Management, 23(2): 303–11. Mendenhall, M. and Oddou, G. (1985) “The dimensions of expatriate acculturation: a review”, The Academy of Management Review, 10(1): 39–47. Miura, I. K. and Gonçalves, G. A. (2002) “Executivo expatriado: fatores que afetam ajustamento internacional”, Anais do Encontro Anual da Associação Nacional dos Programas de Pós-Graduação em Administração, Salvador, Brazil: 26: 1–14. Nakane, C. (1970) Japanese Society, Tokyo: Tuttle. Newman, J., Bhatt, B. and Gutteridge, T. (1978) “Determinants of expatriate effectiveness: a theoretical and empirical vacuum”, The Academy of Management Review, 3(3): 655–61. Nicholson, N. and Imaizumi, A. (1993) “The adjustment of Japanese expatriates to living and working in Britain”, British Journal of Management, 4: 119–34. Rao, A. and Hashimoto, K. (1996) “Intercultural influence: a study of Japanese expatriate managers in Canada”, Journal of International Business Studies, 27(3): 443–66. Sanchez, J. I., Spector, P. E. and Cooper, C. L. (2000) “Adapting to a boundary-less world: a developmental expatriate model”, Academy of Management Executive, 14(2): 96–106. Schneider, S. C. and Asakawa, K. (1995) “American and Japanese expatriate adjustment: a psychoanalytic perspective”, Human Relations, 48(10): 1109–27. Scullion, H. and Brewster, C. (2001) “The management of expatriates: messages from Europe”, Journal of World Business, 36(4): 346–65. Scullion, H., and Starkey, K. (2000) “In search of the changing role of the corporate human resource function in the international firm”, International Journal of Human Resource Management, 11(6): 1061–81. Shaffer, M. A. and Harrison, D. A. (2005) “Mapping the criterion space for expatriate success: task- and relationship-based performance, effort and adaptation”, International Journal of Human Resource Management, 16(8): 1454–74. Shaffer, M. A., Harrison, D. A. and Gilley, K. M. (1999) “Dimensions, determinants, and differences in the expatriate adjustment process”, Journal of International Business Studies, 30(3): 557–81. Shay, J. P. and Baack, S. (2006) “An empirical investigation of the relationships between modes and degree of expatriate adjustment and multiple measures of performance”, International Journal of Cross Cultural Management, 6(3): 275–94. Stahl, G. K. and Caliguri, P. (2005) “The effectiveness of expatriate coping strategies: the moderating role of cultural distance, position level, and time on the international assignment”, Journal of Applied Psychology, 90(4): 603–15. Stah, G. K. and Caliguri, P. (2005) “The effectiveness of expatriate coping strategies: the moderating role of cultural distance, position level, and time on the international assignment”, Journal of Applied Psychology, 90(4): 603–15. Steining, B. W. and Hammer, M. R. (1992) “Cultural baggage and the adaptation of expatriate American and Japanese managers”, Management International Review, 32(1): 77–89.

Demystifying the relationship

123

Stroh, L. K., Dennis, L. E. and Cramer, T. C. (1994) “Predictors of expatriate adjustment”, The International Journal of Organizational Analysis, 2(2): 176–92. Tan, D. and Mahoney, J. T. (2006) “Why a multinational firm chooses expatriates: integrating resource-based, agency and transaction costs perspectives”, Journal of Management Studies, 43(3): 457–84. Takeuchi, R., Shay, J. P. and Li, J. (2008) “When does decision autonomy increase expatriate managers’ adjustment? An empirical test”, Academy of Management Journal, 51(1): 45–60. Takeuchi, R., Yun, S. and Russell, J. E. A. (2002) “Antecedents and consequences of the perceived adjustment of Japanese expatriates in the USA”, International Journal of Human Resource Management, 13(8): 1,224–44. Thomas, D. C. and Lazarova, M. B. (2006) “Expatriate adjustment and performance: a critical review”. In: I. Bjorkman and G. Stahl (eds.) Handbook of Research in International Human Resource Management, Cheltenham: Edward Elgar, pp. 247–64. Toh, S. M. and DeNisi, A. S. (2005) “A local perspective to expatriate success”, Academy of Management Executive, 19(1): 132–46. Tung, R. L. (1981) “Selection and training of personnel for overseas assignments”, Columbia Journal of World Business, 16(1): 68–78. —— (1984) “Human resource planning in Japanese multinationals: a model for U.S. firms?”, Journal of International Business Studies, 15(2): 139–49. —— (1987) “Expatriate assignments: enhancing success and minimizing failure”, Academy of Management Executive, 1(2): 117–26. —— (1988) “Career issues in international assignments”, Academy of Management Executive, 2(3): 241–44. Vianen, A. E. M. V., Pater, I. E., Kristof-Brown, A. L. and Johnson, E. C. (2004) “Fitting in: surface- and deep-level cultural differences and expatriates’ adjustment”, Academy of Management Journal, 47(5): 697–709. Winkelman, M. (1994) “Cultural shock and adaptation”, Journal of Counseling & Development, 73(1): 121–6. Wong, M. M. L. (1996) “Managing organizational culture in a Japanese organization in Hong Kong”, The International Executive, 38(6): 807–24. Yamazaki, Y. and Kayes, C. (2007) “Expatriate learning: exploring how Japanese managers adapt in the United States”, International Journal of Human Resource Management, August 18(8): 1,373–95.

7

Global talent management and learning for the future Pressing concerns and opportunities for growth for Japanese multinationals Mary Yoko Brannen

Abstract In today’s fast-paced, quick-to-market, knowledge-intensive playing field of global business, the multinational company (MNC) is the promised means for leveraging and exchanging knowledge between locations and across organizational domains. Yet, in order to realize this potential with diverse workforces separated by time, space, and economic development, substantial workforce management efforts by all multinationals regardless of country-of-origin must occur in the coming years. This chapter summarizes the steps that global talent management needs to address in the coming years and highlights the pressing concerns and opportunities for growth for Japanese MNCs in particular in this area. As such this chapter serves as a bridge between Parts I and II of this book.

Introduction Multinationals are at a crossroads in global talent management (GTM), in particular as it relates to economic power shifts and changing demographics as companies strive to mobilize global workforces in a race for the future while racing for the world. Part I of this book compares and contrasts Japanese human resource management practices viewed from the outside in. Taken together, the chapters of Part I make patent (as Pudelko and Harzing state explicitly) that whereas the HRM practices of Japanese MNCs set the benchmark for best practice in the 1970s and 80s, these same practices are now at a critical crossroads as the global competitive environment and financial situation have drastically changed. Today, as multinational companies (MNCs) compete around the world, motivated by the promise of scale economies in globalizing industries, their success is more and more a result of knowledge melding across contexts rather than in managing lean manufacturing facilities (Doz et al. 2001). As such, what was a competitive advantage in the twentieth century is no longer the case, and the talent management skills of Japanese MNCs for the twenty-first century are now at a critical crossroads. More and

Global talent management and learning for the future

125

more, MNCs are racing for the future in the form of wholly integrated global firm structures in the wake of cross-border mergers, acquisitions, joint ventures, and alliances (Shimizu et al. 2004, Stahl et al. 2005, Brannen and Peterson 2009). As knowledge-intensive industries spread global trends like wildfire from east to west or west to east and back again, integration skills, talent leveraging, and knowledge scanning, bridging and deployment have become more critical than ever before. In fact, more than ever, what corporate leaders are discovering is that what they really lack is deep contextual understanding – specifically about culture in context. With little, superficial, or no training, today’s time-pressed, multi-tasking, dislocated corporate leaders are finding themselves confronted with significant feelings of uncertainty and frustration as they struggle through litmus tests of deep contextual understanding. They find, for example, that differences in cultural sense-making in foreign subsidiaries curtail successful transfer of technologies and practices developed in the home cultural environment (Brannen et al. 1999, Fiss and Zajac 2004) or act as barriers to strategic fit in knowledge-sharing across distance and differentiated contexts (Brannen 2004). At this crossroads we find the complexities of culture (national, ethnic, organizational, industrial, occupational, as well as gender, as Debroux aptly points out in his chapter), contexts (home, global, virtual, and so on), technologies (knowledgebased and constantly changing), and leadership (global as well as local) as the key challenges along the path to achieving the transformational objective of becoming twenty-first-century organizations capable of careful, resourceful and effective global talent management.

The pressing concerns in global talent management 1.

2.

3.

Much of the past globalization of the labor force has been enabled by internet technology and driven by a desire to cut labor costs. This motivation is now being balanced by other pressing objectives, such as continuous production and, most notably, access to and the leveraging of wider talent pools. The shift from replicative offshoring of mass production to accessing global talent pools leads to various challenges, such as less specific knowledge sharing, more innovative combinations, and reverse knowledge flows in learning from the periphery. Consequently, global talent management needs to take on fuller management dimensions including, for example, providing the conditions and structures for nurturing and motivating not only co-creation but also coinnovation and ongoing knowledge-sharing. The use of “offshore” workforces has expanded significantly to include small and mid-sized organizations. This trend will continue to grow such that the “global workforce” will become more and more a reality. Accordingly, global talent management will need to include integrating structures and processes for mobilizing and sustaining this global workforce that is globally dispersed yet may be very local. Small subcontractors seldom have much global/multicultural experience. The cultural makeup of this wider employment pool – both abroad as well as at

126

4.

5.

6.

M. Y. Brannen home – is becoming more and more complex. As such, nationality as cultural indicator is becoming less and less elucidatory. Rather, multifarious cultural hybrids such as Jac Nasser (the Middle Eastern/Australian former CEO of Ford Motor Company) or Carlos Goshn (the Lebanese/Brazilian/ French double CEO of Nissan Motors and Renault SA) – biculturals and multiculturals – are increasingly becoming the new demographic (Brannen, Thomas, and Garcia 2009). This is the case not only in regards to chief executive officers and managers but even more so among the global workforce. In fact, the cultural hybrid is fast becoming the most significant and growing demographic in the global workforce. The employees who make up this demographic cannot be characterized as either from X or Y culture, but are generally a mix of the cultures-of-origins that have formed them. Further, whereas they might be less cosmopolitan and worldly than Carlos Goshn or Jac Nasser, they possess inherent cultural bridging skills that multinationals would benefit greatly from should these skills be recognized, appreciated, and leveraged. The majority of multinationals and new international players still operate under a “double standard” with respect to workforces in the developed and developing world. Workforces in the developing world are often treated as commodities. This is evidenced by the burgeoning practice of offshore outsourcing to third-party management. As the developing countries (for example some BRIC countries – Brazil, India, and China) begin to take their places as economic lead markets and as immigrant workers from these developing countries take their places in workforces in first-world economies, such double standards will no longer be opaque and will likely not be tolerated. As such, multinationals will be held more accountable for global consistency in their human resource management practices. Due to a rapidly changing economic and demographic global landscape consumer power will also be steadily shifting to future powerhouses such as China and India. Employers will need to rethink their practices and become competent in long-term talent management across their global operation. Further, multicultural managers will need to learn how to integrate, facilitate, and leverage local portions of the workforce with bicultural/multicultural workers. Careful, effective, long-term global talent management will require deep cultural sensitivity, contextual acuity, knowledge-sharing capability, as well as globally sophisticated and agile leadership.

Key challenges for Japanese multinationals Bruning’s chapter in Part I of the book gives an overview of the literature on Japanese HRM and asks probing questions as to whether Japanese HRM suffers from similar challenges as international HRM does in general. The chapters in Part II of the book elucidate the current state of HRM in Japan, which may suggest the following key areas that might present particular adaptive challenges for the Japanese MNC.

Global talent management and learning for the future 1.

2.

3.

127

Cultural sensitivity: Understanding, valuing, and mobilizing complex cultural workforces requires cross-cultural adaptability skills that are not typically found in the monoculturally based human resource toolboxes of homogeneous societies like Japan (or the United States for that matter). Due to the changes in the economic and global demographic landscape Japanese multinationals will not only have to manage more and more diverse workforces worldwide, but also, on the home front, Japan will again (as it did prior to the post-bubble recession) need to consider opening its doors to immigrants. This time the need will be more pronounced coupled with the diminishing workforce exigencies due to the aging of the Japanese population and low birth rate. The challenge for Japan will therefore be in opening to new ideas and practices involving workforce diversity in markets and organizations – abroad as well as at home. This is a big challenge as it would entail loosening up a fundamental Japanese cultural distinction between foreign and home: uchi/soto (Doi 1985). Rather than limiting the use of foreign ideas to the periphery, Japanese multinationals will need to find creative ways to integrate such ideas at home. Bebenroth and Li’s findings in Part I that suggest that better-performing affiliates tend to be led by expatriates on the board as well as in the top management team point to one way in which Japanese MNCs might bring the foreign in to help toward enhanced cultural sensitivity. Contextual acuity: Contextual acuity refers to the extent to which a person pays attention to and accurately perceives various aspects of the environment. A high level of contextual acuity – both on the sender and receiver side – is a fundamental and necessary antecedent to the successful development of cultural sensitivity, cross-cultural adaptability, and knowledge-sharing capabilities. Because Japanese culture is what anthropologists call “high context” – one that puts high emphasis on non-articulated, peripheral and situational factors, Japanese tend to be more aware of context than other “low context” cultures (Hall 1959). So, in this regard, Japanese managers have an advantage. However, in order to leverage this advantage, Japanese managers must learn to focus this contextual awareness beyond understanding and adapting to others, to understanding, making transparent, and sharing information about their own context across cultural domains and organizational sub-units. Knowledge-sharing capability: In the twenty-first century knowledge creation, integration, and the leveraging of such “new” knowledge are considered the raison d’être of multinational firms. As such, the mandate of the multinational is to be the most effective vehicle for sharing and leveraging knowledge between locations and across knowledge domains and organizational sub-units. In order to do this, firms need managerial talent with a deeper understanding of the nature of knowledge and of the difficulties involved in knowledge sharing. Whereas Japanese firms have been successful in transferring simple (explicit, codified, and seemingly universal) knowledge (the Toyota Production System being a good case in point), it is a much greater challenge to innovate by sharing and combining knowledge inputs from diverse and dispersed sources of complex (tacit, emergent, and context dependent) knowledge. The latter

128

4.

M. Y. Brannen requires both a profound awareness of the importance of the contexts from which such knowledge originates and toward which it is being taken and put to use, as well as an appreciation for how the knowledge has been learned. The more tacit and deeply embedded in the sender’s psyche and socialization experience the knowledge is, the harder it is to identify, bind, and move the knowledge. At the same time, this type of knowledge is the most valuable knowledge in terms of innovative and synergistic potential. Agile global leadership: “Acting global” is often viewed as one of the Japanese manager’s biggest challenges or what we call in English their Achilles’ heel. An executive from Fujitsu I regularly coach recently summed up his view of this handicap in saying, “It is not in my DNA to be global” (Brannen et al. 2009). This says a lot. Even though this executive travels frequently throughout the world and spends at least a third of his year in the Silicon Valley, he has a hard time thinking and acting as an executive of a global company versus focusing on what is good for the Japanese customers and employees. Is this really a question of DNA, or a result of how he has been socialized throughout his organizational life? I do not think it is an exaggeration to point out that the future success of Japanese multinationals rests in large part on the answer to this question. If it is indeed a question of DNA, there is really nothing to do but admit the limits of Japanese global talent management. If it is in fact a socialization outcome, changing the mindset of Japanese managers toward one that would be more globally sensitive, self-aware, and agile, however much of a stretch this might be for a particular manager, would be a worthwhile goal.

What would it take for Japanese managers to be globally agile? In addition to overcoming the three key challenges just mentioned – cultural sensitivity, contextual acuity, and knowledge-sharing capabilities, Japanese multinationals need to make some rather significant changes in the way things are done at home. Specifically, there needs to be deep changes in the traditional decision-making processes of Japanese firms as well as in their hierarchical, center-out organizational approach to managing across distance and differentiated contexts. In regards to the former, whereas the complex decision-making structures and processes of Japanese firms with their many checks and balances, and input and scrutiny from various levels of the organization, are very good at managing the incremental evolution of their businesses, such decision-making structures are ill-suited to handling sudden changes, convergence, and redefinition of industries. Sony’s difficulties over the past decade, as well as those of newer multinationals such as Softbank, have a lot to do with this challenge. The recent merger and acquisition activity by such mature Japanese firms as Oji-Kanzaki Seishi, which recently acquired Hokuetsu Paper and Aoki Holdings, acquired Futata which are telling exceptions that underscore the future challenges from industrial change and corporate redefinition faced by domestic Japanese firms in today’s fast-paced, quick-to-market global economy. In regards to the hierarchical organizational structure of Japanese firms, such structures drive a very “center-out” strategy and what a leading strategic management “guru” from INSEAD, Yves Doz, calls a “long thin arm syndrome” in

Global talent management and learning for the future

129

Japanese MNCs. This makes global innovation particularly difficult for Japanese firms. Even when companies are actually global in the nature of their business and their way of working, and the Japanese expatriate managers themselves have well-honed cross-cultural adaptability skills, the lack of agility on the part of the parent company curtails the use of local talent or effective links with local talent (e.g. Mitsubishi trading).

Conclusion In conclusion, I would like to end with an anecdote in regards to the concept of “leadership” from one of my personal experiences in Japan. When I was conducting research for my dissertation (actually research on another M&A outcome of OjiKanzaki Seishi), as a single mother, I would often bring my daughter, Nora, who was just four years old, to Japan with me. I, or my father, who was a professor at the International Christian University (ICU) in Tokyo at the time, would take Nora to the local hoikuen (kindergarten) near the ICU campus. One day as I was waiting for Nora outside the hoikuen with all the other mothers at the end of the day, one of the mothers asked me what I was doing here in Japan. I explained I was doing research for my dissertation so that I could get my PhD and become a professor of Organizational Behavior. She asked, “What’s that?” And I proceeded to explain that it was the study of groups and the skills managers need to manage them, such as motivational skills, communication, and leadership, etc. Then, this woman, who was quite gutsy and outspoken for a Japanese woman, stopped me right there and scoffed, “Leadership? Leadership?! That’s what’s wrong with America. You train everyone to become a leader. Out of 100 people all you need is one leader. So, why do you spend so much time and energy training people to be leaders? In the end only one makes it. And then what happens? Ninety-nine people feel like failures and the one who makes it has no respect for those who didn’t. Not a great foundation for organizations!” This woman possessed great wisdom. We don’t need as many leaders as team players. And, for the last 25 or so years while teaching at American business schools, I have kept her comment in mind as I emphasize teamwork and the importance of harmonious subordinate relations. Yes, it is true that we don’t need so many leaders. And this is a point well-taken and well-modeled in traditional Japanese talent management. However, as Japan, like all advanced nations, is faced with the exigencies of global talent management, now is a time where the Japanese concept of leadership needs to stretch beyond promoting harmony in superior– subordinate relations and so on at home, to extending these qualities to the greater global domain – exercising global leadership agility through cultural sensitivity, contextual acuity, and knowledge-sharing capabilities abroad as well as at home.

References Brannen, M. Y. (2004) “When Mickey loses face: recontextualization, semantic fit, and the semiotics of foreignness”, Academy of Management Review, 29(4): 593–616.

130

M. Y. Brannen

Brannen, M. Y., Doz, Y., Hill, M., Hunter, M., Osland, A. and Whaley, G. (2008) FASL (Fujistu/ AMD Semiconductor Limited Alliance): collaborating over time, INSEAD Case Series, CEDEP, France, August. Brannen, M. Y., Liker, J. K. and Fruin, M. (1999) “Recontextualization and factory-tofactory knowledge transfer from Japan to the U.S.: the case of NSK”. In: J. K. Liker and P. S. Adler (eds.) Remade in America: transplanting and transforming Japanese production systems, New York: Oxford University Press, pp. 117–54. Brannen, M. Y. and Peterson, M. F. (2009) “Merging without alienating: interventions promoting cross-cultural organizational integration and their limitations”, Journal of International Business Studies, 40: 468–89. Brannen, M. Y., Thomas, D. and Garcia, D. (2009) “Biculturals as natural bridges for intercultural communication and collaboration”, International Workshop on Intercultural Communications (IWIC) Proceedings, Stanford University. Doi, T. (1985) The Anatomy of Self, Tokyo: Kodansha. Doz, Y., Santos, J. and Williamson, P. (2001) From Global To Metanational: how companies win in the knowledge economy, Boston, MA: Harvard Business School Press. Fiss, P. C. and Zajac, E. J. (2004) “The diffusion of ideas over contested terrain: the (non) adoption of a shareholder value orientation among German firms”, Administrative Science Quarterly, 49: 501–34. Hall, E. (1959) The Silent Language, New York: Doubleday. Shimizu, K., Hitt, M., Vaidyanath, D. and Pisano, V. (2004) “Theoretical foundations of cross-border mergers and acquisitions: a review of current research and recommendations for the future,” Journal of International Management, 10: 307–53. Stahl, G., Mendenhall, M., Pablo, A. and Javidan, M. (2005) Sociocultural Integration in Mergers and Acquisitions, Palo Alto, CA: Stanford University Press.

Part II

Japanese HRM from a domestic perspective

8

Strategic human resource management research in the Japanese context Unique opportunities for theory advancement Tomoki Sekiguchi, Norihiko Takeuchi, and Tomokazu Takeuchi

Abstract Since the emergence of strategic human resource management (SHRM) research decades ago, a large amount of theoretical and empirical work has been conducted. While the majority of SHRM studies have been conducted in the Western, especially the U.S., context, a growing number of studies are being done in the non-Western context, such as Asian countries. In this paper, we discuss how SHRM research in the Japanese context could contribute to the SHRM literature by taking advantage of its unique cultural and institutional settings and the embedded nature of Japanese HRM practices. We argue that doing SHRM research in the Japanese context has a potential advantage in elaborating current theories and introducing new perspectives, which has many implications for managing people not only in Japan but also in other parts of the world. Methodological issues for future research are also discussed.

Introduction The field of strategic human resource management has grown rapidly since its establishment around the early 1990s. SHRM has been defined as the planned pattern of human resource deployments and activities intended to enable the organization to meet organizational goals and objectives (Wright and McMahan 1992, McMahan et al. 1999). At least two major features distinguish SHRM research from the more traditional HRM research. First, SHRM studies have focused on explicating the strategic role that HRM can play in enhancing organizational effectiveness. Second, SHRM research is typically conducted at the business-unit or organizational level of analysis while traditional HRM practice research has had an individual-level focus (Delery and Shaw 2001). In short, SHRM research tries to investigate whether or how HRM systems as a whole contribute to organizational effectiveness. Researchers have proposed three different approaches to SHRM. The first

134

T. Sekiguchi et al.

group of researchers have adopted a universalistic perspective and argue for a “best practice approach” to SHRM. Universalistic theorists posit that some HRM practices are always better than others and that all organizations should adopt these best practices. The second group of researchers have adopted a contingency perspective and argue that, in order to be effective, an organization’s HRM must be consistent with other aspects of the organization, such as strategy and structure. The third group of researchers have developed a configurational approach guided by the holistic principle of inquiry. The configurational approach suggests that it is a unique pattern of HRM practices or “a bundle of HRM practices” which achieves high vertical fit (i.e. fit with strategy) and horizontal fit (i.e. internal consistency) for organizational effectiveness (Delery and Doty 1996). Recent SHRM researchers have also begun to explore the “black box” or the process through which HRM practices lead to organizational outcomes (e.g. Sun et al. 2007, Lam et al. 2009, Takeuchi et al. 2009, Wu and Chaturvedi 2009). Researchers have also begun to consider contextual variables such as industry characteristics that may influence (e.g. moderate) the effects of HRM practices on organizational effectiveness (Datta et al. 2005). To date, quite a large number of theoretical and empirical studies on SHRM have been conducted (for example, see Martin-Alcazar et al. 2005, Wall and Wood 2005 for review). While the majority of SHRM research has been conducted in the Western, especially the U.S., context, recent researchers explore SHRM topics in other parts of the world such as Asian countries. Examples of the Asian countries where SHRM research has conducted include Korea (Bae and Lawler 2000, Chang 2005, Chang and Huang 2005, Wang and Shyu 2009, Yang and Lin 2009), Taiwan (Bae et al. 2003, Chang and Chen 2002), China (Li 2003, Sun et al. 2007, Takeuchi et al. 2009), Japan (Kato and Morishima 2002, Takeuchi et al. 2007, Liao et al. 2009, Takeuchi 2009), India (Som 2008, Ketkar and Sett 2009), and Singapore (Khatri 1999, Barnard and Rodgers 2000, Khatri and Budhwar 2002, Lee et al. 2005). Despite the popularity of Japanese HRM practices among researchers and practitioners especially in the 1980s, SHRM research in the Japanese context is relatively sparse. The purpose of this chapter is to discuss how SHRM research in the Japanese context could contribute to the SHRM literature by taking advantage of its unique cultural and institutional settings and the embedded nature of Japanese HRM practices. Especially, we argue that the Japanese context would provide unique opportunities to elaborate current SHRM theories or to introduce new perspectives. To support our main argument, we begin with a brief review of the advancement of SHRM research to date. Next, we discuss the unique characteristics of the Japanese context and Japanese HRM practices. Then, we examine the way in which SHRM research conducted in the Japanese context could contribute to the SHRM literature. Finally, we discuss some methodological issues for future research.

Strategic human resource management research in the Japanese context

135

The advancement of SHRM research Management researchers have argued that people provide organizations with an important source of sustainable competitive advantage and that the effective management of human capital, not physical capital, may be the ultimate determinant of organizational performance (Youndt et al. 1996, Guthrie 2001). SHRM has grown out of researchers’ desire to demonstrate such importance of human resource practices for organizational performance (Delery and Doty 1996). Pfeffer (1998) and others (e.g. Lawler 1992, Kochan and Osterman 1994) have strongly advocated greater firm investments in high-performance or highinvolvement human resource systems, which are designed to enhance employees’ skills, commitment, and productivity. Reflecting this orientation, the early SHRM research, called the “universalistic approach,” has focused on high-performance work systems (HPWS) that are designed to enhance employees’ skills, commitment, and productivity in such a way that employees become a source of sustainable competitive advantage (Lawler 1992, Pfeffer 1998). There is growing empirical evidence that HPWS can have a significant impact on organizational performance. HPWS have been found to favorably affect turnover (Guthrie 2001, Sun et al. 2007), and firm financial performance (Huselid 1995, Guthrie 2001, Wright et al. 2005, Combs et al. 2006). The contingency approach to SHRM proposes that the impact of HRM practices on firm performance is conditioned by an organization’s strategic posture (Youndt et al. 1996). Several empirical studies found support for this approach (e.g. Youndt et al. 1996, Chow and Liu 2009, Takeuchi 2009). Researchers have pointed out that the universal and contingency perspectives may appear to be competing, but they can be complementary. The universal approach helps researchers document the benefits of HRM across all contexts, ceteris paribus, and the contingency perspective helps us look more deeply into organizational phenomena to derive more situationally specific theories and prescriptions for management practice (Youndt et al. 1996). The configurational perspective posits that in order to be effective, an organization must develop an HRM system that achieves both horizontal fit (internal consistency of the organization’s HRM policies or practices) and vertical fit (congruence of the HRM system with other organizational characteristics, such as firm strategy). This approach has also been empirically supported by some researchers (e.g. MacDuffie 1995, Delery and Doty 1996). Theoretically, SHRM researchers tend to rely on the resource-based view of the firm (Barney 1991) to explain the role of HRM practices in organizational performance (Wright et al. 2001). For example, Becker and Gerhart (1996) argue that an HRM system can be a unique source of sustained competitive advantage, especially when its components have high internal and external fit. The HRM system as a strategic asset (the set of difficult to trade and imitate, scarce, appropriable, and specialized resources and capabilities that bestow the firm’s competitive advantage) is an “invisible asset” that creates value when it is so embedded in the operational systems of an organization that it enhances the firm’s capabilities.

136

T. Sekiguchi et al.

Other theoretical perspectives that researchers have attempted to incorporate into SHRM include generic strategies (Miles and Snow 1978, Porter 1980), the multiple stakeholder perspective and systematic alignment theory (Way and Johnson 2005), social exchange theory (Takeuchi et al. 2007), and organizational learning (Takeuchi et al. 2003). Earlier empirical studies on SHRM tended to examine only the direct relationship between HRM practices and important outcomes. More recently, a growing number of studies on SHRM include mediating variables to investigate the mechanism or process in which HRM practices lead to organizational outcomes. For example, Gardner et al. (2001) included employee attitude variables (job satisfaction and commitment) and found that employee attitudes partially mediated the relationship between HRM practices and employee behaviors. Park et al. (2003) found that employee skills, attitudes, and motivation play a mediating role between HRM systems and organizational outcomes in multinational corporations. Using a Korean sample, Chang (2005) found that the company’s HRM bundle affected the overall perception of the employees, and that overall perceptions predicted organizational commitment, which was partially mediated by procedural justice perception. Researchers have also begun to look at the contextual variables that moderate the efficacy of HRM practices on organizational effectiveness. For example, Datta et al. (2005) examined the effects of industrial characteristics on SHRM and found that industrial characteristics moderated the relationship between HPWS and firm productivity. Using a sample of Chinese firms with different ownership types, Ngo et al. (2008) observed that the ownership type moderated the positive relationship between HPWS and financial performance of the firms, suggesting that the HPWS effects of the financial performance is stronger among Chinese state-owned enterprises (SOEs) than among non-state-owned enterprises, including foreign-owned or privately owned ones. Another recent trend in SHRM research is that a growing number of researchers are studying SHRM in non-Western regions, such as Asian countries. For example, Bae and Lawler (2000) conducted SHRM research in the Korean context, and found that firms that value HRM and think people are an important asset are more likely to have high-involvement HRM practices, and that firms with such HRM practices had better performance. Bae et al. (2003) surveyed multinational and local firms in Korea, Taiwan, Singapore, and Thailand, and found that HPWS worked effectively in these countries. Lau and Ngo (2004) examined Hong Kong firms and found that an innovative HRM system which emphasizes extensive training, performance-based reward, and team development contributed to the developmental organizational culture, which in turn affected product innovation. Chang and Chen (2002) studied hightech firms in Taiwan and found that HRM strategies that emphasize training and development, teamwork, benefits, human resource planning, and performance appraisal had a significant effect on employee productivity. They also found that competitive strategies such as cost strategy and differentiation strategy moderated the relationship between HRM strategy and firm performance.

Strategic human resource management research in the Japanese context

137

Khatri and Budhwar (2002) used qualitative, multi-case design methods for Singapore managers and found that HRM strategies affected both vertical fit and horizontal fit. Wang and Tsui (2003) studied firms in the People’s Republic of China (PRC), and their results supported universalistic and contingency approaches on the relationship between employment relationship and firm performance. Li (2003) also investigated HRM strategy and firm performance among multinational companies in PRC. His results showed support for the relationship between firm strategies and HRM policies, which predict firm performance. Takeuchi et al. (2003) tested configurational fit perspective of SHRM using the sample of Japanese affiliate firms operating in PRC and Taiwan, and their results generally supported their configurational hypotheses. Compared to other geographical locations in Asia, the number of SHRM studies conducted in the Japanese context is relatively limited. Kato and Morishima (2002) examined the effect of participatory employment practices on productivity; their analysis using panel data revealed that introduction of participatory practices lead to a significant increase in productivity after a long developmental period. More recently, Takeuchi (2009) examined both universalistic and contingency fit propositions in SHRM using a sample of Japanese manufacturing firms, providing evidence that the effects of individual-oriented HRM policies (as opposed to group-oriented ones) on firm performance were consistently positive across firms with different business strategies, while those of other HRM policy dimensions, including those of flexibility-oriented, performance-based, and explicit HRM policies, on firm performance were contingent on the upper-level business strategies each firm had chosen. In summary, since the emergence of SHRM research, quite a large number of theoretical and empirical studies have been conducted and accumulated, and the field of SHRM has advanced significantly. The recent trend in SHRM research focuses on the understanding of the mechanism though which HRM practices lead to performance, considering various contingency factors such as performance and environmental variables, and expanding the research locations to non-Western countries such as Asia. Still, the advancement of SHRM seems under way. More research is needed to better understand the strategic role of HRM practices, their causal mechanism leading to performance, the contextual influences and boundary conditions on the HRM-performance linkage, and so forth.

The Japanese context Japan is a complex and dynamic society, but has unique characteristics that could contribute to the advanced research in SHRM. First, Japan has attained enormous economic success through absorbing Western technology, science, education, and politics, and has become a highly industrialized nation (Selmer 2001). Second, as one of the East Asian countries, Japan has many cultural characteristics that are shared with other Asian countries. In this way, Japan is not only an industrialized country that has borrowed many Western systems but also retains Asian cultural and societal characteristics.

138

T. Sekiguchi et al.

It is often pointed out that Japan’s success has largely been a matter of its unique ways of managing human resources (e.g. Ouchi 1981, Jenkins and Florida 1999), and especially in the 1980s, there has been substantial interest in Japanese HRM by both researchers and practitioners. It seems that a large portion of Japanese HRM is embedded in the unique characteristics of the Japanese context. The traditional stereotype of Japanese HRM is often characterized as three pillars: long-term employment, seniority wage and promotion, and enterprise unionism (OECD 1973). Beyond this simple stereotype, several HRM practices such as broad job classifications, employee participation, extensive in-house skill training, and compensation practices that reward both employee performance and skill development, which are embedded in the long-term employment and enterprise unionism, are increasingly emphasized (e.g. Aoki 1988, Koike 1992, Morishima 1995). Some researchers also argue that Japanese HRM is characterized as an employment system whose basic principle is to enhance employee learning, and that learning of new skills and acquisition of knowledge are explicitly designed, supported, and encouraged by various HRM practices (Morishima 1995, Clegg and Kono 2002). These characteristics of Japanese HRM seemingly overlap with the universalistic HPWS, although some characteristics are different (e.g. enterprise unionism), and it is similar to the main theme of SHRM that HRM practices will develop skilled and motivated employees as the major source of sustainable competitive advantage. Also, it can be inferred from these characteristics that a larger number of Japanese organizations employ at least similar HRM practices as HPWS than those in other countries such as the United States. Japanese organizations are much like communities, and work groups in Japanese firms may be considered sub-communities. Individuals are the fundamental building blocks of such family-like organizations; jobs and tasks within the organizations are broadly defined, fluid and flexible to fit with the individuals (Sekiguchi 2006). These characteristics of Japanese organizations as well as Japanese HRM practices seem to be embedded in the Japanese institutional and cultural context. Specifically, the following institutional and cultural characteristics seem to be critical in understanding Japanese HRM. First, Japan’s labor market is dominated by fresh school graduates without significant work experience and the labor market for mid-career workers is relatively immature. Therefore, the internal labor market (Nalbantian et al. 2004) is the dominant employment mode, especially in large Japanese firms. This is closely related to the recruitment and selection practices and long-term, stable employment relationships (e.g. lifetime employment) in Japanese firms. Also, labor laws, government agencies, labor unions, and public opinion have usually been against Japanese firms’ drastic workforce reductions even in an economic downturn, which has influenced the persisting long-term employment policies among Japanese firms. Second, like other East Asian countries such as China, Korea, and Taiwan, Japanese culture is greatly influenced by Confucian philosophy. In Hofstede’s (1991) cultural dimensions, Japanese culture as well as other East Asian cultures is characterized as high collectivism, high power distance, and long-term orientation. These cultural characteristics are related to the team-based, harmonious workplace

Strategic human resource management research in the Japanese context

139

practices, long-term employment practices, relatively hierarchical authority systems, and so on.

Research opportunities in the Japanese context The unique characteristics of the Japanese economic, cultural, and institutional context and Japanese HRM practices suggest that, by conducting SHRM research in Japan, SHRM researchers could elaborate current SHRM theories or introduce new perspectives that otherwise cannot be achieved when studies are conducted in other parts of the world. Below we discuss three research topics that Japanese SHRM research could contribute to the SHRM literature, namely, the elaboration of the universalistic approach, the consideration of the role of relationship network or social capital, and the incorporation of the institutional theory perspective. Elaboration of the universalistic approach As discussed, the universalistic view or “best-practice approach” posits that some HRM practices are always better than others and that all organizations should adopt these best practices. Many researchers would agree that best HRM practices as a set is a potential source of competitive advantage, and empirical research to date generally supports the basic argument of the universalistic approach (Becker and Huselid 1998, Evans and Davis 2005). However, there still remains an opportunity to refine or improve the universalistic perspective by conducting SHRM research in the Japanese context. One problem with the universalistic approach is that the concept of HPWS and similar terms is still elusive. It is frequently noted that various naming preferences are often used interchangeably and refer to the same phenomenon of interest (i.e. systems of HRM practices rather than isolated practices). In addition to HPWS, researchers have used labels such as “human capital-enhancing” (Youndt et al. 1996), “high-commitment” (Wood and de Menezes 1998) or “high-involvement” (Guthrie 2001) to characterize the approach. In empirical research, most theoretical treatments of HPWS focus on the aggregate level or degree of investment in HRM practices, which are often operationalized by an additive system index of practices (Becker and Huselid 1998, Delery and Shaw 2001) or a bundle (MacDuffie 1995, Chang 2005). It is still not clear whether different labels of the similar “best HRM practices” such as HPWS, high-involvement or high-commitment work practices (HIWP or HCWP) and human-capital enhancing HRM are conceptually distinct or almost the same. For example, Takeuchi et al. (2003) suggest that HCWP are more related to the retention-oriented HRM strategy whereas HPWS are more related to the team-based problem-solving HRM strategy. Also, there is little consensus among researchers regarding the number of dimensions that are included in HPWS. Some researchers identified seven distinct dimensions (e.g. Pfeffer 1998) and other researchers propose five or six that constitute the HPWS or similar concepts (e.g. Bae and Lawler 2000, Wall and Wood 2005).

140

T. Sekiguchi et al.

Some researchers have pointed out that universalistic HRM practices are rooted in management practices in Japan (i.e. Japanese HRM) as well as other countries (Bae et al. 2003). In the earlier section, we have also observed that HPWS and Japanese HRM have some overlaps. However, we are still not clear how HPWS or similar concepts and Japanese HRM are different or similar, and if they are different, we are not aware which is superior in terms of the contribution to organizational effectiveness. More research is needed to better understand the typology and dimensionality of the universalistic, best HRM practices. As reviewed earlier, the majority of Japanese firms use the internal labor market structure and a large number of Japanese firms may use HRM practices that are similar to HPWS. Therefore, SHRM research using the Japanese context would give researchers opportunities to look more closely at the typology and dimensionality of best HRM practices. This type of investigation would contribute to a clearer understanding of the relationship between best HRM practices and organizational effectiveness, and a closer look at the complementarily of HRM practice dimensions (i.e. internal consistency). As such, one important potential for future SHRM research in the Japanese context would be to contribute to the identification of a larger domain and sub-domains of best HRM practices and broader or narrower practice dimensions that make up the whole HRM “best system.” This may eventually result in the integration of different but similar concepts of best HRM practices (e.g. HPWS, HIWS, etc.). Researchers may find that the causal relationship between a refined best HRM practice concept and organizational effectiveness are more complex, including the interactions of sub-domains or narrower dimensions, and various moderator (contextual) and mediator (process) variables. Also, SHRM research conducted in Japan could examine not only the comparison between HPWS and traditional HRM (e.g. low skill, limited delegation, and narrow job design), but also the variability of practices within the larger best HRM practice domain. •

Research question 1: How can universalistic best HRM practices be reconceptualized, with a larger domain and sub- domains, to deepen our knowledge on the relationship between HRM practices and organizational effectiveness? How will different labels of best HRM practices such as “highperformance” and “high-involvement” work systems be integrated through the re-conceptualization?

Another point regarding the opportunities to elaborate the universalistic approach is the consideration of cultural or institutional factors that may influence the effects of the best HRM practices (e.g. Budhwar and Sparrow 2002). For example, Bae et al. (2003) point out that HPWS types evolved in the United States seemingly reflect the organizational and cultural imperatives of American society, and they often use the term “American-style HPWS” to represent this point. For example, with regard to self-managing teams, which are often a central HPWS feature, the collectivist nature of Asian culture would certainly increase the reciprocity of workers in the region to the team aspect of HPWS. However, the hierarchical

Strategic human resource management research in the Japanese context

141

nature of Asian cultures, in which those of lower status often tend naturally to defer to those of higher status, and in which higher-status individuals expect such difference, would seem to militate against the effectiveness of these types of system. Managers are apt to be disinclined to share power and subordinates may be disinclined to accept it. In addition, American-style HPWS require a readiness for innovation and change, which may promote short-term conflict at least, but this may not fit well with the culture of harmonious relationships in Asian countries. In addition, reaching consensus, fundamental in Japanese management, is not central to the American-style HPWS (Bae et al. 2003). From an extensive comparative study of the United States, Germany, and Japan, Pudelko (2006) concludes that HRM systems are deeply embedded in the particular socio-economic contexts and that there are clear limits to the (context-free) universalistic approach to SHRM. He cautions us by suggesting that even the question of “what ‘best’ actually means” can be context-dependent. The above arguments suggest that in the Asian region, including Japan, the best HRM practices that lead to organizational effectiveness may be similar to, but somewhat different from, the American-style HPWS. Researchers have not yet investigated this type of research topic, although some have done so in the Chinese cultural context (Xiao and Bjorkman 2006). We take the position of Youndt et al. (1996) that universalistic and contingency approaches are not contradictory but complementary. Thus, we assume that the universal prototype of the best HRM practices exist which may or may not be similar to the American style HPWS, but at the same time, we argue that the cultural and institutional factors should also be considered to modify the best HRM practices that would fit better to the specific environment (Budhwar and Sparrow 2002). A similar approach has sometimes been taken in other fields of management research. For example, in the field of leadership, Project GLOBE (House et al. 1999) is pursuing the leadership attributes and behaviors that are universally accepted and effective across cultures as well as those that are accepted and effective in only some cultures. SHRM research conducted in the Japanese context would contribute to this line of universalistic and cross-cultural inquiry of the best HRM practices. •

Research question 2: Could Japanese HRM practices contribute to the development of Asian-style HPWS that are similar to but are slightly different from American-style HPWS and that will lead to better organizational performance in the Asian region? What cultural or institutional factors would be related to this kind of difference?

The role of social capital in SHRM As reviewed in the earlier section, several researchers have noted a need to develop a better theoretical understanding of the causal mechanisms explaining the relationship between HRM practices and organizational outcomes (Delery and Shaw 2001, Bowen and Ostroff 2004). One of the concepts that has been given much

142

T. Sekiguchi et al.

attention by recent SHRM researchers is the relationship network or “social capital.” Social capital is roughly defined as the relationships between individuals and organizations that facilitate action and thereby create value (Coleman 1988, Burt 1992, Nahapiet and Ghoshal 1998, Adler and Kwon 2002, Hitt et al. 2002). The importance of social capital has been increasingly recognized by a number of social science disciplines, and the research on SHRM is no exception. Social capital as employee social relationships has been argued to add value to the organization by facilitating timely access to greater sources of information (Collins and Clark 2003), reducing the need for formal controls (Adler and Kwon 2002), facilitating collective action (Ghoshal and Moran 1996), allowing more flexible work organizations (Leana and Van Buren 1999), and enhancing organizational intellectual capital (Nahapiet and Ghoshal 1998). Relationships are the foundation of organizational capabilities that are an important source of sustainable competitive advantage because they capitalize on individual differences and are relatively immobile since they are embedded within a firm’s culture. Regarding the relationship between HRM practices and social capital, Evans and Davis (2005) theorize that HPWS not only enhance the knowledge, skills, and abilities (KSAs) of the human capital pool but also change the nature of the employee relationship. They argue that HPWS facilitate the development of bridging ties through the use of flexible work and self-managing teams, and facilitate generalized norms of reciprocity through selective staffing, training, and abovemarket pay. What’s more, a strong organizational climate created by HPWS is considered to install shared mental models for organizational behavior coordination. HPWS may create and nurture the environment in which individuals can assume a more active rather than passive role in an organization. For example, flexible work and self-managing teams as part of HPWS would motivate active role behaviors by empowering employees. HPWS is also expected to promote organizational citizenship behaviors (OCBs) that facilitate coordination and teamwork (Sun et al. 2007). Collins and Smith (2006) conceptualize social climate as something that will facilitate knowledge exchange and combination, which contributes to the organizational performance. They define social climate as the collective set of norms, values, and beliefs that express employees’ views of how they interact with one another while carrying out the tasks of the firm. Their concept of social climate is not about relationships or networks, but it is similar to some aspects of social capital. According to Collins and Smith (2006), commitment-based HRM practices don’t directly impact performance, but instead work to foster social climates that facilitate the development of employee-based capabilities, such as the ability to combine and exchange information into new knowledge, which may create competitive advantages for the firm (Collins and Clark 2003, Bowen and Ostroff 2004). They empirically tested and found support for their hypothesis using a sample of high-technology firms. Social capital that would influence organizational effectiveness is not only limited to intra-organizational individual relationships. For example, Sekiguchi (2001) argues that there are three types of relationships that contribute to the competitive advantage of the organization: relationships between individuals

Strategic human resource management research in the Japanese context

143

(interpersonal ties); relationships between individuals and their employing organizations (employment relationships); and relationships between organizations (inter-organizational relationships). He also differentiates between internal networks and external ties, both of which are an important portion of social capital for organizational advantage. Similarly, Lengnick-Hall and Lengnick-Hall (2003) classified six relationship types based on the combination of individual, group, and organizational relationships. Conducting SHRM research in the Japanese context would be advantageous to investigate the role of relationship networks or social capital that would mediate between HRM practices and organizational effectiveness. Recently, researchers have pointed out that social capital may be more important and have a larger impact on organizational effectiveness in Asian countries (e.g. Hitt et al. 2002). For example, in the three leading countries in Asia, namely, China, Japan, and Korea, relationships provide a basis for the culture, business transactions, and business operations (Hitt et al. 2002). The philosophy of Confucianism, which exerts a large influence on major East Asian countries, stresses that individuals are not isolated entities but a part of a larger system of interdependent relationships. As such, building and managing effective relationships have been innate in the cultures of East Asia. Japan’s relatively stable inter-organizational networks or keiretsu have exerted much influence on operations and performance of individual firms. Keiretsu are multiple, overlapping clusters of enterprises that include horizontal or inter-market clusters and vertical or supplier and distributor structures (Lincoln et al. 1996). They are not legal entities but socially constructed corporate groups often connected through the governance ties of equity ownership, director transfers, and shachokai (presidents’ council) memberships. Lincoln et al.’s (1996) study shows that financially weak companies within the keiretsu benefit from group affiliations. The above arguments suggest that the role of relationships or social capital is critical in Japanese organizations and their competitive advantage. Therefore, the Japanese context is a good place to investigate the mechanism or process in which particular types of relationships or social capital cause organizational effectiveness, and the effect of cultural or institutional characteristics on the importance of relationships or social capital. •

Research question 3: What types of relationships or social capital have a stronger influence on organizational effectiveness? How are cultural and institutional characteristics related to the role of social capital in organizational effectiveness?

Some SHRM researchers have tried to establish the link between universalistic, best HRM practices such as HPWS and social capital that would result in organizational effectiveness (Evans and Davis 2005, Collins and Smith 2006). However, it is possible that there are particular “relationship-building HRM practices” that specifically target the development of relationships or social capital. Sekiguchi (2001) proposes relationship-oriented HRM practices that are aimed

144

T. Sekiguchi et al.

at investing various types of relationships within and across organizations. He argues that such relationship-oriented practices will contribute to the creation of social capital as an important asset for sustainable competitive advantage. Similarly, Lengnick-Hall and Lengnick-Hall (2003) argue that it is a critical HR role to build several kinds of networks they proposed to turn organizations’ social capital into competitive advantage. Collins and Clark (2003) conceptualized and empirically measured networkbuilding HRM practices targeted at top management teams, and examined the relationship between a set of network-building HRM practices, aspects of the external and internal social networks of top management teams, and firm performance. Their conceptualization and measurement of network-building HRM practices include training, performance assessment, and rewards designed to help and encourage top managers to build relationships with external and internal actors. They found that relationships between such HRM practices and firm performance were mediated through their top managers’ social networks. Future research, especially if it is done in the Japanese context, would deepen the knowledge on this topic. Researchers could develop richer conceptualizations of network-building HRM practices. For example, many large Japanese firms use periodical, organization-wide employee moves (job rotation practices). This kind of practice is considered to facilitate intra-organizational networking and eventually the organizational social capital. This type of HRM practice may be included in relationship-building HRM practices. •

Research question 4: What are particular HRM practices that facilitate relationships or social capital that would lead to organizational effectiveness? In what mechanisms do such HRM practices promote particular types of relationships or social capital?

Incorporation of the institutional theory perspective into SHRM Although SHRM research has advanced with the strong theoretical foundations of the resource-based view of the firm, other theoretical perspectives could also contribute to the better understanding of the role of HRM practices on organizational effectiveness. One of the theories that is not fully incorporated into the SHRM framework to date is the institutional theory perspective. Institutional theory views organizations as social entities that seek approval for their performance in socially constructed environments (Meyer and Rowan 1977, DiMaggio and Powell 1983, Scott 1995). Organizations are shaped by the institutional environment that surrounds them. Institutions are defined as regulatory structures, governmental agencies, laws, courts, and professions (Scott 1987). Under the institutional environment, organizational choice is limited by a variety of external pressures (Oliver 1991). They adopt certain features because of pressure from outside forces, including legal compulsion, gaining legitimacy, conforming to institutionalized roles, interest groups, public opinion, etc. (Scott 1987, Oliver 1991).

Strategic human resource management research in the Japanese context

145

Institutional theorists have emphasized the survival value of conformity with the institutional environment and the advisability of adhering to the external rules and norms (Meyer and Rowan 1977, DiMaggio and Powell 1983). That is, in response to institutional pressure, firms adopt appropriate practices in order to gain legitimacy and acceptance in order to survive. Therefore, firms being under similar levels of pressure will lead to similar intra-industry structures and organizational practices. The institutional theory perspective, especially the theory of strategic responses to institutional process (Oliver 1991), would provide insights into the process in which organizations create the best HRM practices that lead to organizational effectiveness. It seems important to understand the role of institutional pressures and organizational strategic responses regarding certain features of HRM practices on the efficacy of HRM practices on organizational effectiveness. This point is related to the research question of how organizations can create HRM practices that truly have an impact on organizational effectiveness. While early SHRM studies have focused on “what” questions (i.e. what types of HRM practices will lead to important outcomes), this type of “how to create” question seems quite important for theoretical advancement of SHRM. Conducting SHRM research in the Japanese context appears to be suitable to investigate this line of research interest. In fact, many researchers have pointed out that Japanese HRM practices are deeply embedded in the Japanese institutional context (e.g. Robinson 2003). Some researchers also argue that the transformation of HRM practices is so slow due to the embedding of Japanese HRM systems in institutional and cultural contexts which are much slower to change than technologies and economic circumstances (Robinson 2003). In this situation, only organizations who respond appropriately to the institutional pressures and create HRM practices that fit well with the technological and economic environment may obtain critical organizational capability or “core competence,” which will result in sustainable competitive advantage and increased organizational effectiveness. Future research in the Japanese context is expected to examine the necessary conditions to attain such a process. •

Research question 5: In order to create HRM practices that are distinct from those of other organizations and thus have a stronger impact on organizational effectiveness, how can organizations respond to the strong institutional pressure for homogeneity of HRM practices?

From the institutional theory perspective, it also seems important to take into account that certain features of HRM practices may contribute to the organizational survival not because they create resources for sustainable competitive advantage but because such HRM practices enable organizations to obtain legitimacy and acceptance from the environment (e.g. industry, society, and labor market). For example, since the collapse of the Japanese bubble economy in the early 1990s, quite a few Japanese firms have adopted pay for performance compensation

146

T. Sekiguchi et al.

practices, replacing traditional seniority and ability-based compensation practices. However, recently, researchers and practitioners alike began to question the effectiveness of such a practice. We are not aware whether the pay for performance practice is inappropriate for organizational effectiveness, or whether it will eventually contribute to the organizational survival because of its legitimacy and acceptance from the society. Future SHRM research in the Japanese context could investigate this type of research question. •

Research question 6: What is the role of institutional characteristics of the environment in the relationship between HRM practices and organizational effectiveness?

Methodological issues We have proposed how SHRM research conducted in the Japanese context could contribute to the SHRM literature by focusing on the three major issues that have emerged recently or have not been fully incorporated. In conducting SHRM research in the future, especially when researchers conduct empirical studies, some methodological issues should be discussed. Despite the significant advancement of the SHRM field, some researchers have pointed out limitations of the methodology used, and have questioned the validity of research findings (Gerhart et al. 2000, Wall and Wood 2005, Wright et al. 2005). For example, in their comprehensive literature review, Wall and Wood (2005) conclude that it is premature to assume that HRM initiatives will inevitably result in performance gains, either in all situations or even where deemed appropriate by contingency arguments. Their points could be summarized as follows. First, the majority of empirical research on SHRM used cross-sectional data and there is scarcity of longitudinal studies. These issues may have caused overestimation of the causal relationship between HRM practices and organizational effectiveness. Second, measurements for HRM practices were relatively poor, such as low or unknown reliabilities due largely to the single-source measures (e.g. CEOs or HR managers) (e.g. Gerhart et al. 2000). This may have caused underestimation of the HR–organizational effectiveness relationship. Third, many empirical studies used relatively small samples with low response rates. This may have also made empirical research findings questionable. Wall and Wood (2005) call for future empirical research on SHRM that overcomes such limitations. Therefore, researchers who conduct empirical research of SHRM in the Japanese context should consider multiple-source measures such as using employees as a source of HRM practice data (e.g. Meyer and Smith 2000, Takeuchi et al. 2007), longitudinal research design, and large sample size with higher response rates in order to strengthen the validity of research findings. In addition to the traditional survey designs and analyses used in previous SHRM research, such as ordinary least squares (OLS) regressions and structural equation modeling (SEM), future research could utilize relatively new methodologies in the field of SHRM. Examples are event history or survival analysis, hierarchical linear

Strategic human resource management research in the Japanese context

147

modeling (HLM), and social network analysis. Event history or survival analysis as well as other time-series analyses is an important analytical strategy for longitudinal data (e.g. Morita et al. 1993). It may be appropriate to use this analysis when important variables include organizational survival (e.g. Pollock and Fischer 2004) as well as certain behavioral outcomes such as turnover (Morita et al. 1993). HLM (Bryk and Roundenbush 1992; Hoffmann 1997) is becoming popular these days for analyzing cross-level data, which contains both macro-level and microlevel variables. An example of the possible use of HLM are the studies that contain organization-level variables such as HRM practices and organizational effectiveness, and individual-level variables such as employee attitudes and behaviors (e.g. Whitener 2001, Sun et al. 2007, Liao et al. 2009, Wu and Chaturvedi 2009). The importance and usefulness of HLM would increase because many HRM and OB researchers call for meso-level, cross-level or multi-level theorizing and research (Rousseau 1985, House et al. 1995, Kozlowski and Klein 2000). Although not very popular among HR researchers, social network analysis (Scott 1991, Wasserman and Faust 1994) would be particularly useful in analyzing social network data. Analyzing the social network is closely related to the investigation of the role of social capital we discussed in the previous section. Network analysis enables researchers to analyze network density, network centrality, weak versus strong ties, and many other network properties, which also allows researchers to examine the relationships between these properties and independent and dependent variables (e.g. HRM practices and organizational outcomes). There are computer software packages such as Pajek (Batagelj and Mrvar 2003) and UCINET (Borgatti et al. 1992) to conduct specific network analyses.

Conclusion SHRM research in the global context will generate many implications, not only for academics but also for practitioners. This chapter has focused on the Japanese context and has discussed how SHRM research in Japan could add value to the SHRM literature. SHRM research in Japan, coupled with the research from other nations, would contribute to both the context-free theory of SHRM (e.g. universalistic best practices) and context-dependent, contingency perspectives on SHRM. These kinds of theoretical development would be useful for organizations that operate not only in Japan but also in other parts of the world.

References Adler, P. S. and Kwon, S. W. (2002) “Social capital: prospects for a new concept”, Academy of Management Review, 27: 17–40. Aoki, M. (1988) Information, Incentives and Bargaining in the Japanese Economy, Cambridge: Cambridge University Press. Bae, J., Chen, S., Wan, T. W. D. and Lawler, J. J. (2003) “Human resource strategy and firm performance in Pacific Rim countries”, International Journal of Human Resource Management, 14: 1,308–32.

148

T. Sekiguchi et al.

Bae, J. and Lawler, J. J. (2000) “Organizational and HRM strategies in Korea: impact on firm performance in emerging economy”, Academy of Management Journal, 43: 502–17. Barnard, M. K. and Rodgers, R. A. (2000) “How are internally oriented HRM policies related to high-performance work practices? Evidence from Singapore”, International Journal of Human Resource Management, 11: 1,017–46. Barney, J. B. (1991) “Firm resources and sustained competitive advantage”, Journal of Management, 17: 99–120. Batagelj V. and Mrvar A. (2003) “Pajek – analysis and visualization of large networks”. In: M. Juenger and P. Mutzel (eds.), Graph Drawing Software, Berlin: Springer, pp. 77–103. Becker, B. and Gerhart, B. (1996) “The impact of human resource management on organisational performance: progress and prospects”, Academy of Management Journal, 39: 779–801. Becker, B. E. and Huselid, M. A. (1998) “High performance work systems and firm performance: a synthesis of research and managerial implications”. In: G. R. Ferris (ed.) Research in Personnel and Human Resources Management, 16: 53–101 Greenwich, CT: JAI Press. Borgatti, S., Everett, M. and Freeman, L. C. (1992) UCINET IV, Version 1.0, Columbia: Analytic Technologies. Bowen, D. and Ostroff, C. (2004). “Understanding HRM-firm performance linkages: the role of the strength of the HRM system”, Academy of Management Review, 29: 203–21. Bryk, A. S. and Roundenbush, S. W. (1992) Hierarchical Liner Models: applications and data analysis methods, Thousand Oaks: Sage. Budhwar, P. and Sparrow, P. (2002) “An integrative framework for determining crossnational human resource management practices”, Human Resource Management Review, 12: 377–403. Burt, R. (1992) Structural Holes, Cambridge: Harvard University Press. Chang, E. (2005) “Employees’ overall perception of HRM effectiveness”, Human Relations, 58: 523–44. Chang, P. L. and Chen, W. L. (2002) “The effect of human resource management practices on firm performance: empirical evidence from high-tech firms in Taiwan”, International Journal of Manpower, 19: 622–31. Chang, W. A. and Huang, T. C. (2005) “Relationship between strategic human resource management and firm performance”, International Journal of Manpower, 26: 434–49. Chow, I. H. S. and Liu, S. S. (2009) “The effect of aligning organizational culture and business strategy with HR systems on firm performance in Chinese enterprises”, International Journal of Human Resource Management, 20: 2,292–2,310. Clegg, S. and Kono, T. (2002) “Trends in Japanese management: an overview of embedded continuities and disembedded discontinuities”, Asia Pacific Journal of Management, 19: 269–85. Coleman, J. S. (1988) “Social capital in the creation of human capital”, American Journal of Sociology, 94 (Supplement): S95–S120. Collins, C. J. and Clark, K. D. (2003) “Strategic human resource practices, top management team social networks and firm performance: the role of human resource practices in creating organizational competitive advantage”, Academy of Management Journal, 46: 740–51. Collins, C. J. and Smith, K. G. (2006) “Knowledge exchange and combination: the role of human resource practices in the performance of high technology firms”, Academy of Management Journal, 49: 544–60.

Strategic human resource management research in the Japanese context

149

Combs, J., Liu, Y., Hall, A. and Ketchen, D. (2006) “How much do high-performance work practices matter? A meta-analysis of their effects on organizational performance”, Personnel Psychology, 59: 501–28. Datta, D. K., Guthrie, J. P. and Wright, P. M. (2005) “Human resource management and labor productivity: does industry matter?”, Academy of Management Journal, 48: 135–45. Day, G. S. (1990) Market Driven Strategy: process for creating value, New York: Free Press. —— (1994) “The capabilities of market-driven organizations”, Journal of Marketing, 58: 37–52. Delery, J. E. and Doty, D. H. (1996) “Modes of theorizing in strategic human resource management: tests of universalistic, contingency, and configurational performance predictions”, Academy of Management Journal, 39: 802–35. Delery, J. E. and Shaw, J. D. (2001) “The strategic management of people in work organizations: review, synthesis, and extension”. In: G. Ferris (ed.) Research in Personnel and Human Resources Management, Greenwich, CT: JAI Press, pp. 165–98. DiMaggio, P. J. and Powell, W. W. (1983) “The iron cage revisited: institutional isomorphism and collective rationality in organizational fields”, American Sociological Review, 48: 147–60. Evans, W. R. and Davis, W. D. (2005) “High-performance work systems and organizational performance: the mediating role of internal social structure”, Journal of Management, 31: 758–75. Gardner, T. M., Moynihan, L. M., Park, H. J. and Wright, P. M. (2001) Beginning to Unlock the Black Box in the HR Firm Performance Relationship: the impact of HR practices on employee attitudes and employee outcomes, Working Paper, Cornell University, Center for Advanced Human Resource Studies. Gerhart, B., Wright, P., McMahan, G. and Snell, S. (2000) “Error in research on human resources and firm performance: how much error is there and how does it influence effect size estimates?”, Personnel Psychology, 53: 803–34. Ghoshal, S. and Moran, P. (1996) “Bad for practice: a critique of the transaction cost theory”, Academy of Management Review, 21: 13–47. Guthrie, J. P. (2001) “High-involvement work practices, turnover, and productivity: evidence from New Zealand”, Academy of Management Journal, 44: 180–96. Hitt, M. A., Lee, H.-U. and Yucel, E. (2002) “The importance of social capital to the management of multinational enterprises: relational networks among Asian and Western firms”, Asia Pacific Journal of Management, 19: 353–72. Hoffmann, D. A. (1997) “An overview of the logic and rationale of hierarchical liner models”, Journal of Management, 23: 723–44. Hofstede, G. (1991). Cultures and Organizations: intercultural cooperation and its importance for survival, New York: McGraw-Hill. House, R. J., Hanges, P. J., Ruiz-Quintanilla, S. A., Dorfman, P. W., Javidan, M., Dickson, M. W., Gupta, V. and GLOBE Associates (1999) “Cultural influences on leadership and organizations: Project GLOBE”. In: W. H. Mobley, M. J. Gessner and V. Arnold (eds.), Advances in Global Leadership, Stamford, CT: JAI Press, pp. 171–233. House, R., Rousseau, D. M. and Thomas-Hunt, M. (1995) “The meso paradigm: a framework for integration of micro and macro organizational”. In: L. L. Cummings and B. Staw (eds.) Research in organizational behavior, Greenwich, CT: JAI Press, pp. 71–114. Huselid, M. A. (1995) “The impact of human resource management practices on turnover, productivity, and corporate financial performance”, Academy of Management Journal, 38: 635–72.

150

T. Sekiguchi et al.

Jenkins, D. and Florida, R. (1999) “Work system innovation among Japanese transplants in the United States”. In: J. K. Liker, W. M. Fruin and P. S. Adler (eds.) Remade in America: transplanting and transforming Japanese management systems, New York: Oxford University Press, pp. 331–59. Kato, T. and Morishima, M. (2002) “The productivity effects of participatory employment practices: evidence from new Japanese panel data”, Industrial Relations, 41: 487–520. Ketkar, S. and Sett, P. K. (2009) “HR flexibility and firm performance: analysis of a multi-level causal model”, International Journal of Human Resource Management, 20: 1,009–38. Khatri, N. (1999) “Emerging issues in strategic HRM in Singapore”, International Journal of Manpower, 20: 516–29. Khatri, N. and Budhwar, P. S. (2002) “A study of strategic HR issues in an Asian context”, Personnel Review, 31: 166–88. Kochan, T. A. and Osterman, P. (1994) The Mutual Gains Enterprise, Boston, MA: Harvard Business School Press. Koike, K. (1992) “Human resource development and labor-management relations”. In: K. Yamamura and Y. Yasuba (eds.) The Political Economy of Japan, vol. 1: The Domestic Transformation, Stanford: Stanford University Press, pp. 289–330. Kozlowski, S. W. J. and Klein, K. J. (2000) “A multi level approach to theory and research in organizations: contextual, temporal, and emergent processes”. In: S. W. J. Klein and K. J. Klein (eds.) Multilevel Theory, Research, and Methods in Organizations: foundations, extensions, and new directions, San Francisco: Jossey-Bass, pp. 3–90. Lado, A. A. and Wilson, M. C. (1994) “Human resource systems and sustained competitive advantage: a competency-based perspective”, Academy of Management Review, 19: 699–727. Lam, W., Chen, Z. and Takeuchi, N. (2009) “Perceived human resource management practices and intention to leave of employees: the mediating role of organizational citizenship behaviour in a Sino-Japanese joint venture”, International Journal of Human Resource Management, 20: 2,250–70. Lau, C. M. and Ngo, H. Y. (2004) “The HR system, organizational culture, and product innovation”, International Business Review, 13: 685–703. Lawler, E. (1992) The Ultimate Advantage: creating the high-involvement organization, San Francisco: Jossey-Bass. Leana, C. R. and Van Buren, H. J. (1999) “Organizational social capital and employment practices”, Academy of Management Review, 24: 538–55. Lee, S. H., Phan, P. H. and Chan, E. (2005) “The impact of HR configuration on firm performance in Singapore: a resource-based explanation”, International Journal of Human Resource Management, 16: 1,740–58. Lengnick-Hall, M. L. and Lengnick-Hall, C. A. (2003) “HR’s role in building relationship networks”, Academy of Management Executive, 17: 53–63. Li, J. (2003) “Strategic human resource management and MNEs’ performance in China”, International Journal of Human Resource Management, 14: 157–73. Liao, H., Toya, K., Lepak, D. P. and Hong, Y. (2009) “Do they see eye to eye? Management and employee perspectives of high-performance work systems and influence processes on service quality”, Journal of Applied Psychology, 94: 371–91. Lincoln, J., Gerlach, M. and Ahmadjian, C. (1996) “Keiretsu networks and corporate performance in Japan”, American Sociological Review, 61: 67–88. MacDuffie, J. P. (1995) “Human resource bundles and manufacturing performance:

Strategic human resource management research in the Japanese context

151

organizational logic and flexible production systems in the world auto industry”, Industrial and Labor Relations Review, 48: 197–221. McMahan, G. C., Virick, M. and Wright, P. M. (1999) “Alternative theoretical perspectives for strategic human resource management revisited: progress, problems, and prospects”. In: P. Wright, L. Dyer, J. Boudreau and G. Milkovich (eds.) Research in Personnel and Human Resource Management, Supplement 4, Greenwich, CT: JAI Press, pp. 99–122. Martin-Alcazar, F., Romero-Fernandez, P. M. and Sanchez-Gardey, G. (2005) “Strategic human resource management: integrating the universalistic, contingent, configurational and contextual perspectives”, International Journal of Human Resource Management, 16: 633–59. Meyer, J. W. and Rowan, B. (1977) “Institutionalized organizations: formal structure as myth and ceremony”, American Journal of Sociology, 83: 340–63. Meyer, J. P. and Smith, C. A. (2000) “HRM practices and organizational commitment: test of a mediation model”, Canadian Journal of Administrative Sciences, 17: 319–31. Miles, R. H. and Snow, C. C. (1978) Organizational Strategy, Structure, and Process, New York: McGraw-Hill. Morishima, M. (1995) “The Japanese human resource management: a learning bureaucracy”. In L. F. Moore and P. D. Jennings (eds.) Human Resource Management on the Pacific Rim: institutions, practices, and attitudes, Berlin: Walter de Gruyter, pp. 119–50. Morita, J., Lee, T. and Mowday, R. (1993) “The regression-analog to survival analysis: a selected application to turnover research”, Academy of Management Journal, 36: 1,430–64. Nahapiet, J. and Ghoshal, S. (1998) “Social capital, intellectual capital, and the organizational advantage”, Academy of Management Review, 23: 242–66. Nalbantian, H. R., Guzzo, R. A., Kieffer, D. and Doherty, J. (2004) Play to Your Strengths: managing your internal labour markets for lasting competitive advantage, New York: McGraw-Hill. Ngo, H. Y., Lau, C. M. and Foley, S. (2008) “Strategic human resource management, firm performance and employee relations climate in China”, Human Resource Management, 47: 73–90. OECD (Organization for Economic Cooperation and Development) (1973) Manpower Policy in Japan, Paris: OECD. Oliver, C. (1991) “Strategic responses to institutional processes”, Academy of Management Review, 16: 145–79. Ouchi, W. G. (1981) Theory-Z: How American business can meet the Japanese challenge, Reading, MA: Addison-Wesley. Park, H. J. Mitsuhashi, H., Fey, C. F. and Bjorkman, I. (2003) “The effect of human resource management practices on Japanese MNC subsidiary performance – a partial mediating model”, International Journal of Human Resource Management, 14: 1,391–1,406. Pfeffer, J. (1998) The Human Equation: building profits by putting people first, Boston, MA: Harvard Business School Press. Pollock, T. and Fischer, H. M. (2004) “Social capital and power on surviving transformational change: the case of initial public offerings”, Academy of Management Journal, 4: 463–81. Porter, M. E. (1980) Competitive Strategy: techniques for analyzing industry and competitors, New York: Harper and Row. Pudelko, M. (2006) “A comparison of HRM systems in the USA, Japan and Germany in their socio-economic context”, Human Resource Management Journal, 16: 123–53. Robinson, P. A. (2003) “The embeddedness of Japanese HRM practices: the case of recruiting”, Human Resource Management Review, 13: 439–465.

152

T. Sekiguchi et al.

Rousseau, D. M. (1985) “Issues of level in organizational research: multilevel and crosslevel perspectives”. In: L. L. Cummings and B. Staw (eds.) Research in Organizational Behavior, Greenwich, CT: JAI Press, pp. 1–37. Scott, J. (1991) Social Network Analysis: a handbook, Thousand Oaks, CA: Sage. Scott, W. R. (1987) Organizations: rational, natural, and open systems, 2nd edn. Englewood Cliffs, NJ: Prentice-Hall. —— (1995) Institutions and Organizations, Thousand Oaks, CA: Sage. Sekiguchi, T. (2001) “Toward a model of relationship-oriented human resource management” (In Japanese), Business Insight, 9: 86–98. —— (2003) “How organizations promote person-environment fit: using the case of Japanese firms to illustrate institutional and cultural influences”, Asia Pacific Journal of Management, 23: 47–69. —— (2006) “How organizations promote person-environment fit: using the case of Japanese firms to illustrate institutional and cultural influences”, Asia Pacific Journal of Management, 23: 47–69. Selmer, J. (2001) “Human resource management in Japan: adjustment or transformation?”, International Journal of Manpower, 3: 235–43. Snell, S. A. and Dean, J. W. (1992) “Integrated manufacturing and human resources management: a human capital perspective”, Academy of Management Journal, 35: 467–504. Som, A. (2008) “Innovative human resource management and corporate performance in the context of economic liberalization in India”, International Journal of Human Resource Management, 19: 1,278–97. Sun, L. Y., Aryee, S. and Law, K. S. (2007) “High performance human resources practices, citizenship behavior and organizational performance: a relational perspective”, Academy of Management Journal, 50: 558–77. Takeuchi, N. (2009) “How Japanese manufacturing firms align their human resource policies with business strategies: testing a contingency performance prediction in a Japanese context”, International Journal of Human Resource Management, 20: 34–56. Takeuchi, R., Chen, G. and Lepak, D. P. (2009) “Through the looking glass of a social system: cross-level effects of high-performance work systems on employees’ attitudes”, Personnel Psychology, 62: 1–29. Takeuchi, N., Chen, Z. and Wakabayashi, M. (2003) “The strategic HRM configuration for competitive advantage: evidence from Japanese firms in China and Taiwan”, Asia Pacific Journal of Management, 20: 447–80. Takeuchi, R., Lepak, D. P., Wang, H. and Takeuchi, K. (2007) “An empirical examination of the mechanisms mediating between high-performance work systems and the performance of Japanese organizations”, Journal of Applied Psychology, 92: 1,069–83. Tsai, W. and Ghoshal, S. (1998) “Social capital and value creation”, Academy of Management Journal, 41: 464–78. Wall, T. D. and Wood, S. J. (2005) “The romance of human resource management and business performance, and the case for big science”, Human Relations, 58: 429–62. Wang, D. and Shyu, C. (2009) “The longitudinal effect of HRM effectiveness and dynamic innovation performance on organizational performance in Taiwan”, International Journal of Human Resource Management, 20: 1790–1809. Wang, D. X. and Tsui, A. S. (2003) “Employment relationship and firm performance: evidence from an emerging economy”, Journal of Organizational Behavior, 24: 511–35. Wasserman, S. and Faust, K. (1994) Social Network Analysis: methods and applications, Cambridge: Cambridge University Press.

Strategic human resource management research in the Japanese context

153

Way, S. A. and Johnson, D. E. (2005) “Theorizing about the impact of strategic human resource management”, Human Resource Management Review, 15(2): 1–19. Whitener, E. M. (2001) “Do ‘high commitment’ human resource practices affect employee commitment? A cross-level analysis using hierarchical linear modeling”, Journal of Management, 27: 515–35. Wood, S. and de Menezes, L. (1998) “High commitment management in the UK: evidence from the Workplace Industrial Relations Survey, and Employers’ Manpower and Skills Practices Survey”, Human Relations, 51: 485–515. Wright, P. M., Dunford, B. B. and Snell, S. A. (2001) “Human resources and the resourcebased view of the firm”, Journal of Management, 27: 701–21. Wright, P. M., Gardner, T. M., Moynihan, L. M. and Allen, M. R. (2005) “The relationship between HR practices and firm performance: examining causal order”, Personnel Psychology, 58: 409–46. Wright, P. M. and McMahan, G. C. (1992) “Theoretical perspectives for strategic human resource management”, Journal of Management, 18: 295–320. Wu, P. and Chaturvedi, S. (2009) “The role of procedural justice and power distance in the relationship between high performance work systems and employee attitudes: a multilevel perspective”, Journal of Management, 35: 1,228–47. Xiao, Z. and Bjorkman, I. (2006) “High commitment work systems in Chinese organizations: a preliminary measure”, Management and Organization Review, 2: 403–22. Yang, C. and Lin, C. Y. (2009) “Does intellectual capital mediate the relationship between HRM and organizational performance? Perspective of a healthcare industry in Taiwan”, International Journal of Human Resource Management, 20: 1,965–84. Youndt, M., Snell, S., Dean, J. and Lepak, D. (1996) “Human resource management, manufacturing strategy, and firm performance”, Academy of Management Journal, 39: 836–66.

9

Psychological contract in Japanese companies An explorative study on contents, fulfillment, and breach of contracts Yasuhiro Hattori

Abstract This chapter examined the contents of the psychological contract in Japanese companies, and how fulfillment/breach of such contents influences employees’ trust in the company. We conducted a survey study of 128 employees of Japanese companies. The results of a factor analysis were contrary to the findings of previous works. Psychological contracts in Japanese companies did not emerge as a simple dichotomy (relational/transactional); instead, they were a more complicated set of contracts. The result demonstrated that the contents and the latent structure of psychological contracts in Japanese companies are different from those in European and American companies. Then, we conducted an ordered probit regression analysis to analyze the manner in which the latent factors and their fulfillment influence an employee’s trust in his/her company. Although the ways in which contracts influence trust are different from each other, the fulfillment/breach of contracts affects trust.

Introduction Confronted with the low productivity of white-collar employees and the low rate of Japan’s economic growth, many Japanese companies are faced with a decisive shift in employment system. Further, the employees’ way of thinking has changed. Terms such as “boundaryless career,” “individualism,” and “autonomy” are frequently used in connection with employees of Japanese companies. However, research pertaining to the dynamics of such a change has not been accumulated. In particular, there are relatively few empirical studies on the relationship between a company and its employees under the existing employment system (except for Inagami and Whittaker 2005). This chapter aims to examine the relationship between Japanese companies and their employees under the existing employment system from the perspective of psychological contracts. Psychological contracts refer to employee perceptions of the explicit and implicit promises regarding the exchange of employee contributions

Psychological contract in Japanese companies

155

(e.g. long tenure of service, loyalty) for organizational inducements (e.g. good pay, interesting work). In the West, the employee–organization relationship has been mainly conceptualized as psychological contracts in the past 20 years (Conway and Briner 2005, De Vos et al. 2005, Chen et al. 2008). The paper deals with questions such as what the contents of psychological contracts in Japanese companies are, and how fulfillment/breach of such contents influences employees’ trust in the company. In order to investigate the above questions, we conducted a survey research on 128 employees of Japanese companies. The result demonstrated that the contents and the latent structure of psychological contracts in Japanese companies are different from those in European and American companies. Further, the result revealed the fulfillment/breach of several contracts and the influence that the fulfillment/breach of a contract has on an employee’s trust in the company.

Reviews of existing research Changes of employment system in Japanese companies According to Morishima (1996b) a two-way change has been manifesting itself in the Japanese employment system: replacement of appraisal and reward criteria; and decreasing proportion of core employees who are protected by strong employment security. Pay-for-performance schemes From the 1990s onward, many Japanese companies started considering the introduction of performance-based evaluation, with several of these companies adopting it by the end of the twentieth century (Sanno Institute of Management 2003). According to a survey conducted in 2001 by the Japanese Ministry of Health, Labor and Welfare, the percentage of companies adopting pay-for-performance schemes toward middle and senior managers stood at 62.3 percent. Further, a survey by the Institute of Labor Administration revealed that the proportion of companies that have introduced demotion systems has also been increasing. Consequently, while the number of years necessary for promotion to the position of a manager has reduced, the position itself comes laden with increasing instability. Externalized employment relations The externalization of employment has also been increasing at a considerable rate in Japan, as it has in other industrialized nations (Morishima 1996b). According to the Japanese Statistics Bureau, the ratio of part-time, temporary, and other limited-contract employees has been on the rise.1 Japanese companies have begun to sort employees into various categories with different levels of employment protection. As Hirano (2006) suggested, while maintaining employment security for core workers, Japanese companies have begun to supply other workers to the

156

Y. Hattori

labor market. As a result of this approach, Japanese workers now find themselves in various situations along the continuum – from being strongly protected to being weakly protected. Restrictions on such changes Although the abovementioned changes have been occurring widely, there are some conditions that have constrained their incidence. First, there are strong appeals for employment security. Although Japanese law contains no mention of the reasons for the dismissal of an employee, according to judicial precedent, dismissal is prohibited in the absence of sufficient grounds. Second, the organizational structure of Japanese companies acts as an obstacle. As Hirano (2006) suggested, high autonomy should be granted to each employee as Japanese employees need to develop not only general knowledge but also company-specific knowledge. Such knowledge can only be developed through the rotations of various functions. Consequently, the period of employment will inevitably be prolonged. The fact that changes in the employment system are limited is clarified by the findings of experiential studies. Although many researchers recognize that the employment system in Japanese companies is moving toward the American model, they also understand that such a shift is a gradual one (Jacoby 2005, Hirano 2006, Morishima 1996b). Psychological contract as an analytic framework As discussed above, many researchers acknowledge that the employment system in Japanese companies is in the process of change. However, there is scarce information about how such changes affect the relationship between the companies and their employees. Especially, there has been no research on the relationship between a company and its employees under the existing system. In this study, we examined such problems from the perspective of psychological contracts. Rousseau (1989) defined a psychological contract as “an individual belief regarding the terms and conditions of a reciprocal exchange agreement between the focal person and another party” (p. 123). The four key concepts – individual belief, agreement, terms, and obligation – that characterize Rousseau’s concept of a psychological contract are delineated in this definition. In contrast to earlier work that emphasized a dyad-level notion, Rousseau (1989) did not view a psychological contract as one involving the perspectives of two interconnected parties. Instead, she posited it as an individual-level, subjective phenomenon. This holds true irrespective of whether or not the contract is legal/written or unwritten. All types of promises are deemed psychological contracts. Consistent with this view, Rousseau suggested that “agreement exists in the eye of the beholder” (p. 123). Further, agreements are not general concepts such as the notion of “trust”; instead, they comprise concrete contents. Finally, she emphasized the binding power of psychological contracts, suggesting that parties are bound by a set of reciprocal obligations when agreements are signed.

Psychological contract in Japanese companies

157

Research on psychological contracts that had developed after the 1990s was mostly advanced on the basis of the definition provided by Rousseau (Conway and Briner 2005, Hattori 2007). Therefore, this study adopted Rousseau’s definition. Why are psychological contracts worth taking seriously? Psychological contracts share a close relationship with the employment system in Japanese companies in two ways. First, it may be regarded that, thus far, the employment system in Japan has been supported by psychological contracts. In Japan, although important constituents of psychological contracts such as “long-term employment security” are preserved through unwritten contracts, such important components have historically been safeguarded even at some cost to the employer. Additionally, it is seen that as long as such important constituents remain stable, others that are less important can be flexibly changed. In other words, flexibility is based on an employee’s trust in the organization’s intention to retain his/her services. One good example is the introduction of a system of employee transfer (shukko) during the recessions of the 1970s. Many employees agreed to be transferred to subsidiaries in order to be able to retain their employment. Second, the abovementioned changes in the employment systems imply a breach of psychological contracts.2 As Rousseau (1995) suggested, employment systems such as those following performance-based evaluation lay the foundation for the establishment of psychological contracts. The employment system determines the kind of relationship that employers share with their employees. By interpreting the significance of employment systems, employees understand the kind of psychological contracts that are formed between their employers and themselves. Therefore, for employees, changes in the employment system may imply a breach of psychological contracts (Kanai, Morishima, and Takahashi 2002). Moreover, as current changes involve important components such as long-term employment security, they may lead to an erosion of employees’ trust in their employers. In sum, psychological contracts are closely related with the Japanese employment system in two ways: the employment system in Japan is supported by psychological contracts; and changes in the employment system may imply breaches of psychological contracts. Hypotheses Although Japanese scholars (Morishima 1996a, 1996b, Kanai et al. 2002) have seriously discussed changes in the employment system and their influence on psychological contracts, works of empirical research on Japanese companies are rare, with a few of them having several limitations. Aoki (2001) developed the Japanese version of the psychological contract scale (32 items), based on the research conducted by Millward and Hopkins (1998). The study of British companies revealed two factors – “transactional contracts” and “relational contracts” – whereas that of Japanese companies uncovered four factors – “inside

158

Y. Hattori

carrier oriented,” “rationalism,” “lifetime employment oriented,” and “monetary contract oriented.” Thus, it can be said that Japanese employees may have a more complicated understanding of mutual obligations with their employer. However, a strong correlation was observed between the psychological contract scale and the organizational commitment scale.3 Moreover, it might be difficult to directly apply the current scale, which is still under development, to Western companies. We conducted survey research on Japanese employees to investigate the components of psychological contracts and the fulfillment of the contracts in present-day employment systems; further, it also examined the consequences of the fulfillment of psychological contracts. In existing works of research, the components are often classified into theoretically and statistically meaningful typologies. According to Macneil (1985), a legal scholar, many researchers adopt the transactional/relational distinction. Transactional contracts involve highly specific exchanges that are narrow in scope, which take place over a finite period. Relational contracts, in contrast, are broader, more ambiguous, open-ended, and occur over a long term. Psychological contracts in Japanese companies have traditionally resembled relational contracts (Morishima 1996a). However, we cannot ignore the effects of changing employment practices, as discussed above, on employees’ psychological contracts with companies. On the one hand, changes such as the introduction of pay-for-performance schemes and the externalization of employment will convert Japanese psychological contracts from relational contracts to transactional contracts. Moreover, as Aoki’s results suggest, such contents will be formed not as ambiguous ones such as transactional contract, but as specific and concrete ones such as job, working hours, and training. On the other hand, certain conditions such as the strong demand for employment security and organizational structure will restrict the occurrence of such changes. This implies that broad and ambiguous components such as “long-term employment security” will be preserved. Moreover, as Aoki’s research suggested, psychological contracts in Japanese companies will not be akin to a simple dichotomy (transactional/relational) but will instead resemble a more complicated set of contracts. •

Hypothesis 1: A psychological contract under the existing Japanese employment system is a combination of specific and concrete components (such as long-term employment security, working hours, and training) rather than a simple dichotomy such as relational/transactional.

For employees, a changing employment system means that they are thrown into social uncertainty. As many sociologists have suggested, in the face of social uncertainty, trust in employment relationships is central to the effective functioning of organizations.4 Reducing social uncertainty, trust helps companies to change existing practices into minimum cost. A high level of trust relations has often been said to be a characteristic of Japanese management (Ouchi 1981). However, as discussed above, many Japanese companies have begun changing some important components, and it is possible that employees’ trust in their companies has been eroded with the violation of important promises. Contrary to this, if employees

Psychological contract in Japanese companies

159

perceive that employers fulfill their obligations, their trust in the employers may increase. • •

Hypothesis 2a: Perceived breach of contracts (by employers) will reduce employees’ trust in companies. Hypothesis 2b: Perceived fulfillment of contracts (by employers) will increase employees’ trust in companies.

Method Participants This study involved part-time masters’ students (MBA students) from two management schools in western Japan (n = 128). Given their wide range in ages, industries, and occupations, MBA students are appropriate subjects for our research. In addition to the diverse representativeness of MBA students, MBA students are apt subjects because even Rousseau and her colleagues employed them in their study. This study of course excluded MBA students who were not employed with any organization at the time of the research. In this population, the average age was 36.8. Females comprised 7 percent. Major industries include manufacturing – 44.5 percent, IT – 12.5 percent, service – 9.4 percent, retail – 8.6 percent, other banking – 7 percent, and other – 20 percent. Functional areas placed in include personnel – 36 percent, sales – 28 percent, engineering and R&D – 20 percent, and other – 16 percent. The author distributed the questionnaire before and after the lecture, and simultaneously provided the outline of the investigation. The questionnaires were either collected at the end of the lecture or in the lecture the following week (first sample). In order to increase the response rate and decrease the non-response bias, the author entrusted a mail survey to those graduate students who did not return the questionnaires on the day of the collection. The questionnaires that were returned within a definite period of time constitute the second sample. A total of 140 students returned the completed questionnaires, yielding a response rate of 67 percent. From the sample, 12 questionnaires were excluded from the study due to their lack of reliability (e.g. all answers made the same point). In all, 128 students were selected in this sample as the participants of this study. Although there was an extreme bias in the ratio of men to women (116:10), other profiles such as age, rank, and occupation were almost equal. Measurement Development of the Japanese version of the psychological contract scale Since a standard psychological contract scale did not exist, the author developed a Japanese version of this scale. First, 72 items (45 items related to an organization’s

160

Y. Hattori

obligations and 27 items pertaining to an employee’s obligations) were extracted by translating the existing research such as Millward and Hopkins (1998), Robinson et al. (1994), and Rousseau (1990). Subsequently, seven original items (five items related to an organization’s obligations and two items pertaining to an employee’s obligations) were extracted, based on interviews. In addition, two items (organization’s obligations) were extracted from literature on Japanese management (such as Ouchi 1981). Finally, the items that could be divided into two or more categories were classified accordingly. Consequently, 94 items (57 items related to an organization’s obligations and 37 items pertaining to an employee’s obligations) were obtained. For each item, two kinds of measurements were conducted. The first measurement was related to the importance of the contract. The response to a question was measured on a scale of 0 (no obligation) to 1 (low level of importance) to 5 (high level of importance). An irregular Likert scale was used in order to exclude nonobligatory items. The second measurement pertained to the evaluation of contractual fulfillment. The participants were requested to respond to the items with varying levels of importance (1 to 5), i.e. “fulfilled,” “breached,” or “I do not know.” Other instruments According to the existing research in this field, it is likely that employees who experience a breach of a psychological contract will exhibit negative attitudes and behaviors. In this paper, trust in a firm (“trust”) as a consequence of the fulfillment of a psychological contract was adopted and two items to measure “trust” were used. The items included in this scale are as follows: “I have trust in my company” and “Other employees have trust in our company.” The participants were requested to respond to each of the two items by answering with “yes” or “no.” An ordinal scale was prepared using a combination of these two items. On this scale, the combination of “yes–yes” implied the highest degree of trust; “yes–no” a medium degree; and “no–no” the lowest degree. In other words, this ordinal scale of “trust” had three ranks. Moreover, an employee’s age, rank, occupation, and employment year were measured in order to rate his/her profile. These items were adopted as control variables. The construct validity of these items was secured by the following two pretests. First, a construct validity test was conducted by two professors in University A in order to test whether this concept was being appropriately reflected in the scale. Second, a pretest was conducted by three anonymous businesspeople who worked in Japanese companies to test whether respondents can accurately interpret the author’s intention. These three people were not included in the sample list of participants. Analysis The following two analyses were conducted. The first analysis is an exploratory factor analysis to clarify the latent structure of psychological contracts in Japanese

Psychological contract in Japanese companies

161

companies. The second analysis verifies how the fulfillment/breach of several contracts influences trust in companies, using an ordered probit regression analysis.

Results Latent structure of psychological contracts: exploratory factor analysis The mere enumeration of a psychological contract that comprises 94 items cannot help us explain the employment system in Japan. Hence, by employing an exploratory factor analysis, we attempted to summarize a respondent’s recognition and clarify the latent structure of psychological contracts in Japanese companies. In the following analysis, we separately analyze the obligations of organizations and employees. The items related to an organization’s obligations were factor analyzed (by applying the principal factor method with varimax rotation). Four factors emerged from the items (see Table 9.1, where the right side indicates the number of instances of fulfillment/breach/unknown with respect to each item), and the accumulative contribution obtained through these factors was 43.42 percent. On analyzing the factor loadings, the factors were interpreted as follows. The first factor comprised items related to the actual job, such as “interesting work,” “challenging work,” and “significant task for society.” Therefore, it was known as “provision of a fascinating job.” The second factor comprised items such as “seniority-based promotion,” “lifetime employment,” and “pay based on the length of service.” Since these items were related to long-term recruitment, we collectively referred to them under “long-term employment.” The third factor comprised items such as “adequate support for the job,” “provision of adequate training,” and “benefit for my family.” Therefore, it was termed “supportive relations.” The fourth factor comprised items that were related to working hours, such as “flexibility in working hours,” “fixed working hours,” and “prohibition of unpaid overtime work.” Since these items were concerned with work–life balance, it was termed “provision of work–life balance.” Next, the items related to an employee’s obligations were factor analyzed (by applying the principal factor method with varimax rotation). Four factors emerged from the items (see Table 9.2, where the right side represents the number of instances of fulfillment/breach/unknown of each item), and the accumulative contribution obtained through these factors was 46.85 percent. In other words, the accumulative contribution was able to explain approximately half of the total variance using the four factors. Through an analysis of the factor loadings, the following factors were explained. The first factor comprised items concerning relations that come across as more than mere businesslike relations such as “association with colleagues outside work,” “association with superiors outside work,” and “voluntarily refrain from transfers to competitors.” Therefore, this factor was referred to as “maintenance of human relations.” The second factor comprised items concerning deviation from formally assigned roles. To put it concretely, it includes items such as “behavior that is not

0.587 0.579 0.556 0.537 0.512 0.491 0.458 0.437 0.421

Participation in career-related decision-making

Significant task for society

Development of marketable skills

Significant task for company

Adequate job status

Frequency of feedback

Good work atmosphere

Good career prospect

Participative decision-making

Fairness demotion

0.684

0.653

Adequate difficulty of work

Lifetime employment

0.660

Interesting work

0.795

0.838

Items

Seniority-based promotion

Provision of Provision fascinating Long-term Supportive of work–life jobs employment relations balance

Table 9.1 Results of the exploratory factor analysis (organization’s obligations)

?

(continued)

57 31 12

32 33 22

40 34 49

29 57 31

21 73 21

38 37 45

39 67 18

46 42 31

53 31 39

35 50 29

51 30 40

21 63 34

49 37 33

27 40 43

{ ×

Note: { = number of fulfilled, × = number of breached, ? = I don’t know.

26.74

35.7

39.86

43.42

3.55

Accumulative contribution (%)

4.17

26.74

Contribution (%)

8.95

0.96

7.22

Characteristic value

1.13

0.517

Prohibition of unpaid overtime work 2.42

0.576

Fixed working hours

0.411

Safe and congenial environment

0.622

0.459

Benefit for my family

Flexibility in working hours

0.478

Job assignments considering my experience

0.422

Structure of work environment

0.645

0.466

Good pay

Provision of adequate training

0.547

Holistic concern

0.802

0.614

Recognition for long tenure of service

Adequate job support

0.684

Pay based on the length of service

Items

Provision of Provision fascinating Long-term Supportive of work–life jobs employment relations balance ?

45 67 17

51 62 12

59 44 12

66 42 16

63 32 29

38 44 39

70 43 13

59 36 30

39 39 34

33 41 34

20 38 32

55 37 18

59 34 12

{ ×

0.537 0.518

Association with clients outside work

Join an event

Acceptance of transfers

0.581

0.574

Long tenure of service

Willingness to go beyond the job description

0.639

Voluntarily refrain from brief job changes

0.645

0.659

Voluntarily refrain from transfers to competitors

Behavior that benefits an organization

0.661

Association with superiors outside work

0.793

0.679

Association with colleagues outside work

Non-reward work

Behavior that is not recognized by the reward system

Maintenance of human relations

Items

Table 9.2 Results of the exploratory factor analysis (employee’s obligations)

0.631

Authority acceptance

Protection of company

?

17

5

26

14 27

10 22

14 27

23 19

23 22

15 23

7

17 20

17 26

18 27

×

(continued)

85

72

86

74

70

54

54

67

34

44

63

{

18.36

Accumulative contribution (%)

29.20

38.59

46.85

8.26

18.36

Contribution (%)

9.39

1.32

2.94

Characteristic values 10.84

0.508

Following instructions 1.50

0.533

Placing the organization’s interests first

1.73

0.744

Protection of company

Voluntarily refrain from pro-competitor behavior

0.413

Authority acceptance

Acceptance of overtime work

Non-reward work 0.62

Maintenance of human relations

Acceptance of change in functions

Items

100

85

100

94

86

{

29

?

16

16 11

10 27

8

12 21

6

×

166

Y. Hattori

recognized by the reward system,” “behavior that benefits an organization,” and “willingness to go beyond the job description.” Therefore, this factor was named “non-reward work.” The third factor comprised items such as “acceptance of transfers,” “acceptance of change in functions,” and “acceptance of overtime work.” All of these items were related to the acceptance of authority and were bracketed under the term “authority acceptance.” The fourth factor comprised items such as “voluntarily refrain from pro-competitor behavior,” “placing the organization’s interest first,” and “following instructions”; therefore, this factor was termed “protection of the company.” The existence of these factors supports Hypothesis 1. Contrary to the findings of previous works in the West, psychological contracts in Japanese companies are not akin to a simple dichotomy (transactional/relational) but bear more resemblance to a complicated set of contracts. Interestingly, this result reveals the existence of an employment system in Japan. Factors such as “long-term employment,” “maintenance of human relations,” and “authority acceptance” were often said to characterize Japanese management. It can be said that it is necessary to depict the employment system in Japan not as a dichotomy but as a combination of latent factors. Psychological contract and trust: ordered probit regression analysis This section analyzes the manner in which latent factors and fulfillment/breach of psychological contracts influence an employee’s trust in his/her company. For this, a regression analysis wherein “trust in the firm” is the dependent variable and “organization’s fulfillment/breach” is the independent variable were examined. Furthermore, a regression analysis that was referred to as an ordered probit regression analysis was conducted because the dependent variable was in the form of an ordinal scale. In addition, the latent factor of an organization’s obligation and dummy variables of the profile were added to the analysis as control variables. The analytic model is as follows. (1)

+ +

+u

Here y (trust) is a dependent variable, and α, β, γ are the coefficients. The mean of each respondent’s evaluation (fulfillment/breach) is the independent variable. The mean value of fulfillment of the items that compose each latent factor is FF, and the mean value of the breach of the items that compose each latent factor is NFF. n = 1 implies “provision of a fascinating job”; n = 2 indicates “long-term employment”; n = 3 represents “supportive relations,” and n = 4 indicates “provision of work-life balance.” We introduced five types of control variables. First, the following four dummy variables were used to control the profile characteristics. The first dummy variable is given by technical occupation (OCC1_dummy). Technical occupations such as

Psychological contract in Japanese companies

167

research and development (R&D) are assigned a value of 1, while the others are considered 0. Sales occupation (OCC2_dummy) is the second dummy variable, with sales occupation being 1 and the others, 0. The third dummy variable is entry form (ENT_dummy), with a midyear graduate representing 1 and a new graduate, 0. The fourth dummy variable is given by entry year (ENTY_dummy). Within three years, it is 1 and the others are 0. The last dummy variable is given by rank (RANK_dummy). A rank above the manager level represents 1 and that below the manager level represents 0. However, equation (1) neglects the effect of latent factors. Then, in equation (2), we added the latent factor of the organization’s obligation as a control variable. Multicollinearity has been avoided, since the factor score extracted by varimax rotation has been used. The items are as follows: “provision of a fascinating job” (FACTOR1), “long-term employment” (FACTOR2), “supportive relations” (FACTOR3), and “provision of work–life balance” (FACTOR4). (2)

The estimated result is shown in Table 9.3. According to Akaike’s information criteria, equation (2) is appropriate. As a result of the analysis, the estimation of the coefficient of NFF is not statistically significant, although the coefficients of FF1 (95 percent level), FF2 (99 percent level), and NFF3 (99 percent level) are significant (99 percent level). This implies that although the fulfillment of the criteria of “provision of a fascinating job” and “long-term employment” evidently has a positive influence on trust, breach of these contracts does not necessarily have a negative influence on trust. On the contrary, although the breach of “supportive relations” has a negative influence on trust, fulfillment of it does not necessarily have a positive influence on trust. It can be said that although the way in which each contract influences trust is different, the fulfillment/breach of a contract has an influence on trust. Hence, Hypotheses 2a and 2b were partially supported. Interestingly, the fulfillment/breach of “provision of work–life balance” has no influence on trust. Instead, the latent factor (FACTOR4) has a positive influence. Further, it was shown that an employee who is engaged in a technical occupation, is a midyear graduate, and is above the manager level has lower levels of trust in others.

Discussion and conclusion Finally, the contributions of this study are summarized and directions for future research are provided. This study examined the relationship between Japanese companies and employees under the existing employment system from the perspective of psychological contracts. The results of a factor analysis were contrary to the findings of previous works. Psychological contracts in Japanese companies did not

168

Y. Hattori

Table 9.3 Estimation of ordered probit regression analysis (1) estimate

p value

(2) estimate

p value

Provision of fascinating jobs (FF)

1.423

0.075*

2.174

0.019**

Long-term employment (FF)

2.256

0.001***

2.336

0.007***

Supportive relations (FF)

–0.798

0.242

–1.237

0.107

Provision of work–life balance (FF)

0.228

0.730

0.040

0.960

Provision of fascinating jobs (NFF)

–0.240

0.741

1.104

0.194

0.242

0.705

–0.066

0.935

Long-term employment (NFF) Supportive relations (NFF)

–1.848

0.012**

–2.972

0.001***

Provision of work–life balance (NFF)

–0.211

0.726

–0.563

0.419

OCC1_dummy

–0.532

0.136

–0.697

0.078*

OCC2_dummy

–0.121

0.663

–0.382

0.218

ENT_dummy

–0.931

0.002***

–0.780

0.013**

ENTY_dummy

0.372

RANK_dummy

–0.384

0.398 0.002***

Provision of fascinating jobs

0.354

0.439

–0.417

0.002***

–0.467

0.011**

Long-term employment

0.052

0.763

Supportive relations

0.279

0.114

Provision of work–life balance

0.451

0.021**

AIC

1.751

1.715

Note: *** p < 0.01, ** p < 0.05, * p < 0.1; AIC signifies Akaike’s Information Criteria.

emerge as a simple dichotomy (transactional/relational); instead, they resembled a more complicated set of contracts. Interestingly, the results corroborate the existence of the so-called Japanese employment practices. We conducted an ordered probit analysis to analyze the manner in which the latent factors and their fulfillment influence an employee’s trust in his/her company. Although the ways in which contracts influence trust are different from each other, the fulfillment/breach of contracts affects trust. This can be interpreted as a result of the degree of expectations. The factor of “supportive relations” comprises items in which employees are assigned relatively high importance. Employees may have strong expectations of fulfillment of such contracts. Consequently, breach of such contracts may have a negative influence on trust. On the contrary, “provision of a fascinating job” and “long-term employment” comprises items wherein

Psychological contract in Japanese companies

169

employees are assigned relatively low importance. Consequently, breach of such contracts may not have a negative influence on trust. This study has certain limitations. First, it separately examines the obligations of an organization and their employees. According to the definition provided by Rousseau (1989), reciprocity is a central aspect of psychological contracts. This means that items in the obligations of an organization and employees have to be merged in a reciprocal manner. In future works of research, we must regard psychological contracts as reciprocal exchanges. Second, this study abstracts two kinds of contexts. It abstracts the organizational context by considering MBA students as participants. According to Rousseau (1995), the organizational factor is one of the important factors in creating an individual’s psychological contract. Further, it does not take the context of contractual breach such as importance of contracts into account, which is necessary for providing an accurate picture. It is particularly important for present-day Japanese enterprises to comprehend the context of contractual breach because change in existing contracts seems to become popular. A realistic problem for Japanese enterprises does not involve maintaining existing contracts but entails changing them with minimum expense.

Notes 1 In 1992, ratio of part-time, temporary, and other limited-contract employees to regular employees was 3.6:1. In 2002, the ratio was 2:1. 2 According to Morrison and Robinson (1997), a breach of psychological contract refers to the employee’s cognition that his/her organization has failed to meet one or more obligations. 3 The scale of Millward and Hopkins does not include concrete components but instead adopts a general attitude toward organizations. For instance, statements such as “I come to work purely to get the job done” and “To me, working for this organization is like being a member of a family” measure employees’ general attitude toward their organizations rather than evaluating the concrete components of psychological contracts. 4 Although there is no universally accepted definition of trust, its fundamental elements are comparable across disciplines. Rousseau et al. (1998) postulated such a broad characterization through the following definition: “Trust is a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another.” In this study, the notion of “trust” follows this definition.

References Aoki, K. (2001) “Effects of psychological contract and organizational commitment upon employees’ intentions to quit” (in Japanese), Japanese Association of Industrial/ Organizational Psychology Journal, 15: 13–15. Chen, A. X., Tsui, A. S. and Zhong, L. (2008) “Reactions to psychological contract breach: a dual perspective”, Journal of Organizational Behavior, 29: 527–48. Conway, N. and Briner, R. B. (2005) Understanding Psychological Contract at Work: a critical evaluation of theory and research, New York: Oxford University Press. De Vos, A., Buyens, D. and Schalk, R. (2005) “Making sense of a new employment relation-

170

Y. Hattori

ship: psychological contract-related information seeking and the role of work values and locus of control”, International Journal of Selection and Assessment, 13: 41–52. Hattori, Y. (2007) “Development and problems of psychological contract study” (in Japanese), Jinzai Ikusei Kenkyu, 3: 51–63. Hirano, M. (2006) Japanese Human Resource Management: growing process of evolutional type and its function (in Japanese), Chuokeizaisya. Inagami, T. and Whittaker, D. H. (2005) The New Community Firm: employment, governance and management reform in Japan, Cambridge: Cambridge University Press. Jacoby, S. M. (2005) The Embedded Corporation, Princeton, NJ: Princeton University Press. Kanai, T., Morishima, M. and Takahashi, K. (2002) Human Resource Makes Company Healthy (in Japanese), Nihonkeidanrensyuppankai. Macneil, I. R. (1985) “Relational contract: what we do and do not know”, Wisconsin Law Review, 3: 483–525. Millward, L. J. and Hopkins, L. J. (1998) “Psychological contracts, organizational and job commitment”, Journal of Applied Social Psychology, 28: 1,530–56. Morishima, M. (1996a) “Renegotiating psychological contracts: Japanese style”. In: C. L. Cooper and D. M. Rousseau (eds.) Trends in Organizational Behavior, vol. 3, New York: John Wiley, pp. 139–58. —— (1996b) “The evolution of white-collar human resource management in Japan”, Advances in Industrial and Labor Relations, 7: 145–76. Morrison, E. W. and Robinson, S. L. (1997) “When employees feel betrayed: a model of how psychological contract violation develops”, Academy of Management Review, 22: 226–56. Ouchi, W. G. (1981) Theory Z: how American business can meet the Japanese challenge, Reading, MA: Addison-Wesley. Robinson, S. L., Kraatz, M. S. and Rousseau, D. M. (1994). “Changing obligations and the psychological contract: a longitudinal study”, Academy of Management Journal, 37(1): 137–52. Robinson, S. L. and Rousseau, D. M. (1994) “Violating the psychological contract not the exception but the norm”, Journal of Organizational Behavior, 15: 245–59. Rousseau, D. M. (1989) “Psychological and implied contracts in organization”, Employee Responsibilities and Rights Journal, 2: 121–39. —— (1990) “New hire perceptions of their own and their employer’s obligations: a study of psychological contracts”, Journal of Organizational Behavior, 11: 389–400. —— (1995) Psychological Contracts in Organizations: understanding written and unwritten agreements, Thousand Oaks, CA: Sage. Rousseau, D. M., Sitkin, S. I., Burt. R. S. and Camerer. C. (1998) “Not so different after all: a cross-discipline view of trust”, Academy of Management Review, 23: 393–404. Sanno Institute of Management (2003) Strategies of HR development of Japanese firms and the Future of Merit-based System, Research Paper, No. 17 (in Japanese).

10 Cognitive framework for performance appraisal An empirical study of narrative evaluations in a Japanese auto company Kiyoshi Takahashi

Abstract Since the seminal work by Campbell (1990), the domains of job performance have started to expand. Traditional task-oriented performance criteria have been extended to include the contextual performance, which is not related to specific tasks but affected by altruistic, personality-related, extra-role behaviors. Yet, typical criteria for performance appraisals in Japanese companies have contained not only results but also ability ratings and attitude evaluations. Using quantified data from actual narrative essays, this chapter scrutinizes the cognitive frameworks for performance evaluations used by senior managers in a leading Japanese auto manufacturer. This study found that in contrast to the common emphasis on merit ratings, managers were prone to conduct demerit ratings that identify employee weaknesses more seriously than strengths. The results of factor analysis found that there were three criteria domains: reasoning, energy, and feeling. These three factors might represent the heuristic, mental models employed in the process of managerial performance appraisal in Japan.

Practices for measuring performance Theories and practices for performance appraisal have developed significantly since the 1920s. The early implementation of this practice can be traced back to the man-to-man ratings used in the U.S. Army in 1917. Since then, researchers and practitioners have invented and practiced diverse methods for ratings. For instance, many companies have employed rating methods such as graphic rating scales, checklists, forced choice techniques, rankings, paired comparisons, and management by objectives (MBO). Organizations conduct performance evaluations for administrative purposes, using them as the basis for making personnel decisions such as promotion, wage increases, and dismissal. Such decisions are made based on the appraisal results, but the results are also used for developmental purposes. In these cases, the collected information is fed back to incumbents in order to improve their skills, abilities, and effective work behavior. To date, many scientists and

172

K. Takahashi

practitioners have made considerable efforts to search for better, more accurate and more cost-efficient techniques for measuring performance and job behavior. Challenges for developing sophisticated measurement techniques have been observed frequently in the research on performance appraisal. One systematic attempt was the work done by Smith and Kendall (1963), who developed the Behaviorally Anchored Rating Scales (BARS). These authors intended to replace numerical and adjective anchors on the traditional graphic rating scales with example statements of actual work behaviors. BARS asks raters to read several behavioral statements and to check the number that corresponds to the statement that best describes the subordinate’s behavior. Latham and Wexley (1981) developed another sophisticated procedure. They invented the Behavior Observation Scales (BOS), which focused on the occurrence of behaviors leading to good performance. Raters evaluate the frequency of specific employee behaviors or critical incidents that have been observed in the process of accomplishing tasks. Similarly, Blanz and Ghiselli (1972) designed the Mixed Standard Scale (MSS) that disguised the dimensions and levels of performance described by the behavioral examples. On this scale, raters are asked to respond to behavioral statements that represent high, average, and poor performances. For each statement, raters judge whether the employee’s performance is better than (+), equal to (=), or worse than (–) the behavior description. A number of management scholars have conducted studies in order to clarify advantages and disadvantages, psychometric properties, scale constructions, and practical implications for the techniques used for evaluating employee traits and performance (Cascio and Aquinis 2005, Ployhart et al. 2005, Gatewood et al. 2007, for reviews). Each format has its unique characteristics that distinguish it from the other. It is generally found that the behavior-based tools such as BARS, BOS, and MSS are equipped with desirable psychometric properties such as high reliability and validity to be seen as the effective method for measuring performance and employee behavior.

Expansion of domains/definitions of performance No matter what format is employed, the criteria for measuring employee traits and performance have drawn considerable attention. There are several efforts outlining the domains of job performance as specified in the rating elements. Research has shown that several constructs are used in practice. In the latest research, Campbell and his colleagues (Campbell 1990, 1999; Campbell et al. 1993) conducted a largescale study for specifying performance criteria in diverse jobs in the military and applied the findings to civilian jobs. Drawing from the results of the Selection and Classification project (Project A) sponsored by the U.S. Army, he proposed an eight-factor model of rating criteria that can be generalized across jobs. The model comprised the following eight factors: (1) job-specific task proficiency, (2) nonjob-specific task proficiency, (3) written and oral communication proficiency, (4) demonstrating effort, (5) maintaining personal discipline, (6) facilitating peer and team performance, (7) supervision/leadership, and (8) management/administration.

Cognitive framework for performance appraisal

173

Using this model, Campbell et al. projected the multidimensional nature of job performance. Similarly, scrutinizing job-analytic data of the Royal Canadian Mounted Police, Catano et al. (2007) identified the following eight competency-based criteria for evaluating officers: (1) leadership, (2) service orientation and delivery, (3) thinking skills, (4) personal effectiveness and flexibility, (5) organizing and planning, (6) interpersonal relations, (7) communication, and (8) motivation. Bartram (2005) and Robertson et al. (2002), working for a large HR consulting firm, advocated a performance appraisal framework known as the Great Eight competency model. This model comprised the following criteria: (1) leading and deciding, (2) supporting and cooperating, (3) interacting and presenting, (4) analyzing and interpreting, (5) creating and conceptualizing, (6) organizing and executing, (7) adapting and coping, and (8) enterprising and performing. Unexpectedly, all these influential models identified eight elements. Though it is difficult to find common constructs overlapping among them, it is safe to say that performance domains found in recent studies are regarded as multidimensional. Prior to the seminal work by Campbell (1990), it was commonly believed that evaluation criterion was a unidimensional construct that captured the single continuum of human excellence. Campbell’s model opened a line of research that considered diversity in what supervisors speculate on the standards against which they judge subordinate merits with regard to human traits, competencies, and behaviors. Nevertheless, the controversy over the uni- or multidimensionality of evaluating criteria for performance persists. For instance, Viswesvaran (1996) suggested that there is a general factor underlying most common performance measures, though he admitted the relative importance of sub-domains such as task-specific and conscientiousness-oriented factors. In other words, he advocated the onefactor model that may correspond to a “g” factor in intelligence. Along these lines, Arvey (1986) suggested the existence of a possible general factor drawn from the factor-analytic results of job-analytic information for petrochemical jobs. One implication of the abovementioned suggestions is that performance measures might be differentiated in terms of both performance dimensions and level of abstraction/ specificity so that the number of performance factors/domains might be dependent on the level of metaphysics. In studies conducted in the United States, performance domains have embraced job requirements and employee behavior that give rise to high performance in a specific job. Yet, there appears to be a general trend toward more flexible definitions of work roles and jobs, where jobs are viewed as dynamic and interchangeable, and are thus defined less precisely. Several authors (e.g. Ilgen and Hollenbeck 1991, Cascio 1995) argued that because the nature of work is changing in the global economy, so are the definitions of jobs and job performance. The focus is on the personal competencies to perform diverse work roles and jobs, rather than a narrow view of specific tasks and duties inherent in fixed jobs. Consistent with this theme of performance dimensionality, Borman and Motowidlo (1993) expanded the definition of job performance to include extrarole behaviors that help maintain a good workplace. These authors coined the

174

K. Takahashi

terms “task performance” and “contextual performance.” Task performance refers to the proficiency with which incumbents perform core technical activities that are important for their jobs, whereas contextual performance is defined as extratask proficiency that contributes to the organizational, social, and psychological environments to help accomplish organizational objectives. The contextual factors include aspects such as remaining enthusiastic and making extra effort, volunteering to carry out duties not formally a part of one’s job, consulting and supporting coworkers, maintaining a comfortable and productive workplace, and endorsing organizational objectives. Similarly, Rotundo and Sackett (2002) summarized the domains of performance in an inclusive perspective. They not only focused on the traditional, well-studied domain of task performance but also considered two other broad domains, namely, the citizenship performance that represents pro-social, extra-role behaviors, and the counterproductive performance that includes anti-social, disruptive behavior leading to poor performance. The notion of citizenship performance is consistent with the notions of organizational citizenship behavior (OCB) as advocated by Organ (1988), pro-social behavior as discussed by Brief and Motowidlo (1986), and organizational spontaneity presented by George and Brief (1992). All these citizenship behaviors serve to facilitate communication and reduce conflicts and disruptive emotional responses; further, these behaviors are viewed as important for maintaining a good workplace and contributing to organizational goals. Similarly, there is a growing recognition that counterproductive behaviors that detract from organizational goals should also be specified and treated as aspects of performance. In short, the present research on performance appraisal sheds light on, at least, the traditional job- and task-related categories of performance as well as the contextual, citizenship category of performance that delineates workplace harmony and individual productivity indirectly.

Performance appraisal in Japanese organizations Though performance appraisal is one of the most heavily researched topics in industrial psychology (Judge and Ferris 1993, Murphy and Cleveland 1995), very limited empirical studies exist in the case of Japan. As compared with the scientific endeavor in the United States, considerably less effort has been made for empirically clarifying the nature of performance evaluation in Japanese organizations. Practitioners have recognized that in traditional Japanese performance appraisal systems wherein performance is dominantly judged by supervisors on graphical rating scales, three major elements are assessed, namely, abilities, attitudes, and results. Abilities contain elements such as comprehension, judgment, expression, knowledge, skills, etc.; attitudes include rating elements such as cooperation, initiative, responsibility, volition, will, etc.; and results represent the quantity and quality of work performed, as shown in Figure 10.1. This threefold model seems to be practiced widely in many Japanese organizations. However, no empirical study has evidenced the construct validity and underlying structure of these elements.

Cognitive framework for performance appraisal

175

Abilities – – – –

to what degree an employee possessed abilities required for a job job-related competencies such as comprehension, judgment, expression, etc. knowledge skills and techniques.

Attitudes – – –

what attitudes an employee has toward a job personality traits such as cooperation, initiative, responsibility, etc. volition and will.

Results – –

to what degree an employee performed his/her work roles quantity and quality of work performed.

Figure 10.1 Threefold model of performance criteria in Japan

Because Japanese companies are not required to prove the job-relatedness under equal employment opportunity legislation, they hesitate to reveal their actual performance appraisal data to researchers, and measures of job performance have not been validated by scientific procedures. Therefore, it is important to clarify the situation with actual data about what rating elements or judgment constructs are used as performance criteria in Japanese organizations. Moreover, it is likely that raters naturally employ their own mental models in the process of judging performance. Rather than simply importing the predetermined rating framework into their minds and judging performance against it directly, they may adopt their own perspectives in judging the performance of their subordinates. Even though appraisers are expected to use the given format, simply following instructions may be a less effective strategy for the supervisors to make an accurate appraisal. The present study analyzes the information collected during performance appraisals in the form of narrative essays. Though the technique of narrative evaluation is seen as dated and less popular, the analysis of commentaries can identify the cognitive structure that supervisors introduce in the process of performance evaluation. An open-ended description of employee traits and behaviors may project the supervisor’s unaffected framework for evaluating employees. Therefore, it can provide the basic information for understanding what constitutes judgment criteria in Japanese appraisal systems. Unfortunately, there is scant research on narrative evaluation from the psychological viewpoint because narrative essays

176

K. Takahashi

are unpopular now as a tool for performance appraisal. When evaluating performance in narrative description, do raters employ distinct criteria that are not used by other raters? Conversely, are the rating standards congruent between raters? If no restriction is placed on the rater cognition, does the performance appraisal system maintain construct validity that is in convergence with the performance criteria specified in the prescribed rating tools? These issues have not been addressed by empirical studies. In other words, this study examines the mental model that appraisers introduce in their minds when conducting performance evaluations. Narrative data is the best option for such an examination. The research on commentary evaluations provides the basic information on how supervisors think in the evaluation processes and for confirming construct validity of the rating elements. This study, therefore, aims to investigate the psychometric validity of performance ratings practiced in Japan, comparing the theory of common evaluation criteria shown as the threefold model and the rater’s heuristic cognitive framework found in the analysis of narrative essays.

Method Participants Participants of this study were drawn from a large automobile company in Japan. This company is one of the leading auto manufacturers operating worldwide, and its headquarters is located in Tokyo. Two hundred and ninety-eight candidates (n = 298) for new managerial positions were chosen as the target samples. The average age of participants was 42.9 years. All participants were males. Female candidates were excluded from the sample unintentionally, since occupations in automobile manufacturing in Japan are generally dominated by males. In a series of management training sessions, this company conducted performance appraisal in the form of narrative essays. Three senior male managers were assigned as in-house trainers and asked to identify strong and weak traits for each candidate in narrative statements of 80 words. They judged candidates’ quality from their own perspective, describing the observed traits discretionally in essay form. The appraisal was aimed at both developmental and evaluative purposes. In the training program, senior managers who were not direct bosses wrote essays for a developmental purpose. Written statements were passed on to the participants in order to let them know their individual strengths and weaknesses. Simultaneously, it had the function of screening candidates for managerial positions on the observed merits written in the statements. Though not being rated by direct bosses, this openended evaluation provided the basic information regarding candidates’ traits and abilities that were used by the corporate headquarters for screening participants for managerial positions. Information provided in the essays influenced the promotion decisions to such an extent that three senior trainers were very motivated to describe candidate traits accurately using business language and real company jargon.

Cognitive framework for performance appraisal

177

Quantification of text data In total, 894 statements (3 statements × 298 candidates) were collected for this study. The text data was quantified by the following steps: psychologists carefully reviewed the contents of 894 essays and extracted major keywords (constructs) that are supposed to be used as the framework for quantification. This procedure yielded a total of 64 keywords such as “logicality,” “broad perspective,” “vitality,” etc. Setting these 64 keywords as the rating format, three HR specialists (reviewers) from an outside consulting firm read the 894 statements line by line, judged independently whether each essay contained any of the keywords either in a positive or negative sense, then recorded their judgment results. In the step for quantification based on 64 keywords, reviewers assigned the value of positive unity (+1) if they judged that keywords were used with a positive connotation, nil (0) if the keywords were not shown in the statement, and negative unity (–1) if the keywords appeared with a negative connotation. The three HR specialists (reviewers) judged three commentaries written by senior managers for 298 managerial candidates (participants) by counting the presence of 64 keywords in either a positive or negative sense. In this step, a data set of 2,682 cases (894 statements × 3 reviewers) with 64 variables (keywords) was produced. Each participant had nine data points (3 statements × 3 reviewers). Summing nine data points for each participant, raw data of 298 participants with 64 variables were constructed for analyses.

Analysis This study investigates the mental framework built by supervisors when appraising employee performance and behavior spontaneously. Numerical data converted from narrative essays are analyzed by the exploratory factor analysis. By using this technique, the latent relationships among elements (keywords) can be identified. Because the quantification makes written traits into numerical values, extracted factor structure may represent the heuristic, cognitive model that appraisers conveyed into the performance evaluation in the form of open-ended descriptive statements.

Results Table 10.1 shows the frequency with which each of the 64 keywords was observed in the narrative statements. The column ‘total’ represents the number of times the keyword appeared in the essay statements (percentage in parentheses), the column ‘positive’ shows the number of times the keyword was used in a positive expression (percentage in parentheses), and the column ‘negative’ exhibits the number of times it was used in a negative sense (percentage in parentheses). Mean and s.d. display, respectively, exhibit the average and the standard deviation of frequencies in which the negative appearance was subtracted from the positive appearance in three commentaries for each participant. The average with positive values indicates

178

K. Takahashi

that the keyword is more likely to be used in a positive way. On the other hand, the average less than zero shows that the keyword connotes a negative meaning more often. As shown in Table 10.1, raters evaluated candidates more critically than affirmatively. Looking at the popular keywords observed more than 200 times (higher than 2.0 percent in total appearance), only two elements were used in the affirmative (percentage of positively expressed cases is shown in parentheses): “initiative (58.0%),” and “high potential/smart (75.5%).” Using those keywords, appraisers often describe the candidate’s traits affirmatively as: “this person takes initiatives when doing things,” and “this person is smart and possesses high potential.” Conversely, popular keywords with more than 200 appearances included many elements used with a disparaging intention. These keywords were as follows (percentage of negatively expressed cases is shown in parentheses): “logic formation/logic development (65.0%),” “analytical skills (56.0%),” “broad view (78.4%),” “influence/impact (78.1%),” “persuasion (79.0%),” “independence (91.5%),” “holistic/systematic (76.6%),” “leadership (66.7%),” “understanding essence (81.2%),” “logicality (54.5%),” “depth of thinking (93.8%),” “policy planning (93.3%),” “objectivity (77.7%),” “building vision (87.1%),” and “judgment (66.2%).” For these 15 popular keywords, negative expressions were dominant. In Japanese rating systems, negative evaluations surpass positive ones. Supervisors focus on poor traits and ineffective behaviors when observing subordinate performance. They put comments such as “poor in forming and developing logic,” “poor analytical skills,” “narrow views,” “exerting little influence and impact on others,” “less effective in persuasion,” “no independence,” “not having holistic and systematic points of view,” “no leadership,” “poor in grasping essence,” “illogical,” “shallow thinking,” “no planning abilities for policies and practices,” “subjective and biased,” “less effective in building vision,” and “weak in sound judgment.” The results clearly showed that supervisors looked down on subordinates with critical viewpoints. By commentaries like those shown above, senior managers were more likely to give negative feedback to managerial candidates, giving them a harsh view of roles in management and getting them ready for tough jobs in managerial positions. On the whole, the number of keywords whose positive usage exceeded negative usage was only 16 out of 64 (25.0%), while the number whose negative usage exceeded positive usage was as many as 48 (75.0%). Comparing the total appearance of positive and negative expressions, negative (66.3%) outnumbered positive usage (33.7%). In one third of cases, supervisors evaluated subordinate traits and behaviors in a negative light. Though the importance of merit rating has been advocated widely in Japanese organizations, it is ironic that raters in a leading Japanese auto manufacturer practiced demerit evaluation in the formal promotion system. In the next step, the principal factor analysis was conducted in order to scrutinize the mental model that appraisers have put in the narrative statements. As a result, three factors were extracted that depicted the underlying structural relationships among 64 keywords. Factor loadings after the varimax rotation are shown in Table 10.2.

Table 10.1 Frequencies of keywords in narrative essays Keywords

Frequency

Positive

Negative

Mean

s.d

initiative

441 (4.5%)

256 (58.0%) 185 (42.0%)

0.24 2.25

high potential/smart

212 (2.2%)

160 (75.5%)

52 (24.5%)

0.36 1.56

achievement motive

163 (1.7%)

125 (76.7%)

38 (23.3%)

0.29 1.09

experienced

151 (1.5%)

95 (62.9%)

56 (37.1%)

0.13 0.77

coordination

130 (1.3%)

95 (73.1%)

35 (26.9%)

0.20 1.02

stability

115 (1.2%)

98 (85.2%)

17 (14.8%)

0.27 1.05

integrity/honesty

90 (0.9%)

79 (87.8%)

11 (12.2%)

0.23 0.93

well-balanced

81 (0.8%)

77 (95.1%)

4 (4.9%)

0.24 0.94

energetic/active

79 (0.8%)

50 (63.3%)

29 (36.7%)

0.07 0.87

vitality

69 (0.7%)

40 (58.0%)

29 (42.0%)

0.04 0.73

persistence

65 (0.7%)

39 (60.0%)

26 (40.0%)

0.04 0.72

gentle

47 (0.5%)

47 (100.0%)

0 (0.0%)

0.16 0.70

performance-oriented

43 (0.4%)

39 (90.7%)

4 (9.3%)

0.12 0.59

knowledgeable

41 (0.4%)

31 (75.6%)

10 (24.4%)

0.07 0.62

cheerful

23 (0.2%)

17 (73.9%)

6 (26.1%)

0.04 0.44

sensitivity

23 (0.2%)

14 (60.9%)

9 (39.1%)

0.02 0.41

logic formation/ development

745 (7.6%)

261 (35.0%) 484 (65.0%)

–0.75 3.07

analytical skills

420 (4.3%)

185 (44.0%) 235 (56.0%)

–0.17 2.26

broad view

347 (3.5%)

75 (21.6%) 272 (78.4%)

–0.66 1.77

influence/impact

333 (3.4%)

73 (21.9%) 260 (78.1%)

–0.63 1.69

persuasion

333 (3.4%)

70 (21.0%) 263 (79.0%)

–0.65 1.80

independence

319 (3.3%)

27 (8.5%) 292 (91.5%)

–0.89 1.51

holistic/systematic

303 (3.1%)

71 (23.4%) 232 (76.6%)

–0.54 1.60

leadership

300 (3.1%)

100 (33.3%) 200 (66.7%)

–0.34 1.73

understanding essence

293 (3.0%)

55 (18.8%) 238 (81.2%)

–0.61 1.59

logicality

277 (2.8%)

126 (45.5%) 151 (54.5%)

–0.08 1.64

depth of thinking

275 (2.8%)

17 (6.2%) 258 (93.8%)

–0.81 1.33

policy planning

252 (2.6%)

17 (6.7%) 235 (93.3%)

–0.73 1.50 (continued)

Keywords

Frequency

Positive

Negative

Mean

s.d

objectivity

242 (2.5%)

54 (22.3%) 188 (77.7%)

–0.45 1.38

building vision

224 (2.3%)

29 (12.9%) 195 (87.1%)

–0.56 1.24

judgment

213 (2.2%)

72 (33.8%) 141 (66.2%)

–0.23 1.34

sympathy/listening

196 (2.0%)

73 (37.2%) 123 (62.8%)

–0.17 1.45

circumstance recognition

194 (2.0%)

74 (38.1%) 120 (61.9%)

–0.15 1.32

developing reasoning

187 (1.9%)

29 (15.5%) 158 (84.5%)

–0.43 1.14

comprehension

173 (1.8%)

65 (37.6%) 108 (62.4%)

–0.14 1.39

imagination

171 (1.7%)

55 (32.2%) 116 (67.8%)

–0.20 1.14

expression

168 (1.7%)

44 (26.2%) 124 (73.8%)

–0.27 1.25

problem setting/building

162 (1.7%)

40 (24.7%) 122 (75.3%)

–0.28 1.27

autonomy

148 (1.5%)

41 (27.7%) 107 (72.3%)

–0.22 0.86

cooperation

131 (1.3%)

13 (9.9%) 118 (90.1%)

–0.35 0.94

flexibility

130 (1.3%)

25 (19.2%) 105 (80.8%)

–0.27 1.03

presence

122 (1.2%)

23 (18.9%)

99 (81.1%)

–0.26 1.00

problem development

120 (1.2%)

17 (14.2%) 103 (85.8%)

–0.29 0.86

willingness to change

109 (1.1%)

12 (11.0%)

97 (89.0%)

–0.29 1.08

problem recognition

108 (1.1%)

49 (45.4%)

59 (54.6%)

–0.03 0.85

progressive

105 (1.1%)

2 (1.9%) 103 (98.1%)

–0.34 0.80

informative

103 (1.1%)

14 (13.6%)

89 (86.4%)

–0.25 0.68

teaching

99 (1.0%)

35 (35.4%)

64 (64.6%)

–0.10 0.75

practical

92 (0.9%)

23 (25.0%)

69 (75.0%)

–0.15 0.75

self-confidence

87 (0.9%)

38 (43.7%)

49 (56.3%)

–0.04 0.83

care/consideration

86 (0.9%)

31 (36.0%)

55 (64.0%)

–0.08 0.95

creativity

66 (0.7%)

18 (27.3%)

48 (72.7%)

–0.10 0.71

problem finding

63 (0.6%)

23 (36.5%)

40 (63.5%)

–0.06 0.64

goal setting

46 (0.5%)

13 (28.3%)

33 (71.7%)

–0.07 0.57

challenging

44 (0.4%)

8 (18.2%)

36 (81.8%)

–0.09 0.60

problem solving

43 (0.4%)

17 (39.5%)

26 (60.5%)

–0.03 0.58

positive

43 (0.4%)

13 (30.2%)

30 (69.8%)

–0.06 0.55

transformational

42 (0.4%)

0 (0.0%) 42 (100.0%)

–0.14 0.60 (continued)

Keywords

Frequency

Positive

Negative

Mean

s.d

dynamism

38 (0.4%)

0 (0.0%) 38 (100.0%)

–0.13 0.58

project planning

22 (0.2%)

1 (4.5%)

21 (95.5%)

–0.70 0.44

toughness/strength

19 (0.2%)

8 (42.1%)

11 (57.9%)

–0.10 0.29

strategic

15 (0.2%)

0 (0.0%) 15 (100.0%)

–0.50 0.39

originality

15 (0.2%)

0 (0.0%) 15 (100.0%)

–0.50 0.32

stress tolerance Total

7 (0.1%) 9803 (100.0%)

3 (42.9%) 3301 (33.7%)

4 (57.1%) 6502 (66.3%)

0.00 0.25 –10.74

Table 10.2 Factor analysis of the cognitive framework for employee evaluation Keywords

Factor I

Factor II

Factor III

logic formation/development

0.60

–0.31

–0.01

logicality

0.52

–0.18

0.11

analytical skills

0.47

0.00

0.02

high potential/smart

0.41

–0.01

–0.13

persuasion

0.40

0.01

0.15

problem recognition

0.39

0.00

0.02

understanding essence

0.37

–0.06

0.08

broad view

0.35

0.01

0.06

circumstance recognition

0.33

0.00

0.06

problem setting/building

0.33

–0.09

–0.14

comprehension

0.33

–0.02

0.06

autonomy

0.32

0.20

–0.02

independence

0.32

0.30

–0.07

influence/impact

0.30

0.26

0.04

informative

0.30

0.20

–0.06

depth of thinking

0.27

–0.15

0.07

building vision

0.26

0.04

–0.05

objectivity

0.25

–0.23

0.14

holistic/systematic

0.25

0.04

0.08 (continued)

Keywords

Factor I

Factor II

Factor III

developing reasoning

0.25

–0.03

0.00

problem finding

0.22

–0.13

–0.05

judgment

0.20

0.13

0.05

problem development

0.17

0.13

–0.07

problem solving

0.15

0.10

–0.06

–0.15

–0.05

–0.02

knowledgeable

0.14

–0.02

0.08

policy planning

0.07

–0.01

–0.03

–0.06

0.48

–0.04

0.08

0.43

0.04

initiative

–0.09

0.42

0.02

energetic/active

–0.06

0.39

0.09

0.27

0.37

0.00

achievement motive

–0.09

0.36

0.03

toughness/strength

–0.03

0.35

–0.04

performance-oriented

–0.04

0.31

0.30

experienced

–0.12

0.31

0.19

persistence

–0.04

0.28

0.10

flexibility

0.08

–0.26

0.23

leadership

0.12

0.26

0.00

expression

0.16

0.24

0.09

integrity/honesty

0.01

0.22

0.12

–0.01

0.20

–0.01

teaching

0.13

0.16

0.08

goal setting

0.03

–0.16

0.01

imagination

0.00

–0.10

–0.02

project planning

0.08

0.08

–0.03

sympathy/listening

0.06

–0.08

0.59

strategic

vitality self-confidence

presence

challenging

(continued)

Cognitive framework for performance appraisal Keywords

Factor I

Factor II

cooperation

–0.06

–0.04

0.55

care/consideration

0.01

–0.10

0.46

coordination

0.20

0.07

0.33

well-balanced

0.11

0.00

0.32

stability

0.06

0.15

0.28

willingness to change

0.02

0.00

–0.26

creativity

0.12

–0.09

–0.26

transformational

–0.02

–0.06

–0.17

positive

–1.50

0.03

0.16

dynamism

–0.05

–0.08

–0.16

sensitivity

0.10

–0.04

0.15

originality

–0.01

–0.05

–0.14

progressive

0.05

–0.04

–0.12

–0.04

0.06

0.12

practical

0.02

–0.02

0.11

cheerful

–0.09

0.04

0.10

stress tolerance

0.01

0.05

0.06

Factor contribution

3.18

2.39

1.76

Contribution ratio

5.0

3.7

2.8

gentle

183

Factor III

Factor I had high loadings on keywords such as “logic formation/logic development (λ = .60),” “logicality (λ = .52),” “analytical skills (λ = .47),” “high potential/ smart (λ = .41),” “persuasion (λ = .40),” and “problem recognition (λ = .39).” Therefore, it was interpreted as the “reasoning” factor that mainly evaluated individual cognitive, intellectual aspects. Factor II was loaded on elements like “vitality (λ = .48),” “self-confidence (λ = .43),” “initiative (λ = .42),” “energetic/active (λ = .39),” “presence (λ = .37),” and “achievement motivation (λ = .36).” This factor was understood as the “energy” factor that captured the individual volitional aspects. Similarly, factor III had high loadings on “sympathy/listening (λ = .59),” “cooperation (λ = .55),” “care/consideration (λ = .46),” “coordination (λ = .33),” “well-balanced (λ = .32),” and “stability (λ = .28).” It was interpreted as the “feeling” factor that mainly assessed emotional aspects of employees. The cumulative factor contribution showed that the variance explained by these three factors was as small as 11.5 percent. The majority of variance contained in the interrelationships of 64 variables was left unexplained. However, it was

184

K. Takahashi

informative to see that three unobserved factors named “reasoning”, “energy,” and “feeling” were extracted from the quantified data. They depicted the supervisors’ unaffected, hidden mental model for personnel evaluation that came up from colloquial and literal description in narrative evaluation. This showed evidently that without the restriction of rating formats, supervisors viewed the image of employees subjectively with the help of a mental model that dealt with cognitive, volitional, and emotional aspects of employee traits and behaviors.

Discussion This study explored the spontaneous framework that supervisors employed in performance appraisal processes by analyzing quantified data of narrative employee evaluations. According to the results of keyword appearance, raters were prone to commit demerit evaluations and to specify employee weaknesses more frequently than strengths when evaluating employee performance from their own perspective without the restriction of rating formats. It is symbolic that raters in a leading Japanese company are more likely to focus on the disadvantageous side of subordinates. As opposed to the common emphasis on merit rating, the deficit evaluation that checks employees’ poor behaviors and shortcomings relative to coworkers seems to be prevailing as the actual practice for rating employees in Japanese organizations. Moreover, a negative rating may be the appraiser’s habitual way of viewing employee behaviors. If this is the case, the reform of performance appraisal systems will be less promising. For getting rid of demerit evaluations and shifting it to merit ratings, it is necessary to administer very intensive rater training that helps change rater cognition and renovate evaluation criteria against which employee traits and behaviors are valued. There is no short cut to establishing a basis for the proper merit treatment. Factor analytic results found that supervisors take the subjective measure of individual qualities in the aspects of human cognition, volition, and emotion. This threefold perceptual framework seems to be suggestive of the philosophy of human nature. Specifically, Aristotle thought that “cognition, emotion, and will” were interacting to complete our everyday life and activities. According to this great philosopher, people can have humane, fulfilled experiences only if intellectual, affective, and volitional functions are performed correctly. Supervisors who take charge of performance appraisal are not always knowledgeable about the philosophy of Aristotle. For typical managers in a Far Eastern country, Greek philosophical thoughts are too foreign to apply to managerial concerns. Nevertheless, with no restriction on viewing things, managers are apt to understand subordinate characteristics in three broad constructs that represent cognition, volition, and emotion. This three-component framework seems to be embedded deeply in the rater’s mind and to formulate a spontaneous way of perceiving employee traits. This fact suggests that if evaluation criteria and rating forms are developed to represent cognitive, volitional, and emotional aspects, they will fit to the rater perception properly and naturally. Thus, it may be practical and cognitively less

Cognitive framework for performance appraisal

185

demanding for raters to take advantage of this threefold criterion and to appraise subordinates in terms of their intellectual, will, and affective qualities. As mentioned above, three constructs are set as criteria in a traditional rating format popular in many Japanese organizations: abilities, attitudes, and results. Comparing with the threefold heuristic framework extracted in this study, traditional ability elements match with the cognitive criterion, and the attitude elements cover volitional and emotional domains of employee characteristics. Put differently, intellectual aspects are parallel with abilities in a traditional sense, while will and affective aspects correspond to traditionally rated elements of job attitudes. However, the heuristic framework found in this study does not consider the most important element in the traditional performance appraisal, that is, results. Because these elements assess productivity and performance per se, even subjective performance appraisal without these elements may not be ideal. From appraisers’ naturalistic way of evaluation, it may be hard to rate results and outcomes subjectively. Raters judge these elements distinctively from the way they are put to use in evaluating human traits and behaviors related to high performance. Reviewing results and outcomes accurately may be an uneasy task for supervisors so that it is only successful on special occasions like performance appraisals that force them to observe and judge subordinate outcomes very carefully. Historically, in personnel evaluation in Japan, it was established as institutionalized practice and rooted deeply in the HR system that every employee ought to have an equal chance of being treated uniformly. Consequently, organizations lost motivation to modify the rating method and criteria for a long time, viewing it as untouchable under the policy for maintaining equal opportunity. The turning point occurred in the mid-90s at the end of the bubble economy. Due to the emphasis on merit-based treatment for adapting to changing environments in the global markets, a number of organizations introduced MBO as the new method for performance evaluation and discontinued the traditional systems with the characteristics of seniority treatment. In fact, organizations abandoned diverse criteria and limited their focus to productivity-related standards such as results, outcomes, and goals attained. However, overemphasis on the merit system has fallen into the malaise of result dependence, forgoing subjective judgment of the unapparent behavioral process and depending exclusively on objective numbers. The side-effect of this system change was the strong discontent or hostility toward the overemphasis on outcomes. Strong antagonistic views have been expressed not only by ratees but also raters. On the surface, focusing on numbers and volumes looks easy and fair because of its outward objectivity. In raters’ mental model, however, judging performance and productivity hidden under the objective measures is a very difficult task. This study showed that judging results and outcomes differed from the unaffected cognitive activity among raters. Therefore, it is an effective HR strategy to introduce an evaluation framework that deals with cognitive, emotional, and volitional domains, because such a framework fits well with the human cognition and supervisors’ way of viewing people in workplaces.

186

K. Takahashi

References Arvey R. D. (1986) “General ability in employment: a discussion”, Journal of Vocational Behavior, 29: 415–20. Bartram, D. (2005) “The great eight competencies: a criterion-centric approach to validation”, Journal of Applied Psychology, 90: 1,185–1,203. Blanz, F. and Ghiselli, E. E. (1972) “The mixed standard scale: a new rating system”, Personnel Psychology, 25: 185–200. Borman, W. C. and Motowidlo, S. J. (1993) “Expanding the criterion domain to include elements of contextual performance”. In: N. Schmitt and W. C. Borman (eds.) Personnel Selection in Organizations, San Francisco: Jossey-Bass, pp. 71–98. Brief, A. P. and Motowidlo, S. J. (1986) “Prosocial organizational behaviors”, Academy of Management Review, 10: 710–25. Campbell, J. P. (1990) “Modeling the performance prediction problem in industrial and organizational psychology”. In: M. D. Dunnette and L. M. Hough (eds.) Handbook of Industrial and Organizational Psychology, 2nd edn., vol. 1, Palo Alto, CA: Consulting Psychologists Press, pp. 687–732. —— (1999) “The definition and measurement of performance in the new age”. In: D. R. Ilgen and E. D. Pulakos (eds.) The Changing Nature of Performance, San Francisco: Jossey-Bass, pp. 399–429. Campbell, J. P., McCloy, R. A., Oppler, S. H. and Sager, C. E. (1993) “A theory of performance”. In: N. Schmitt and W. C. Borman (eds.) Personnel Selection in Organizations, San Francisco: Jossey-Bass, pp. 35–70. Cascio, W. F. (1995) “Whither industrial and organizational psychology in a changing world of work?” American Psychologist, 50(11): 928–39. Cascio, W. F. and Aquinis, H. (2005) Applied Psychology in Human Resource Management, 6th edn., Upper Saddle River, NJ: Prentice-Hall. Catano, V. M., Darr, W. and Campbell, C. A. (2007) “Performance appraisal of behaviorbased competencies: a reliable and valid procedure”, Personnel Psychology, 60: 201–30. Gatewood, R., Field, H. S. and Barrick, M. (2007) Human Resource Selection, 6th edn., Florence, KY: South-Western College Publishing. George, R. A. and Brief, A. P. (1992) “Feeling good doing good: a conceptual analysis of the mood at work-organizational spontaneity relationship”, Psychological Bulletin, 112(2): 310–29. Ilgen, D. R. and Hollenbeck, J. R. (1991) “The structure of work: job design and roles”. In: M. D. Dunnette and L. M. Hough (eds.) Handbook of Industrial and Organizational Psychology, 2nd edn., vol. 2, Palo Alto, CA: Consulting Psychologists Press, pp. 165–207. Judge, T. A. and Ferris, G. A. (1993) “Social context of performance evaluation decisions”, Academy of Management Journal, 36: 80–105. Latham, G. P. and Wexley, K. N. (1981) Increasing Productivity through Performance Appraisal, Reading, MA: Addison-Wesley. Murphy, K. R. and Cleveland, J. N. (1995) Understanding Performance Appraisal: social, organizational, and goal-based perspectives, Thousand Oaks, CA: Sage. Organ, D. W. (1988) Organizational Citizenship Behavior: the good soldier syndrome, Lexington, MA: Lexington. Ployhart, R. E., Schneider, B. and Schmitt, N. (2005) Staffing Organizations: contemporary practice and theory, 3rd edn., Marwah, NJ: Lawrence Erlbaum.

Cognitive framework for performance appraisal

187

Robertson, I. T., Callinan, M. and Bartram, D. (2002) Organizational Effectiveness: the role of psychology, Chichester: Wiley. Rotundo, M. and Sackett, P. R. (2002) “The relative importance of task, citizenship, and counterproductive performance to global ratings of job performance: a policy-capturing approach”, Journal of Applied Psychology, 87: 66–80. Smith, P. C. and Kendall, L. M. (1963) “Retranslation of expectations: an approach to the construction of unambiguous anchors for rating scales”, Journal of Applied Psychology, 47: 149–55. Viswesvaran, C. (1996) Modeling Job Performance: is there a general factor? Presented at the 11th Annual Meeting of the Society for Industrial and Organizational Psychology, San Diego.

11 Diversification of employment categories in Japanese firms and its functionality A study based on the human resource portfolio system Mitsutoshi Hirano

Abstract Modern Japanese firms are required to build a human resource portfolio system (HRPS) which rationalizes the diversification of employment categories and the transition among separate groups of employees in the internal labor markets, instead of a dichotomy based on two types of employment status, that is, regular employees and non-regular employees. The specific objectives of this research are: (1) to build the concept of HRPS based on transaction cost economics with reference to previous research concerning employment portfolios; (2) to develop HRPS measurement criteria by combining human asset specificity and uncertainty within tasks, then ascertaining the validity of HRPS by examining the results of questionnaires sent to 459 businesses in Osaka Prefecture; and (3) to consider the functionality of the diversification and transition among employment categories from the HRPS perspective in the Japanese context.

Introduction Due to the impact of the worldwide recession that was triggered by the 2007 financial crisis in the United States, rising unemployment has again become a major social problem in Japan. Employment adjustments are beginning to target not just non-regular employees, but also seishain (regular employees), who have hitherto enjoyed a high level of employment security in Japan. Amid these circumstances, in March 2009 the government, Keidanren (the Japan Business Federation), and Rengo (the Japanese Trade Union Federation) announced an agreement for stabilizing and generating employment, which calls for the continued employment of both regular and non-regular employees as an emergency measure. But where does the boundary between regular and non-regular employees actually lie? Or to put it another way, who are regular employees? Who are nonregular employees? In Japan it is impossible to distinguish between them using criteria such as whether they have a contracted period of employment, the length of their working hours, or the nature of the work they perform. Even among part-

Diversification of employment categories in Japanese firms

189

time employees, many work under contracts that do not specify their period of employment, and many non-regular employees work exactly the same hours and do exactly the same jobs as regular employees. What is certain is that employment categories at Japanese firms are diversifying due to the operation of internal labor markets (ILMs). In other words, a new development in human resource management (HRM) at Japanese firms is the diversification of employment categories beyond the simple dichotomy between regular employees, whose period of employment is not specified and who perform core work, and non-regular employees, whose period of employment is specified and who perform peripheral work (Sato and Sano 2005). One of the characteristics of the diversification of employment categories in Japan is the emergence of subcategories within the non-regular-employee category, namely a division between those non-regular employees hired for short-term periods and those that repeatedly renew their contracts and are thus effectively internalized. Another characteristic is the emergence of new subcategories within the category of regular employees, whose employment is secure. These subcategories are unlike those that were frequently observed in the past, namely the sogo shoku (employees on the main career track) versus ippan shoku (employees on the clerical track) and manager versus specialist distinctions. The new subcategories are more diverse, comprising, for example, employees who cannot be transferred away from the area where they live, employees who can only perform certain types of work, and employees who are hired as regular employees for short working hours. At the same time, many firms are introducing systems for enabling employees to move between different employment categories, a typical example of which are schemes for turning non-regular employees into regular employees. Upon careful examination, however, we find that in many cases these involve “step-by-step” transitions. What has happened is that the employment of large numbers of parttime and other non-regular employees has resulted in the emergence of a gray zone between regular and non-regular employees in terms of the work they perform. Jobs have therefore needed to be reorganized, and non-regular employees have been shifted into new employment categories created to make their treatment better reflect the work that they perform (Watanabe 2009). In other words, non-regular employees have been moved to a new type of regular-employee category in which employment conditions are less restrictive and investment in human capital is lower than with the sogo shoku.

From the employment portfolio to the human resource portfolio The HRM challenge for modern Japanese firms is managing an employment portfolio that offers a variety of employment categories and also enables employees themselves to choose ways of working that are based on their own preferences (Hirano 2008). The word “portfolio” has hitherto mainly been used to describe financial-asset portfolios, i.e. diversified investment in multiple financial products and the act of selecting combinations of these financial products to reduce risk.

190

M. Hirano

Another well-known usage is “product portfolio management (PPM),” which helps diversified firms allocate their resources efficiently. PPM involves drawing two axes, attractiveness to the firm (market growth rate) and competitiveness (market share), and placing each of the firm’s businesses in the four quadrants. Both financial-asset portfolios and PPM are aimed at reducing risk and enhancing investment efficiency through diversified investment. The first time the word “portfolio” was used in Japan with reference to employment was in a report entitled “Shinjidai no Nihon-Teki Keiei” (Japanese-Style Management in the New Era), which was published by Keidanren in 1995. In this report, Keidanren argued that while the fundamentals of Japanese employment practices, namely the long-term focus on (respect for) people, should be maintained, it was essential to respond to the proliferation of restructuring programs and rising wages. It therefore proposed an employment portfolio combining both longand short-term employment as a means of transforming the employment system for the future. The Keidanren employment portfolio involved three employment categories placed in the area covered by two axes, employment preferences of the workers (whether they want to work for a short time or a long time), and the degree to which the firm wants them to become settled in their jobs (whether it wants them to settle or move). The three categories were the “accumulating abilities over the long term” type (long-term employment), the “employment flexibility” type (short-term employment), and the “utilizing high-level specialist abilities” type (in between the other two). However, this employment portfolio lacked a theoretical explanation for the classification of employment categories. Its suggestions for specific personnel policies for each category were also inadequate. In the field of strategic HRM in the United States, on the other hand, a lot of research from a portfolio perspective has been carried out since the late 1990s. The most prominent researchers have been Lepak and Snell (1999, 2002, 2003), who have devised methods for grouping human resources, ways of having them work together, and appropriate HRM for each human-resource group. They have constructed an employment portfolio, which they call a “human resource architecture,” using a matrix comprising two axes, “uniqueness of human capital” and “value of human capital,” and have demonstrated that it works. The basic problem was to find the boundaries of employment for “make” (i.e. regular employees, who are employed for the long term and developed internally) or “buy” (i.e. non-regular employees, who are hired for short periods in the labor market whenever they are needed). A solution to the problem of whether “make” or “buy” is a better strategic choice is derived using transaction cost economics (TCE) and the resource-based view of the firm (RBV). In corporate organization analysis in modern economics, the former is classified as a contract theory approach, while the latter is classed as a competence approach. Specifically, human resource architecture is conceptualized based on TCE for the firm specificity of human assets and the RBV for the value of human assets. “Uniqueness of human capital,” the vertical axis, mainly follows the basic proposition of TCE, namely that the more specific assets become, the more market transactions will give way to internal organization, in order to enable adjustments

Diversification of employment categories in Japanese firms

191

to be made more efficiently (Williamson 1975, 1985). If the degree of internal organization is high, the situation will be a “make” one, whereas if it is low, the situation will be a “buy” one. “Value of human capital,” the horizontal axis, mainly follows the basic proposition of the RBV, namely that if the resources possessed by a firm are difficult for rival firms to imitate, the firm will maintain its competitive advantage (Barney 1991). If the degree to which this is true is high, the situation will be a “make” one, whereas if it is low, the situation will be a “buy” one. However, the human resource architecture they advocate combines two different theoretical approaches, TCE (contract theory approach) and the RBV (competence approach), and it cannot be said that the two have been integrated as a theoretical model very successfully. As a result, it remains unclear how valid the two axes selected are. Of course, the rivalry between and integration of TCE and the RBV as analytical approaches to corporate organization is a major theme in the literature, with some researchers seeing them as complementary. Nevertheless, they have the basic attribute that over the long term it is unavoidable that an individual firm’s core competence will be commoditized through learning and imitation by other firms or the market. Put another way, it is a dynamic transaction cost approach that predicts that vertical disintegration will gradually occur as market transaction costs decline (see, for example, Langlois and Robertson 1995). Personally, I believe that the application of the RBV to employment portfolios is only effective for capturing the “emergent evolution of the employment portfolio” where, as the two attributes represented by the axes become commoditized, the various conditions that determine whether “make” or “buy” is chosen change. I therefore think that the selection of axes for an employment portfolio should be carried out using a single theoretical approach. In this study I will therefore improve the Keidanren employment portfolio and Lepak and Snell’s human resource architecture, and use the term “human resource portfolio system” to denote a method of classifying employment categories through the application of a contract theory approach (mainly TCE and incentive theory). Note that the terms “employees” and “human resources” as used in this paper include groups such as temporary agency workers and on-site contracted workers, who are not directly employed by the employer at the place where they actually work. This paper is structured as follows. In the next section I develop an original HRPS. In the following sections I explain the data that is used in the paper, and I experientially verify the validity of the HRPS model. I briefly explore the significance of movement between employment categories. I then sum up the main matters from the preceding discussion that need to be confirmed. Note that the HRPS presented in this paper is still of an ideal type, and cannot experientially take into account all the various measures proposed. However, I intend to use data from a questionnaire survey I conducted in the past to partially verify the rationality and functionality of the HRPS.

192

M. Hirano

Constructing the HRPS TCE and boundaries of the firm In TCE, which was developed by Williamson (1975, 1985), transaction costs are a general term for the costs incurred by each economic entity in the exchange of goods and services with a specific counterparty. There are two types of transaction costs, those incurred before the transaction takes place (pre-transaction costs) and those incurred during the process of fulfilling and complying with the initial agreement (post-transaction costs). Pre-transaction costs include the cost of searching for and negotiating with the counterparty and the cost of concluding a contract. Post-transaction costs include the cost of monitoring the fulfillment of the contract, resolving disputes when they arise, and renewing the contract. Under incomplete contracts, it is hypothesized that transaction costs arise because it is impossible for an entity to acquire all the information it requires to conduct the transaction due to the existence of bounded rationality, i.e. the fact that the ability of human beings to formularize and solve complex problems is limited (Simon 1961), and because people frequently engage in “opportunistic behavior.”1 In TCE, transactions are seen as being an analytical unit of common understanding by markets and organizations. Each transaction has its own individual attributes, and different transaction formats are selected to limit the transaction costs of different transactions. In addition, it is believed that the costs of transactions with certain types of attributes can be reduced if the transactions are brought inside the firm in a process of vertical integration. There are three attributes that affect transaction costs: asset specificity, uncertainty, and frequency. Asset specificity refers to the transaction-specific value of assets used for a transaction. There are four types of asset specificity: site specificity, physical asset specificity, human asset specificity and dedicated assets. Because of asymmetric information, uncertainty in transactions encourages the counterparty to engage in opportunistic behavior, and serves to increase transaction costs. If transactions are frequent, uncertainty is reduced, and transaction frequency is a parameter for increasing asset specificity. This is because as the frequency of transactions between two entities increases, they are encouraged to learn more about each other and gradually adapt to meet each other’s needs. This process of adaptation results in additional, transaction-specific asset investment. In other words, investment in the assets used for the transactions takes the form of “relation-specific investment,” which generates more value when the two entities transact with each other. This serves to increase asset specificity further. If an entity possesses a lot of specific assets, i.e. assets that only generate value in transactions with a specific counterparty, and makes a lot of relation-specific investment to serve this counterparty, the greater the risk that the counterparty will engage in opportunistic behavior, either before or after the transactions take place. To curb such opportunistic behavior and reduce transactional inefficiencies, a transaction format that suits the attributes of the transaction is required. For the

Diversification of employment categories in Japanese firms

193

time being, the following three formats will be considered: (1) spot market contracts (simple exchange relationships between autonomous transacting entities), (2) relational contracts (relationships where autonomy is maintained, but means of protecting the entities from the risks inherent in specialization are added beforehand), and (3) internal organization (relationships involving management/control based on a hierarchy, i.e. power relationships) (Itoh and Hayashida 1996). The main prediction of TCE in relation to the boundaries of the firm is as follows: the higher the degree of frequency, uncertainty and, above all, relationspecific investment in the transactions, the more specialized these transactions will be. In other words, the more likely they are to be managed through relational contracts than through spot market contracts, and the more likely they are to be managed through internal organization than through relational contracts. This is because in an internal organization comprising a small number of entities, it is easier to make adaptive, sequential decisions, bounded rationality is reduced, and opportunism is weakened. The calculating, mental relationship with the market is therefore replaced with a semi-ethical relationship, which results in the formation of exchange relationships that deliver satisfaction. Boundaries of the firm are therefore determined by transaction costs. Here we will focus on the existence of relational contracts and intermediate organizations, which lie in a gray zone between the market and internal organization (Imai et al. 1982).2 Williamson (1985) argued that focusing on transactions in an intermediate zone that cannot be explained using the market/organization dichotomy would be of help in making sense of the real nature of complex economic organizations. Later, Williamson (1996) used the term “hybrid” to describe the governance structure for transactions in this intermediate zone, and investigated the functionality of the market, hierarchy, and hybrid structures. Emergence structure of transactional inefficiencies and boundaries of the employment In this section I will expand the TCE proposition for inter-firm transactions to investigate boundaries of the employment. To begin with, because the items transacted under employment contracts between firms and workers are human assets, in the discussion that follows I will limit asset specificity to human asset specificity.3 Next, with regard to transactional uncertainty, the items traded under employment contracts between firms and workers are specific tasks. In an internal labor market, the relationship between the firm and workers can be thought of as a transactional relationship in which employees undertake specific tasks, in exchange for which the employer pays them wages. If the predetermined tasks are complex, vague, or uncertain, the initial agreement/contract will inevitably be incomplete. Uncertainty in employment relationships refers to a situation in which the obligations that workers should fulfill or the action that they should take in response to unexpected events that occur in the execution of tasks and could not have been

194

M. Hirano

predicted beforehand is not specified, and depends on the degree to which ambiguity allowing multiple interpretations of what should be done exists. Transaction frequency is a parameter that relates to the length of the employment contract. Transaction frequency for non-regular employees increases as they repeatedly renew employment contracts that were initially meant for one term. Transactions for regular employees are more frequent and continue over a longer time frame than those for non-regular employees because their wages and the work they are assigned changes every term. However, caution needs to be exercised when handling the transaction attributes of these three types of employment relationship in a uniform fashion. This is because whereas asset specificity and uncertainty are different attributes related to qualitative aspects of employment, frequency is an attribute related to quantitative aspects. In conceptualizing the HRPS, I will interpret frequency as having a certain degree of impact on two types of transaction attribute (human asset specificity and uncertainty within tasks), and will, for the time being, abstract the frequency problem. Moving on, how can the boundaries of the employment be set using human asset specificity and uncertainty within tasks? Emergence mechanism of transactional inefficiencies resulting from before-the-fact opportunism: the holdup problem The problem of transactional efficiencies can be divided into prior problems and post problems, and we will begin by looking at the former. Human asset specificity refers to the degree of relation-specific investment required for a specific employment relationship. Relation-specific investment refers to investment whose value would be much lower in relationships other than that for the transactions for which the investment was intended (where the investment cost would become a sunk cost). Therefore, when the counterparty can be expected to engage in opportunistic behavior after the contract has been concluded, the transacting entity will have an incentive to make insufficient relation-specific investment (the so-called “holdup” problem). There can be two types of relation-specific investment in the relationship between the firm and its workers conceived: investment in firm-specific skills and investment relating to the acceptance of restrictiveness. Human assets become extremely specific when, through their work within the organization, they acquire firm-specific skills that cannot be easily reallocated by the market (Menard 1997). Firm-specific skills include intellectual skills acquired through extensive on-the-job training (Koike 1994),4 knowledge of technology unique to the firm, and organizational skills that are only beneficial in transactions that form part of specific relationships, such as with business partners and among members of the firm. In addition, there are also cases in which individual pieces of acquired knowledge or combinations of skills themselves are firm specific. If workers are going to invest in firm-specific skills, but are not given employment security by the employer, they will react to the risk of the employer engaging in opportunistic behavior after the fact (dismissing employees, cutting wages, etc.), and will have an incentive to under-invest in these skills.

Diversification of employment categories in Japanese firms

195

“Investment relating to the acceptance of restrictiveness” refers to investment that occurs when employees accept the restrictiveness imposed on them by the organization, such as being transferred to a new job that requires them to move house or being placed in a job in which they cannot demonstrate the skills they have this far acquired. For example, accepting a move to a job in a faraway place results in an investment that a worker (the person) has thus made, in social capital this is called a sunk cost. Social capital relates to the person’s social network, including relations with neighbors and participation in community or school events, as well as the mutual rewards it generates. Accepting such a move can be seen as a type of relation-specific investment, with the relation being the relationship between the firm and the worker. Similarly, if a worker accepts being assigned work that he/she is unfamiliar with, it is possible that the skills investment he/she has made in order to perform his/her previous jobs will end up as sunk costs.5 These factors will trigger the holdup problem due to incompleteness of contract. To overcome the holdup problem, both the firm and its workers must make a mutual commitment. The firm must commit to employment security for the workers, and in exchange for this the workers must commit to developing firm-specific skills and accepting restrictiveness. To sum up the above discussion, firms reduce transaction costs involving human assets by replacing transactions with individuals that occur on an ad hoc basis in the market with stable, long-term employment relationships. At the same time, they conduct relation-specific investment by making firm-specific additions to their human assets, and are therefore a device for increasing worker productivity. Employment security provided by the employer (i.e. employing workers as regular employees) functions as a “commitment device” for ensuring that both the firm and its workers commit to a stable and continuous employment relationship. A feature of Japanese labor law is that while emphasis is placed on the maintenance of employment, employers have a lot of discretion concerning personnel-related matters such as job rotation, which also complements this.6 As a result, neither the firm nor its employees need worry about the emergence of the holdup problem, and the employees will be more likely to invest in firm-specific skills. This is what is significant about the employment of regular employees. On the negative side, however, the employment of regular employees results in costs relating to internalization (see, for example, Jones and Hill 1998). For example, if the individual receives all the earnings generated from the development of a certain skill, the individual should bear the cost of training to develop general skills. However, if the firm receives all the extra earnings generated from investment in human capital, the firm must bear the cost of training to develop firmspecific skills (Becker 1964). In addition to training costs, costs are also incurred in providing incentives to motivate workers to develop firm-specific skills, monitoring levels of effort, and so on. “Sticky personnel information costs”7 are also incurred in assigning the optimal human resources to specific jobs (Hirano 2006). The employer is given an incentive to divide human resources into two groups, those it will help acquire firm-specific skills and those it will not, in order to reduce the cost of internalization. Therefore, if the human asset specificity of the human

196

M. Hirano

resources it needs is low, it will procure these human resources from the market on an as-needed basis. Alternatively, if it has an internal labor market, it will be efficient for it to link it more closely with the external labor market and introduce transaction styles like those seen in the market. This is what is significant about the employment of non-regular employees on fixed-term contracts. Emergence mechanism of transactional inefficiencies resulting from after-the-fact opportunism: moral hazard Uncertainty within tasks increases in line with factors such as level of difficulty in measuring the non-separability of work relations (Williamson 1985), i.e. teamwork (Alchian and Demsetz 1972), multi-tasking, and performance. As uncertainty within tasks increases, employees are encouraged to engage in after-the-fact opportunistic behavior (e.g. neglecting their duties or free-riding). In other words, a moral hazard arises. This is because uncertainty makes it more difficult for the employer to monitor the behavior of workers, which results in a worker’s level of effort becoming private information that only he/she has access to, making it harder for the employer to control opportunistic behavior by workers. This situation makes it necessary for the employer to design incentives for getting employees to make more effort. One method of doing this is to use promotions as an incentive. There are several reasons why promotions are superior to bonuses as an incentive system, one of which is that employees are interested in how their performance this year will affect their future career, meaning that promotion serves as an indirect incentive effect (also called “career concerns”: Gibbons and Murphy 1992). A rank hierarchy will probably be necessary and adequate for this incentive effect to work. In addition, if employed for a long time, a worker repeatedly producing shoddy work or free-riding will acquire a bad reputation. This may limit his/her opportunities for promotion in the future, and will therefore serve to curtail moral hazard. A second method is to introduce a style of HRM that gives employees a high level of affective commitment to the organization. Uncertainty within tasks increases when employees are assigned multiple tasks. This leads to “multitask problems” (Holmstrom and Milgrom 1991), which emerge due to tasks (or evaluations) having multiple dimensions. For example, if there is a trade-off between the task of delivering short-term financial performance, which can be measured easily and accurately, and the task of investing in development for the long term, the results of which are difficult to measure, workers will only be interested in and will direct most of their efforts to the former, allocating less time and attention to the latter. There are several ways to eliminate such multitask problems (Roberts 2004). One is to follow the informative principle8 and eliminate inaccurate performance indicators, replacing them with more objective indicators. If it is difficult to create objective indicators, the firm should design a pay system that offers only weak incentives. A concrete example would be “high-commitment HRM” (Baron and Kreps 1999),9 an HRM style characterized by employment security and attention to education and training. Instead of offering clear incentives and conducting strict

Diversification of employment categories in Japanese firms

197

monitoring, with this style the firm nurtures values, norms, or a corporate culture based on trust and reciprocity, which proves effective for turning the workforce into a cohesive social unit. In other words, because contracts become more and more incomplete as uncertainty within tasks increases, it is necessary to draw out workers’ enthusiasm (the motivation to put in a level of effort that goes beyond fixed standards) by establishing a psychological contract between them and the firm.10 This relates to what Williamson (1975) calls “atmosphere” and to the problem of coordinating using norms referred to by Mintzberg (1989). A second is to design separate pay systems for jobs involving tasks that are easy to evaluate and jobs involving tasks that are difficult to evaluate. The former would have a performance-based pay system and the latter an ability-based pay system. In the case of the former, if it is possible to monitor the effort of workers (i.e. information is symmetrical), fixed pay depending on the work performed will be appropriate. To sum up this discussion, when uncertainty within tasks is high, regular employees are good because offering the incentive of promotion and organizational socialization are effective in curtailing moral hazard. Conversely, because of multitask problems, it is rational to design separate pay systems for jobs comprising difficult-to-evaluate tasks and jobs comprising tasks that are not difficult to evaluate, and to assign regular employees to the former under an ability-based pay system and non-regular employees to the latter under a performance-based or fixed pay system. Main predictions from the HRPS From the above analysis, we can conceptualize the HRPS. We will assign human asset specificity to the vertical axis and uncertainty within tasks to the horizontal axis. To reduce transaction costs, the employer will vertically integrate transactions for which both human asset specificity and uncertainty within tasks are high. In this case, the employment category will be “regular.” Put another way, this provides motivation for the development of a relational team in an efficient organization (as described by Williamson 1985, chapter 10), i.e. firm-specific skills, offers an organizational incentive to promote cooperation, and is therefore appropriate for employment relationships based on long-term employment contracts. Conversely, if both human asset specificity and uncertainty within tasks are low, vertical disintegration will occur in order to strengthen links to the market. In this case, the employment category will be “non-regular.” Following Williamson (1985, chapter 10), an internal spot market, i.e. employment relationships that have stronger links with the external labor market and imitate the market, is appropriate. In this model, the line B–D marks the boundary of the firm. Lying on this boundary is an intermediate, i.e. “hybrid,” form of employment. This hybrid form will probably include non-regular employees who have renewed their contracts repeatedly and acquired some degree of firm-specific skills, as well as regular employees who while having employment security are restricted in terms of the locations they can work and the types of jobs they can do. The model can be expressed as in

198

M. Hirano

D

A Relational team

Human asset specificity

Regular

Internal spot market

Hybrid

Non-regular Boundary of the employment

C

Uncertainty within tasks

B

Figure 11.1 Model of human resource portfolio system

Figure 11.1. From the above discussion we can derive the main predictions offered by the HRPS. The higher the degree of relation-specific investment (investment in firmspecific skills and acceptance of restrictiveness), which is conducted with the aim of increasing uncertainty within tasks, and above all, human asset specificity, the more transaction-specific employment categories become. In other words, the employment categories used to manage employees go from non-regular, to hybrid, and finally to regular. In the next section I will make the axes operational and confirm the validity of the HRPS.

Data The survey data used for this paper’s analysis comes from a questionnaire survey called “The Treatment and Utilization of Workers Amid the Diversification in Forms of Employment and Working” conducted by the Osaka Prefecture Industry and Labor Policy Promotion Commission (hereinafter referred to as the “Osaka survey”). I was involved with this survey as an expert adviser. The survey was conducted from January–March 2005, and covered 3,000 businesses in Osaka Prefecture. These businesses were selected randomly from private-sector businesses with at least 30 full-time employees. The Osaka survey comprised a “business survey” and a “worker survey,” both of which involved questions being asked of regular employees and non-regular employees. The survey used in this paper is the business survey. The managers of

Diversification of employment categories in Japanese firms

199

the businesses were asked about typical characteristics of regular employees, contracted employees, part-time employees, temporary agency workers, and on-site contracted workers in the departments or workplaces in which most of their nonregular employees worked (i.e. where they were most quantitatively internalized). Some 15.3 percent of the businesses responded (459 businesses). The industry breakdown of the responding firms was as follows: construction (5.7 percent), manufacturing (28.9 percent), transportation and communication (7.3 percent), distributor, retailer, and food service (17.7 percent), finance and insurance (2.1 percent), real estate (1.4 percent), service (22.9 percent), and others (14.0 percent).

Verification of the validity of the HRM Measurement criteria for human asset specificity and uncertainty within tasks To verify the validity of the HRPS shown in Figure 11.1, I began by measuring the degree of human asset specificity that the businesses require for each employment category, as well as the degree of uncertainty within tasks assigned to the workers in each of these categories. To begin with, I asked each manager the degree to Table 11.1 Human asset specificity, measured in five attributes 1. The ability to improve operations based on many years of experience at the workplace. 2. The ability to identify and solve unusual problems when they occur. 3. The ability to carefully coordinate activities based on an understanding of the work carried out by other people in the workplace. 4. The ability to understand the human resources, technologies, and organization not just of one’s own department but also of related workplaces. 5. An understanding of the knowledge and technologies that are a product of the firm’s culture.

Table 11.2 Uncertainty within tasks, measured in terms of six attributes 1. Must continually consult co-workers. 2. Often have trouble if they don’t bridge information gaps with their co-workers. 3. Cannot progress successfully with their work unless they pay constant attention to what their co-workers are doing. 4. Are encouraged to be flexible during implementation rather than stick rigidly to the original plan. 5. Need to coordinate activities carefully with other departments. 6. The scope of their work changes on an ad hoc basis.

200

M. Hirano

Table 11.3 Human asset specificity and uncertainty within tasks for each category Human asset specificity

Uncertainty within tasks

Employment categories

Mean

s.d.

Cronbach’s Mean

s.d.

Cronbach’s

Regular employees

4.4

0.66

0.85

3.6

0.92

0.86

Contracted employees

3.6**

0.98

0.90

3.3**

1.01

0.89

Part-time employees

3.1**

0.91

0.89

2.9**

0.98

0.89

Temporary agency workers

2.9**

0.92

0.87

3.0**

0.90

0.86

On-site contracted workers

3.0**

1.11

0.90

2.6**

1.15

0.93

Notes: T tests for differences in means involve a comparison with regular employees;** p < 0.01; s.d. = standard deviation

which each of the attributes in Tables 11.1 and 11.2 applies to employees in each employment category, namely regular employees, contracted employees, part-time employees, temporary agency workers, and on-site contracted workers. Results of analyzing the validity of the HRPS Using the results in Table 11.3, and with human asset specificity on the vertical axis and uncertainty within tasks on the horizontal axis, I plotted the means for

Human asset specificity

Relational team

Internal spot market

Regular employees

Contracted employees

3.59 Part-time employees On-site contracted workers Temporary agency workers

Boundary of the employment

2.50 2.50

3.23

Uncertainty within tasks

Figure 11.2 Examination of human resource portfolio system

Diversification of employment categories in Japanese firms

201

each employment category on a plane divided using the means for both variables (simple weighted means for all workers). The result is shown in Figure 11.2. If we compare the coordinates of the means, we see that the values for regular employees (human specificity = 4.4, uncertainty within tasks = 3.6) are the highest on both axes, while the values for non-regular employees tend to be low. At these businesses, therefore, workers with a high degree of human asset specificity who are assigned a series of tasks that exhibit a high level of uncertainty are located on the relational team side, and their employment category is “regular.” Contracted employees, who are located on the boundary of employment, are “hybrid.” Parttime employees, temporary agency workers, and on-site contracted workers are located on the internal spot market side, and their employment category is “nonregular.” However, values for part-time workers, who are employed directly, have a high standard deviation, from which it can be inferred that a fair number of them are probably located in the “hybrid” region, with the likelihood of this depending on the degree of qualitative internalization. This leads us to a hypothesis like this: For employers who employ part-time employees for whom human asset specificity and uncertainty within tasks is high, it will be rational from a business point of view to transfer such employees to the “hybrid” category, as this will curtail moral hazard and the holdup problem. To confirm that this hypothesis is true, we will use equitable treatment as a substitute variable for the “hybrid” treatment system, and verify whether it is determined by human asset specificity and uncertainty within tasks. Measurement criteria for equitable treatment With reference to the criteria for measuring equitable treatment developed by Nishimoto and Imano (2003), I prepared a questionnaire designed to quantitatively measure differences in HRM practices for regular and non-regular employees. The HRM practices surveyed were (1) personnel grading system, (2) personnel evaluation items, (3) use of evaluations to determine promotions, (4) use of evaluations to determine grade, (5) use of evaluations to determine pay, (6) use of evaluations to determine bonuses, (7) training for new hires, (8) training for personnel appointed to managerial positions, (9) practical training, (10) training to help personnel acquire official and internal qualifications, and (11) support for self-improvement. The degree of equitable treatment in these HRM practices was assigned 5 points if all regular and part-time employees were covered by the practice, 3 points if regular employees and some part-time employees were covered, 2 points if regular and part-time employees were covered by different systems, and 1 point if part-time employees were not covered (i.e. only regular employees were covered). I also asked, “If the pay of mid-level regular employees who have been with the firm for five years is denoted as 100, what is the level of pay for part-time employees with similar jobs and responsibilities?” I asked this question separately for basic pay and bonuses. I also asked whether they had a transition system for turning part-time employees into regular employees (with 1 point for yes and 0 points for no) and added this to the scores. With the above measures of equitable treatment

202

M. Hirano

as dependent variables, and with human asset specificity and uncertainty within tasks as independent variables, I carried out a multi-regression analysis, with the following as control variables: (1) the number (log) of part-time employees at the business, (2) the sales growth rate for the past five years, and (3) industry-category (construction, transportation, and communication, distributor, retailer, and food service, finance and insurance, real estate service, and others) dummies with manufacturing as the base category. The effect of human asset specificity and uncertainty within tasks on equitable treatment The results are shown in Table 11.4. Human asset specificity was significant for almost all measures of equitable treatment. Uncertainty within tasks, on the other hand, was not significant. It can therefore be said that with respect to the qualitative internalization (or “hybridization”) of non-regular employees, the businesses surveyed provide incentives for investment in firm-specific skills but do not do so with regard to the increasing vagueness in the horizontal division of labor.

The significance of movement between employment categories So far we have looked at ways of establishing multiple employment categories and also at the significance of doing this. The significance of movement between different employment categories probably comprises (1) an incentive effect from institutionalizing promotion from the non-regular to the hybrid category, and (2) the way it hinders adverse selection. Taking the incentive effect first, if performance is unverifiable and there is a moral hazard on the employer’s side (such as the ability to falsely claim that an employee’s performance has been poor), the holdup problem will emerge with respect to investment by employees in firm-specific skills. In this situation, contracts specifying employees’ pay will not give them an incentive to invest in such skills. However, if promotion can be used as an incentive, it may be possible to alleviate the holdup problem (Prendergast 1993). Therefore, if the firm can alleviate the holdup problem for non-regular employees and encourage them to invest in firm-specific skills, the significance of institutionalizing a promotion route from the non-regular to the hybrid category, with its superior employment security and treatment, will be demonstrated. Alternatively, a promotion policy based on the “up or out rule” can be used to alleviate the holdup problem (Kahn and Huberman 1988). If this is the case, the institutionalization of a “temp to perm” system will raise incentives to invest in firm-specific skills. The hindrance of adverse selection, meanwhile, relates to the allocation of jobs when promoting employees. Adverse selection results from asymmetrical information, which exists when a worker, whose productivity will be either high or low, has private information about his/her own productivity, or when a worker possesses more information than his/her employer. One way to overcome the

Diversification of employment categories in Japanese firms

203

problem of adverse selection is to use “screening” (Milgrom and Roberts 1992). All that is necessary to make screening work is to offer workers, who each possess private information about their own productivity, the ability to choose from a wide range of different employment categories. In other words, by allowing workers to engage in “self-selection,” private information becomes public. If a hybrid category is established, such that workers are paid comparatively low wages to begin with but after a certain number of years’ service are paid more than the market average, workers can be screened to identify and retain only those that wish to work at the firm long term (see, for example, Salop and Salop 1976).

Conclusions In this paper we have come to five key conclusions, so let us now remind ourselves of them: (1) The HRPS investigated in this chapter can provide a good explanation of the actual boundaries of the employment; (2) establishing an intermediate “hybrid” category between the regular and non-regular categories to make three employment categories is rational from a business perspective (in that it curtails the holdup problem and moral hazard); (3) enabling employees to move from the non-regular to the hybrid category is rational from a business perspective (in that it provides incentives and curtails adverse selection); (4) the more a business requires its part-time employees to demonstrate human asset specificity, the more likely it is to have equitable treatment practices; (5) however, even if the degree of uncertainty within tasks in the jobs of part-time employees increases, the business will not raise the level of equitable treatment. By using three categories (non-regular, hybrid, and regular) to manage its employees, the firm can mitigate risks relating to employment security, reduce internalization costs, and make its human capital investment more efficient. From the results of our analysis, however, we can infer that because frontline work processes at Japanese firms are carried out by horizontally coordinated teams, the internalization of non-regular employees is progressing in the context of increasing vagueness in the horizontal division of labor, with the power relationship between regular and non-regular employees being maintained and made even clearer. Looking back at history, in the 1980s Japanese-style management captured the attention of the world as a source of international competitive advantage. At that time, Japanese firms were organized in a unique, Japanese way, involving close, horizontal coordination based on the sharing of information among colleagues and related departments, and combining, in a mutually complementary fashion, a merit-based incentive system (i.e. the job performing ability based grading system) with a broad career development system and a late selection approach aimed at getting as many employees as possible to acquire intellectual skills.11 In particular, Japan’s postwar manufacturing industry, against a backdrop of long-term employment and business relationships, built up integrated organizational capabilities based on multi-skilled teams at most design and production workplaces. In addition, these organizational capabilities were well suited to the integrated products they were producing, such as compact cars and small, slim, lightweight appliances

Number of part-time employees (log) Sales growth rate

Construction (dummy)

Transportation and communication (dummy) Distributor, retailer and food service (dummy) Finance and insurance (dummy) Real estate (dummy)

Service (dummy)

Others (dummy)

Human asset specificity

Uncertainty within tasks

F

‡

R²§

β(s.e.)

β(s.e.)

Training for new hires

Use of evaluations to determine pay increases

β(s.e.)

Use of evaluations to determine bonuses

Use of evaluations to determine grade increases

β*(s.e.)† β(s.e.)

Use of evaluations to determine promotions

Balance in personnel evaluation system

Dependent variables

Balance under the personnel grading system

Table 11.4 Multi-regression analysis: relationships between human asset specificity/ uncertainty within tasks and HRM practices in equitable treatments

β(s.e.)

β(s.e.)

.01

.07

.09

.07

–.01

.03

–.01

(.09)

(.11)

(.09)

(.10)

(.12)

(.11)

(.15)

–.01

–.04

–.01

–.02

–.03

–.06

.00

(.00)

(.00)

(.00)

(.00)

(.00)

(.00)

(.00)

b

–.08

–.06

–.06

–.04

–.05

–.15

–.10

(.27)

(.33)

(.29)

(.31)

(.38)

(.34)

(.46)

a

.07

.06

.13

.11

.03

–.09

.10

(.25)

(.31)

(.27)

(.29)

(.35)

(.31)

(.43)

–.00

–.01

–.01

.05

–.02

–.09

–.09

(.18)

(.23)

(.20)

(.21)

(.26)

(.23)

(.31)

–.06

–.06

–.03

–.03

–.07

–.08

–.07

(.44)

(.53)

(.47)

(.50)

(.61)

(.54)

(.73)

.04

–.01

.01

.01

–.04

–.09

.10

(.53)

(.65)

(.57)

(.61)

(.73)

(.66)

(.89)

–.01

–.04

–.02

.09

.02

–.10

.11

(.17)

(.21)

(.18)

(.20)

(.24)

(.21)

(.29)

.08

.00

.00

.00

–.08

–.11

.04

(.19)

(.24)

(.21)

(.22)

(.27)

(.24)

(.32)

c

d

c

d

.24

c

.09

.26d

(.11)

(.10)

(.13)

.22

.30

.23

.27

(.08)

(.09)

(.08)

(.09) a

–.01

–.10

–.10

–.14

–.09

–.10

–.02

(.07)

(.09)

(.08)

(.08)

(.10)

(.09)

(.12)

a

b

a

b

1.60

2.30

1.62

1.92

1.27

1.07

2.96d

.07

.10

.07

.09

.06

.05

.13

a = p < .10, b = p < .05, c = p < .01, d = p < .001 ∗ = Standardised partial regression co-efficient, † = Standard error, ‡ = F statistic, § = Co-efficient determination

Number of part-time employees (log) Sales growth rate

Construction (dummy)

Transportation and communication (dummy) Distributor, retailer and food service (dummy) Finance and insurance (dummy) Real estate (dummy)

Service (dummy)

Others (dummy)

Human asset specificity

Uncertainty within tasks

β(s.e.)

β(s.e.)

β(s.e.)

β(s.e.)

β(s.e.)

.05

.05

.06

.03

–.20*

(.08)

(.15)

(.14)

(.16)

(1.93)

β(s.e.)

Regular Employees Transition Program

Levels of bonuses compared with regular employees

Levels of basic pay compared with regular employees

Support for selfimprovement

Training for personnel to acquire official and internal qualifications

Practical training

Training for personnel appointed to chief positions

Dependent variables

β(s.e.)

–.34*** (2.81) **

.10 (.05)

–.05

.10

–.02

–.04

–.02

–.20

–.01

(.00)

(.00)

(.00)

(.00)

(.01)

(.02)

(.00)

–.07

.00

–.01

–.00

.04

–.30***

–.13†

(.26)

(.48)

(.44)

(.50)

(6.09)

(8.86)

(.14)

.10

.11

.00

.03

.07

–.06

.01

(.24)

(.45)

(.41)

(.46)

(5.65)

(8.22)

(.13)

–.03

–.07

.04

–.00

.04

–.01

–.02

(.17)

(.33)

(.30)

(.34)

(4.10)

(5.97)

(.10)

–.01

.01

.02

–.00

–.19*

.07

–.12†

(.41)

(.77)

(.71)

(.80)

(9.78)

–.03

.09

–.04

.03

n/a

(.50)

(.94)

(.86)

(.97)

.01

.03

.08

.11

.03

.07

.06

(.16)

(.30)

(.28)

(.31)

(3.78)

(5.50)

(.09)

–.00

.04

.04

(.18)

(.34) ***

–.04

(.31)

n/a

(.23) –.06 (.28)

**

.03

–.21

.04

(4.30)

(6.25)

(.10)

.22

.29

.01

.20**

(.35) **

.09

.39

(.07)

(.14)

(.13)

(.14)

(1.72)

(2.51)

(.04)

–.07

–.15*

–.07

–.10

–.17†

–.08

–.03

(.07)

(.13)

(.12)

(.13)

(1.60)

(2.33)

(.04)

F

.63

3.64

R²

.03

.15

***

.21

**

(14.22)

1.27

1.22

2.26

.06

.06

.13

*

***

3.44

2.50**

.24

.11

206

M. Hirano

(Fujimoto 1999). As a result, Japanese firms developed too many workers in the regular category. However, in the 10 years or so from 1992 to 2003, a tightening in monetary policy was followed by continued declines in stock and land prices, shrinking demand, and excess supply, which caused the Japanese economy to stagnate in what is referred to as the “lost decade.” This economic slump led Japanese firms to steadily increase the number of workers in the non-regular category, in an effort to reduce their personnel costs.12 Even during this period, however, Japanese firms did not abandon efforts to build up their flexible, horizontal-coordination-based problem-solving abilities. As a consequence, managers demanded that non-regular employees acquire the same skills and demonstrate the same level of teamwork as regular employees. This meant that the treatment of non-regular employees has only mirrored that of regular employees in terms of the acquisition of skills. Even when they are assigned work with a high degree of uncertainty, they are not treated in the same way as regular employees. In other words, the trend has been to only strengthen the work performance of non-regular employees without making any improvements in their treatment. As this paper has shown, however, increasing vagueness in the horizontal division of labor between regular and non-regular employees has, in theory, become a factor behind the emergence of moral hazard in teamwork, and has the potential to cause a deterioration in organizational efficiency. This suggests that shifting those non-regular workers who want to invest in firm-specific skills and who basically perform the same kind of uncertain and complex work as regular employees into the hybrid category will help improve teamwork and organizational efficiency. To turn diversification in and movement between employment categories at Japanese firms into better corporate performance, it will be important to avoid statistically discriminating against non-regular employees, to manage them separately, and move those of them who are suitable into the hybrid category.

Notes 1 Opportunistic behavior refers to selfish actions by entities, whereby they try to maximize the benefits for themselves by not committing to an action in advance, but by reacting to subsequent changes in circumstances. 2 The term “intermediate organization” refers to a medium- to long-term relationship between organizations that is characterized by factors such as inter-firm relationships due to capital ties and human linkages between firms due to repeated transactions, the dispatch of directors, etc. 3 Human asset specificity is an attribute of human resources that delivers value under specific employment relationships, and can be said to have the same meaning as the attribute conceptualized as “firm-specific human capital” (Becker 1964). 4 A series of studies conducted by Kazuo Koike, who advanced “intellectual skills,” showed the characteristics of Japanese horizontal career and clarified their advantages. Koike found that skills which contribute most to the efficiency in Japanese workplaces are intellectual skills. Intellectual skills are the know-how of dealing with “unusual operation,” i.e. changes and problems. 5 If the relationship between jobs and pay is based on a gradual job-performing-ability-

Diversification of employment categories in Japanese firms

6

7

8

9

10

11 12

207

based grade system, the investment in skills that workers have made will not be sunk even if they switch to a different type of job. In this sense, the broad career formation and job performing ability grade system seen at Japanese firms are mutually complementary (Hirano 2006). An economic justification for the legal prohibition of the abuse of the right to fire is that such prohibition eliminates inefficiencies relating to the acquisition of expertise that arise due to employment and wage security not being included in the employment contract, and serves to compensate for this incompleteness in the contract (Otake et al. 2002) “Sticky personnel information costs” are costs incurred when the personnel department, in an effort to ensure that the right people are placed in the right jobs, searches for and gathers qualitative personnel-related information on individual employees who are attached to their workplace. The informativeness principle is the principle of incentive contracting that holds a contract should depend on the value of a variable if and only if accounting for the variable allows a reduction in the error with which performance is measured (Milgrom and Roberts 1992). High-commitment HRM as envisaged by Baron and Kreps (1999) comprises the following 13 constituents: (1) employment guarantees, (2) egalitarianism in word and deed, (3) emphasis on self-managing teams and team production, (4) job enlargement and enrichment, (5) premium compensation, (6) incentive compensation based on team, unit, or firm-wide performance, (7) extensive socialization and training of employees, including cross-training, (8) extensive job rotations, (9) open information about all aspects of the enterprise, (10) open channels of communication in flattened hierarchies, (11) a strong culture of egalitarian teamwork, super-ordinate goal or the organization’s mission and vision, (12) extensive screening of prospective employees, emphasizing cultural fit, and (13) strong emphasis on ownership. A psychological contract represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee. Rousseau (1995) establishes two ideal types: a “transactional contract” (a psychological contract mainly for non-regular employees) and a “relational contract” (a psychological contract mainly for regular employees). See, for example, Aoki (1988) and Itoh (1994). According to results from the Ministry of Health, Labor and Welfare’s General FactFinding Survey on Diversification in Forms of Working, non-regular workers accounted for 27.5 percent of all workers in 1999, but this had risen to 37.8 percent by the time of the 2007 survey.

References Alchian, A. A. and Demsetz, H. (1972) “Production, information costs and economic organization”, American Economic Review, 62: 777–95. Aoki, M. (1988) Information, Incentives and Bargaining in the Japanese Economy, Cambridge, New York: Cambridge University Press. Barney, J. B. (1991) “Firm resources and sustained competitive advantage”, Journal of Management, 17(1): 99–120. Baron, J. N. and Kreps, D. M. (1999) Strategic Human Resources: frameworks for general managers, New York: John Wiley Sons. Becker, G. S. (1964) Human Capital: a theoretical and empirical analysis, with special reference to education, National Bureau of Economic Research Series, No. 80. Fujimoto, T. (1999) The Evolution of a Manufacturing System at Toyota, New York: Oxford University Press.

208

M. Hirano

Gibbons, R. S. and Murphy, K. J. (1992) “Optimal incentive contracts in the presence of career concerns: theory and evidence”, Journal of Political Economy, 100: 468–505. Hirano, M. (2006) Nippon-gata jinji kanri: Shinka-gata no hassei prosesu to kinosei (Japanese human resource management: its emergent process and functionality). Tokyo: Chuo Keizaisha. —— (2008) “Theoretical and empirical studies about the concept of the Human Resource Portfolio Model”, Tokyo Meeting for ESRI International Collaboration Projects Report: 17–51. Holmstrom, B. and Milgrom, P. (1991) “Multitask principal-agent analyses: incentive contracts, asset ownership and job design”, Journal of Law, Economics and Organization, 7: 24–52. Imai, K., Itami, H. and Koike, K. (1982) Naibusoshiki no keizaigaku (Economics of Internal Organization), Tokyo: Toyokeizai-sinposha. Itoh, H. (1994) “Japanese human resource management from the viewpoint of incentive theory”. In: M. Aoki and R. Dore (eds.) The Japanese Firm: sources of competitive strength, New York: Oxford University Press, pp. 233–64. Itoh, H. and Hayashida, O. (1996) “Kigyo no kyokai: Bunshaka to kengenijyo [Boundaries of the firm: company split-up and delegation of power]” In: H. Itoh (ed.) Nihon no kigyo sisutemu (The Japanese Firm as a System), Tokyo: Tokyo-daigaku syuppansha, pp. 153–81. Japan Business Federation. (1995) Shin jidai no “nihonteki keiei”: Chosen subeki houkou to sono gutaisaku (Japanese Style Management in the New Era: the direction which should challenge and its concrete plans). Jones, G. R. and Hill, W. L. (1988) “Transaction cost analysis of strategy-structure choice”, Strategic Management Journal, 9(2): 159–72. Kahn, C. and Huberman, G. (1988) “Two-sided uncertainty and ‘up-or-out’ contracts”, Journal of Labor Economics, 6: 423–44. Koike, K. (1994) “Learning and incentive systems in Japanese industry”. In: M. Aoki and R. Dore (eds.) The Japanese Firm: sources of competitive strength, New York: Oxford University Press, pp. 41–65. Langlois, R. N. and Robertson, P. L. (1995) Firms, Markets and Economic Change: a dynamic theory of business institutions, London: Routledge. Lepak, D. P. and Snell, S. A. (1999) “The human resource architecture: toward a theory of human capital allocation and development”, Academy of Management Review, 24(1): 31–48. —— (2002) “Examining the human resource architecture: the relationships among human capital, employment, and human resource configurations”, Journal of Management, 28(4): 517–43. —— (2003) “Managing the human resource architecture for knowledge-based competition”. In: Managing Knowledge for Sustained Competitive Advantage, San Francisco: Jossey-Bass, pp. 127–54. Menard, C. (1997) Transaction Cost Economics: recent developments, Cheltenham: Edward Elger Publishing. Milgrom, P. and Roberts, J. (1992) Economics, Organization and Management, New Jersey: Prentice Hall. Mintzberg, H. (1989) Mintzberg on Management, New York: Free Press. Nishimoto, M. and Imano, K. (2003) “Paato wo chusin nisita hiseishain no kinkoushogu to keiei pafomansu [Fair treatments are effective for company performance],” Japanese Journal of Labour Studies, 45(9): 47–55.

Diversification of employment categories in Japanese firms

209

Otake, F., Ouchi, S. and Yamakawa, R. (eds.) (2002) Kaiko hosei wo kangaeru: ho to keizaigaku no shiten (Dismissal regulation in Japan: legal and economic perspectives), Tokyo: Keiso Shobo. Prendergast, C. (1993) “The role of promotion in inducing specific human capital acquisition”, Quarterly Journal of Economics, 108: 523–34. Roberts, J. (2004) The Modern Firm: organizational design for performance and growth, New York: Oxford University Press. Rousseau, D. M. (1995) Psychological Contracts in Organizations: understanding written and unwritten agreements, Thousand Oaks, CA: Sage. Salop, J. and Salop, S. (1976) “Self-selection and turnover in the labor market”, Quarterly Journal of Economics, 90: 619–28. Sato, H. and Sano, Y. (2005) “Employment category diversification and personnel management problems”, Japan Labor Review, 2(2): 30–54. Simon, H. A. (1961) Administrative Behavior, 2nd edn., New York: McMillan. Watanabe, Y. (2009) “Seishain toyo jirei ni miru koyo no tagenka to tenkan no genjo [Current diversification of employment in conversion case from non-regular worker to regular worker]”, Japanese Journal of Labour Studies, 51(5): 49–58. Williamson, O. E. (1975) Markets and Hierarchies: analysis and antitrust implications, New York: Free Press. —— (1985) The Economic Institutions of Capitalism: firms, markets, relational contracting, New York: Free Press. —— (1996) The Mechanisms of Governance, New York: Oxford University Press.

12 Quantum leap experiences for leadership development Stories and lessons of Japanese top and middle managers Toshihiro Kanai and Yoichi Furuno

Abstract Work experiences provide the best learning opportunities in leadership development. Sharing and interpreting “quantum leap experiences” as opportunities for acquiring leadership qualities will convert tacit knowledge in the workplace into explicit knowledge for management training and development. In this chapter, we will systematically analyze and address the age-old question: how do you identify and develop potential leaders?

Introduction Becoming a good coach and acquiring leadership skills are essential factors in the knowledge creation required of management candidates/cadres and their trainers. Coaching and leadership programs, therefore, ultimately require intellectual discipline from both executives and those who report to them (i.e. their subordinates and followers) (see Kanai 1997a and 2000a).1 Intellectual capital is not found in the knowledge preserved in management manuals, but in the inter-generational interactions that provide knowledge-creating experiences. What often happens on the job, however, is that management takes a “just follow me, and do the right things” attitude without providing learning opportunities to articulate lessons from experience. In Japan, neither the academic community nor the consulting business has ever succeeded in analyzing what might be called stories of “leadership experiences,” leaving this particular research theme unaddressed. This gap has something to do with the Japanese tendency not to make the implicit explicit in daily conversation at a workplace. In order to fill this gap, we are now making an attempt to study “quantum leap experiences” (defined as a discontinuous passage in a career conducive to your future development) in a systematic fashion in Japan based on such seminal works as McCall et al. (1988). Although we are yet to draw a full picture of what is common and what is unique about “quantum leap experiences” of Japanese middle and top managers, we would like to give an outline of our objectives, the significance of our study and its implications in practical contexts. This is a first attempt to apply this approach to both middle and top managers in Japan.

Quantum leap experiences for leadership development

211

Leadership development through middle and top management experiences What should a middle-level manager do to become capable of working out an intellectually valid and emotionally inspiring vision and always having trusting and hard-working followers? We firmly believe that learning from experience is the key. Can a person become a better leader by attending a ten-day training program for formulating better visions and another ten-day program for enhancing interpersonal sensitivity and network building? Would people follow the kind of superficial leader who changes his/her attitude in just 20 days? If the 20-day training really changed the manager’s personality, it must have been a mysterious and dubious series of sessions with the power to brainwash its participants. For instance, suppose our boss was a tough, unforgiving manager. Now, after a few weeks away from the job, he suddenly returns as a kinder, gentler manager, smiling as he pats our shoulders and says, “Well, if there is anything I can help with, just let me know.” What would we feel? It would make us uncomfortable, to say the least. It is true that we might get some insights from classroom training, but what really changes us is our long-term job experience, because being in the classroom means being away from the reality of the workplace where learning from experiences take place. So we can now identify what mid-level as well as top managers should do to become an effective leader and to be intellectually competitive. One of the things we should do is to find someone among the top management who is demonstrating outstanding leadership and someone at the middle management level who is on the list of future candidate for an executive. We should make sure to build a close relationship with that person at work, watch his/her behavior, listen to what he/she has to say about his/her job experiences, and absorb the lessons from what he/she has walked and talked. As the first step of our research, we decided to listen with an open mind to those kinds of experiences. We selected 20 top managers (major companies’ board members or people of equivalent ranks) and 26 mid-level managers who were expected to become top managers in the future and asked each of them to tell us about at least three specific on-the-job “quantum leap experiences” that helped them grow a great deal as managers and develop them to be more effective leaders. The main objectives of this article are to pin down the significance of this interview study in terms of developing leadership capability of middle and top management in Japan. The Human Resource Development Committee of the Kansai Economic Federation, one of the most influential business associations for big businesses in Kansai that encompasses Osaka, Kyoto, and Kobe, conducted the top management study, under the guidance of Toshihiro Kanai, Professor of Organizational Behavior at Kobe University. Recruit Works Institute carried out the middle management study under the joint guidance of the second author, Yoichi Furuno, along with Toshihiro Kanai.2

212

T. Kanai and Y. Furuno

Leadership study: from theory to practice – suggesting four shifts and ensuring career development With respect to leadership study and development from the new perspective focusing on development, we would like to suggest four shifts a recent decade has witnessed in leadership study and development and illustrate that all of these are related to the study of “quantum leap experiences.”3 These four shifts are summarized in Figure 12.1. The first shift involves a transition from formally constructed academic theory to practitioner’s theory-in-use (Argyris and Schön 1974). Theory is necessary to effectively analyze reality. However, someone who is an outstanding leader in practice rather than a leadership researcher must have a wealth of tacit, practical knowledge about leadership. The problem is that it is difficult to verbalize or organize that knowledge into a model because verbalization normally requires listeners and a place and opportunity where one can talk about one’s experiences. The researcher’s role, then, is to decipher the practitioner’s theory, which would not be verbalized without a researcher’s efforts, rather than construct a formal theory. Take, for example, the case of Roger Enrico, then CEO of PepsiCo (Conger and Benjamin 1999)4. Enrico took control of the company’s foods division when he was 48 (in 1993). At that time, however, he was seriously thinking about leaving PepsiCo to start a second career as a professor of business administration and leadership at a business school. But PepsiCo’s then CEO and Paul Russell, then head of executive development, persuaded Enrico to stay and teach candidates for managerial positions in PepsiCo what he would have taught to business school students. Enrico decided to limit the number of trainees to nine and not to teach them formal academic theory worked out by scholars, but his own leadership theory-inpractice. The theory consists of the following five principles: (1) think in different terms, (2) develop a point of view, (3) take it on the road, (4) put it all together, and (5) make it happen. Telling his own stories, he was able to convey to the trainees

Academic formal theory

Practitioner’s theory-in-practice

Leadership theory per se

Theory for leadership development

Leadership survey

Leadership story

Time-free leadership construct

Leadership constructs along time frames

Figure 12.1 Four shifts in leadership study

Quantum leap experiences for leadership development

213

the spirit behind the five principles and share with them his own experiences as specific examples from which these principles were extracted. There are forums and workshops in Japan as well where corporate executives enthusiastically speak about their own leadership experiences and theory-inpractice. These forums include Densho-Bunka Juku (Tradition & Culture Forum), whose chief instructor was the then Shiseido (cosmetic) President Yoshiharu Fukuhara, Chisou (Knowledge Creation) Conference, run by Eisai (pharmaceutical) President Haruo Naito, and Sozo Kakushin Juku (Creation and Innovation Forum), run by the Chairman of Kobayashi Pharmaceutical, Kazumasa Kobayashi. As in the case of Roger Enrico’s training program, all these workshops are designed to raise awareness and provide development opportunities for next-generation executives. The second shift is from leadership theory per se to studies in theories of leadership development. Even if leadership itself is successfully conceptualized and discussed on the surface based on formal, rather bland theories constructed by academics, it is something not to be “appreciated” but to be learned and practiced on a deeper level as compared with practical theories constructed, conceived, and used in practice by practicing middle and top managers. If we listen to someone else’s leadership theory-in-practice together with his or her quantum-leap experiences and find the theory of this practical sort impressive, we should not forget to ask the person what kind of specific experiences contributed to the creation and development of that particular principle in the theory-in-practice. Our interview studies, as well as a seminal work conducted by the Center for Creative Leadership (CCL) in the United States, pay a lot of attention to these factors when scrutinizing quantum leap experiences (McCall et al. 1988).5 Noel M. Tichy of the University of Michigan argues that an organization that fails to develop “leader-developing leaders” lacks an engine to drive leadership, emphasizing the importance of not only theories but also development-related experiences (Tichy and Cohen 1997).6 Sharing our own theory-in-practice and learning experiences in the process of developing young leaders will ensure our further growth. If we become “leader-developing leaders,” we will grow. But the most important responsibility of executives is to train future leaders who will step into their shoes some day. It is not enough for a company to have a great founder or a great current CEO (in the case of General Electric Company, the founder is Thomas Edison, the past CEO is Jack Welch, and his predecessor is Jeffrey R. Immelt), because they will not be there forever. What is essential, therefore, is not only to have a founder or a transforming CEO like Welch who can exercise leadership, but also to develop leaders from among the members of the next generation. Corporate executives must establish a teachable point of view (TPOV) regarding ways to lead people. N. Tichy, who used to head the GE training institute (Crotonville), was well aware of this point. Jay A. Conger is also promoting “studies of training” (1992)7. He participated in and observed various training programs as a trainee and interviewed many training designers. In his research, he looked into training provided by such organizations

214

T. Kanai and Y. Furuno

as Pecos River and CCL as well as leadership development programs provided in-house by PepsiCo and FedEx. In parallel with our research into “quantum leap experiences,” on which this study is a first report albeit preliminary, similar studies should be conducted (i.e. studies into leadership programs provided by Japanese training organizations as well as the reality of unique leadership development programs carried out in-house by Toyota Motor, Panasonic, Fujitsu, Sony, and others). The third shift involves the change from leadership surveys to leadership stories, which represents a change of perspective in the research process. We have diverse scales for measuring leadership, including the Performance Maintenance (PM) theory of leadership in Japan and the Leader Behavior Description Questionnaire (LBDQ) in the United States, to name just a few. We also believe surveys can be very effective if used properly because, in accordance with the leadership theories taught in training programs, 360-degree feedback can be ensured through evaluations from subordinates, bosses, colleagues, and customers. Nevertheless, surveys do not show the face, the tone of voice or the atmosphere of each and every respondent. To learn all these things, interviews and dialogues during which we can listen to what our respondent has to say and interpret his/her story are most desirable (while this yields qualitative data, we can process them into quantitative data by categorizing responses on the basis of, for example, the frequency of reference to a certain issue). The dialogues involved will also promote verbalization of the kind of leadership knowledge that is yet to be crystallized into a theory-inpractice. It is even better if we can hear about the process, especially the quantum leap experiences, that led to the owner of the knowledge developing that particular theory-in-practice. The fourth desirable shift is from a time-free leadership construct to leadership constructs along time frames. Conventional leadership theories were obscure about the time frames they assumed and had little sense of time in their leadership concepts. We would like to distinguish the following three time frames, as shown in Figure 12.2.8 The first time frame (t1) represents “leadership moments” (Badaracco 1997, Useem 1998) at which a leader is required to take some kind of decision or action instantly. Leadership moments usually occur in events that typically last a few minutes to a few hours, or a few days at longest. They are short but critical moments at which the true strength of leadership is tested. For instance, if you get lost on a snow-covered mountain, there is a moment at which the followers will watch what judgment the leader makes. This is one example of a leadership moment. Next, there is a broader span (t2), which covers projects that last a few months or a few years. Quantum leap experiences are generally leadership experiences that occur in this second time span. For example, if we use the mountain-climbing analogy again, this span would be equivalent to a three-year mountaineering project that involves planning, fund-raising, and finally climbing a mountain using an untrodden route. The third time span (t3) results from a life-long chain of events. Having the

Quantum leap experiences for leadership development Shortest time span (t1)

Leadership moments

Last for a few minutes or a few hours. A few days at longest.

Medium time span (t2)

Leadership Experiences

Last for a few months or a few years.

Longest time span (t3)

Life-span leadership credits

Last over a lifetime, which could be several decades depending on one’s age.

215

Figure 12.2 Three time spans of leadership

aura of a “mountain-man or woman” is the source of t3-type of leadership. Over this time span, what matters is something close to personal charisma. “Life-span leadership credits” imply the charm, power, and credibility that can only be found in battle-hardened leaders. Leadership at the t3 level involves people following a leader who has that kind of credibility.9 The above-listed time spans are not separate from each other but intertwined in a cyclical form. Specifically, the quantum leap experiences (t2) contain several decisive moments (t1). During a project that lasts for several years, there are bound to be some moments that one can identify as critical. And those who experience many such critical points develop the charismatic leadership that falls into the t3 category. In our analysis, we put the greatest emphasis on t2 experiences, but we also paid due attention to career issues over a longer term (t3) than general leadership theories take into account and to critical moments (t1) that appear in the stories told by our interviewees.

Preliminary analysis of quantum leap experiences The reason for the long introduction is that our endeavor is the first of its kind in Japan. We will now analyze two sets of data that Toshihiro Kanai, the first author of this chapter, collected. Since Yoichi Furuno, the second author, established close contact with CCL, the study method will be explained primarily on the basis of the mid-level management study. Outline of the two studies To carry out research on quantum leap experiences, we first selected the respondent group. Respondents had to have a certain length of career. The study conducted by the Human Resource Development Committee of the Kansai Economic Federation was targeted at top management while Recruit Works Institute studied next-generation leadership candidates (mid-level managers) at Japan’s leading companies. The Kansai Economic Federation interviewed top managers (20 interviewees from 19 companies) who are members of its Human Resource Development Committee. In the mid-management study conducted by Recruit

216

T. Kanai and Y. Furuno

Works Institute, ten leading Japanese companies were selected on the basis of such criteria as market value, ROE, and ROA. The Institute requested each of the ten companies to select three next-generation leadership candidates (actual number of interviewees: 26). Top management interviews took a little over an hour per person, while the mid-level interviews took about two hours each. Some interviewees were kind enough to speak for nearly one hour after the official interview was over. What we specifically asked of the top and middle managers in the interviews was to cite three or more quantum leap experiences and share what they had learned through each experience. We then coded and analyzed the interview, which we had tape-recorded with the consent of the interviewees. Coding method We will explain actual coding procedures by using the middle manager study as an example. Respondents’ remarks were coded according to events (specific incidents) and lessons (which they learned from such events). Each project member’s coding results were cross-checked to enhance the credibility of the coding procedures, and a database of coded remarks was created. We used the same categorization codes as CCL for events and lessons and added new categories that emerged from this particular study.10 The coding was carried out by two project members who did not participate in the interviews and the results of the coding process were cross-checked so that the team involved would be able to work out a single set of results (this project involved eight people, who were divided into four teams to carry out these coding procedures). Matters on which a team consensus could not be reached and information to be shared by all project members were discussed during project meetings. The first step in coding was to draw lessons from the coded remarks. The next step was to identify the events that led to the lessons. Since several lessons can be learned from one event, a single event may relate to multiple lessons. We have given a fairly detailed outline of the coding procedures in the above paragraphs because we hope to see similar studies conducted for both research and practical purposes. For research purposes, we would like to see scholars interested in the development of new leadership theories and application of story analysis conduct studies like ours. For practical purposes, we hope that HR and corporate planning practitioners who read this chapter will conduct research of this kind (targeted not only at middle-level managers and executives but also at retirees) so as to develop in-house training materials and apply the lessons learned in assigning and promoting human resources, as well as to link human resource development with corporate strategies. Quantum leap experiences of mid-level managers11 As a result of the interviews conducted with 26 mid-level managers, we obtained 191 events and lessons, as shown in Table 12.1. The cross-tabulation illustrates

Quantum leap experiences for leadership development

217

what kinds of lessons can be learned from which kinds of events. Because of the small number of samples it is hard to make definite judgments, but specific lessons are not necessarily to be learned from any particular events. Take, for example, lessons learned from the event “start from scratch.” Some people cited “learning about oneself” while others said they learned “management values and guiding principles” or “managing laterally.” Still others referred to “developing task and managerial skills” or “managing divergent pressures.” These results show that more than one lesson can be learned from an event. “Start from scratch” was found to be an effective event that teaches diverse lessons in the context of on-the-job learning. Looking at the table by event, the most-cited quantum leap experiences are “change in scope” and “role models (the experience of meeting someone who offers positive or negative examples in work and life in general),” each representing 11.5 percent of all experiences. Let’s take a look at some specific remarks concerning “change of scope.” “I was transferred to the Corporate Planning Division as Section Chief. In that capacity, I attended board and management meetings where I studied various business cases firsthand. This experience made me think about what I would do in each case and I learned through observation the decision-making patterns expected of managers.” “A U.S. customer who had virtually no business relationship with us came and asked for our advice. I did my best to give technical answers to their questions and talk candidly with my counterpart about our respective technologies. This contact eventually developed into a major business transaction. From this experience, I learned that (1) differences between countries and cultures do not obstruct mutual understanding if we talk in a logical and rational manner, and (2) though I used to start business transactions from a small point-to-point contact, it is also possible to set a goal first from a broader perspective and take specific steps needed to reach that goal.” These are two of the episodes recounted in stories of quantum leap experiences. All the quantum leap experiences resulted from transfer, promotion, or a change of customers that required a change in scope. Next, let’s take a look at some remarks concerning “role models.” “When I joined the company as a newcomer, I was assigned to an important territory without being taught anything about tips and tactics in sales. However, I learned the following lessons from three more experienced salespeople: (1) you can get customers by first building interpersonal relationships with them, (2) you should work with the belief that you can achieve anything if you are positive and tackle things head on, and (3) you can sell by sheer strength of personality.” “I became the sales manager of a 1,500-member team. Our divisional manager was the kind of person who doesn’t practice what he preaches. I regarded him as a bad example of leadership and learned from him that if an

218

T. Kanai and Y. Furuno organization is to work effectively, exerting all its power, its leaders should be true to their words and motivate their subordinates.”

In retrospect, contact with both good and bad bosses helped interviewees develop their careers. Relationships with more experienced staff and bosses appear to be coincidental (at least, people are not intentionally assigned to work under bad bosses). However, there are cases where potential executives are deliberately transferred to posts under the kind of bosses who can be role models, so that they can learn from these people and grow even more. What is distinct in our study as compared with the CCL study is that the event which prompted learning most was the “line-to-staff switch.” While only 1.0 percent of U.S. respondents cited this event, it was mentioned by 11.0 percent of Japanese mid-level managers. We believe this gap can be attributed to the difference in frequency of transfer. Compared to Japan, we presume that the U.S. traditionally has few cases of line-to-staff or staff-to-line switches. Let’s look at some of the remarks concerning this particular event. “I was transferred from the accounting department, where I worked for five years, to logistics. It was my first experience of what went on in the front line. Actual problems arising in the field could not be solved by interpersonal skills alone. Instead, the logical problem-solving skills that I had acquired in the accounting department helped a lot and made me feel confident about working as a line leader.” “I moved from the sales department to product planning and sales promotion. This prompted a paradigm shift in my mind, from how to sell cheaply to how to sell at higher prices, in other words a shift toward the product planner’s mindset. And I realized the importance of this new paradigm in terms of business.” What underlies these remarks are the “quantum leap experiences” of the “lineto-staff switch.” The former interviewee, as a result of a transfer, recognized new strengths he possessed. In the latter case, a new environment prompted a change in the interviewee’s mindset. In either case, we can comfortably assume that transfer results in many quantum leap experiences and provides various learning opportunities. Now, let’s see what they learned. “Developing task and managerial skills” represents 25.7 percent of learning, the highest of all the lessons learned. “In spite of being aware of our competitor’s moves, we were unable to take effective countermeasures. As a result, we were outpaced by the competitor, losing market share for a major product to them. This experience taught us we should stop being complacent about our past success and adhering to our conventional way of thinking. Instead, we realized the importance of broadening our perspectives and watching consumer trends. So we developed skills based on that renewed awareness.”

Business failures and mistakes

Demotion/missed promotions/lousy jobs

21

22

1

Tough superior/ stretch management

18

3

1

3 3

1

1

1

Several positions at the same time

1

4

1

3

11

7

2

4

1

1

17

1

1

4

3.1%

5.2%

1.0%

0.5%

0.0%

11.0%

11.5%

9.4%

3.7%

6.3%

(continued)

6

10

2

21

22

18

7

0

1

Breaking a rut

1

4

5

1

16

3

2

5

3

12

Line-to-staff switch

2

410

330

15

2

1

1

4

320

Change in scope

1

310

14

1

260

Project/taskforce

Learning about oneself

13

Managing one’s career

Fix-it 1

Managing direct reports 1

Managing upwards 2

230

Managing laterally

12

Management values and guiding principles

1

240

Effects of racial identity

220

Managing change

Start from scratch

3

250

Valuing diversity

210

Subtotal

11

Profound insights about significance of work

140 Understanding organizational politics and organizational culture

130

Developing task and managerial skills

120

Managing divergent pressures

110

Cynicism

Table 12.1 Distribution of 26 middle managers’ quantum leap experiences

Percentage

2

Values playing out

*Mentors

*Peers

Customer

Serious discussion after 5

32

33

34

35

36

2

2

1

3

1

3

Managing direct reports

7

210

2

1 1

1

4

1

3

1

410

330

1

4

5

22

0

0

1

3

0

0.5%

1.0%

0.0%

2.1%

2.6%

11.5%

0.0%

0.0%

0.5%

1.6%

0.0%

(continued)

0

Role models

31

1

*Gender mattered

27

2

*Race mattered

26

1

1

220

Managing upwards

320

*Downsizing

230

Managing laterally

310

Personal trauma

250

240

Effects of racial identity

260

25

140

24

130

Subordinate performance problems 120

23 110

Learning about oneself Management values and guiding principles Managing one’s career Profound insights about significance of work

Valuing diversity Understanding organizational politics and organizational culture Developing task and managerial skills Managing divergent pressures

Cynicism

Managing change

Subtotal Percentage

15

21

11.0% 12.6%

Summary of the past

Subtotal

Percentage

61 4

2

3

At university

51

7.9% 0.5%

9.9% 2.1%

19

1 0

9.9% 0.0%

19

1

0.5%

1

260

2.6%

5

1

2

310

25.7%

49

1

2

5

2

320

14.7%

28

1

1

2

1

3

1

2.1%

4

0.5%

1

Managing change 2

410

Cynicism

330

191

11

2

8

1

5

3

19

5

Subtotal

100.0%

5.8%

1.0%

4.2%

0.5%

2.6%

1.6%

9.9%

2.6%

Notes 1. Data collection and coding were carried out by a research group of eight Recruit Works Institute staff members, including Akira Kirino, Nobuaki Shimamura, and Kana Yoshiasa. 2. The codes marked  were not contained in CCL’s original codes, but were added by Recruit Works Institute.

24

1

1

*Business success

46

1 1

*Feedback

1

45

3

1

Purely personal

1

4

44

Learning about oneself

First supervision

Managing one’s career

43

1

210 Managing direct reports

Early work experience

1

220

Managing upwards

42

6

230

Managing laterally 1

240

Effects of racial identity

Coursework

Management values and guiding principles

1

250

Valuing diversity

41

Profound insights about significance of work

140 Understanding organizational politics and organizational culture

130

Developing task and managerial skills

120

Managing divergent pressures

110

Percentage

222

T. Kanai and Y. Furuno “When I joined the company, I was first assigned to the accounting department. I was very young and energetic so I worked intensively and did overtime typically until 1:00–02:00 a.m. every night. From this experience, I learned logical ways of thinking and effective ways of working, as well as the accounting skills that form the basis of any business.”

The interviewees’ words refer to experiences that promoted their skill development. Rather than evoking the mundane concept of “managerial skills,” the examples cited above are more about marketing and accounting expertise. The expertise mentioned in the above remarks is the basis for identifying challenges and addressing them, which is the kind of skill set that should be acquired at some point of one’s career prior to becoming an executive. In fact, the interviewees obtained this set of skills through various work experiences, including “start from scratch,” “fix-it,” “project/taskforce,” “change in scope,” “line-to-staff switch,” “business failures and mistakes,” “role models,” “early work experience,” and “first supervision.” In our study, far fewer respondents mentioned “managing direct reports” than in the CCL study. While this lesson represents 27.3 percent in the case of the United States, it is only 9.9 percent for Japan. One of the reasons may be that, because our sample consisted of promising mid-level managers in leading Japanese companies, our interviewees already had competent people reporting to them. Also, they themselves were competent subordinates from their superiors’ points of view. So probably they faced few situations where management of subordinates was a crucial factor. Another possible reason is that relationships between managers and their subordinates in Japanese companies may not be as important in doing business as they are in U.S. companies, because managers of Japanese companies do not need to frequently provide direction to their subordinates, who tend to be highly attuned to their supervisors’ needs and autonomously deal with their tasks (since these are just our inferences, this question must be studied more deeply in future follow-up studies). The third reason may be that the managers interviewed for the CCL study were in higher positions than ours. What follows are two of the few examples that we have of learning about management through direct reports. “I thought I was smarter than my boss. But I admired his guts, his sensitivity to the market and his wits. So I decided to do my best for him because embarrassing him was the last thing I wanted to do. What I learned from this big-brother-type boss is the management style in which you motivate your reports to do something instead of ordering them to do it.” “I was transferred to one of our major offices as general manager and I shouldered the responsibility for all business results. I also had my subordinates focus on the process. Specifically, I instructed and encouraged them (1) to share cases of failure, which are more universal than examples of success, and to think and try to make things work by themselves, and (2) to remember that their customers and their subordinates are more important than numerical

Quantum leap experiences for leadership development

223

results in the company. As a result, they began to take actions voluntarily instead of waiting for instruction from higher up, eventually increasing our operation’s revenues to the highest level in the country. From this experience, I learned the importance of regarding and treating my direct reports as individuals, each of whom has his/her own distinct character. In fact, I was convinced it is the quickest and most effective way of improving our performance.” In the former case, the respondent learned management skills from his boss, who was his role model. In many cases (7 out of 19), these skills were learned in this way. As we mentioned above, specific lessons are not necessarily to be learned from any particular events. Although the ratio is not 1:1, we can observe the tendency here that the management of direct reports (lesson) is learned through contact with role models (event). If the relationship between events and lessons becomes more evident with an increase in the number of samples, it will be easier to work out guidelines to further facilitate leadership development. For example, if you have someone with low people management skills, the best way of improving those skills would be to transfer him/her to a boss with excellent people management skills. We cannot discuss all of the lessons shown in Table 12.1 due to space limitations, but all of them are living lessons (learned from specific events in real life) concerning executive leadership development. Quantum leap experiences of top managers Next we will review the outline of a set of data from the study conducted by the Kansai Economic Federation. As a result of analysis of interviews with 20 top managers who were board members, we collected 66 specific quantum leap experiences. The interview was conducted by a pair of middle-level managers: one who worked for the company to which the top manager being interviewed belonged and another from outside. The main interviewer was the one from the outside company. While the mid-management interview was characterized by the preciseness of its coding, this study had the following two major features. First, although it was not the main objective of the interview, having top managers tell middle managers from their own company about their leadership careers and experiences turned out to be an occasion to establish inter-generational links between top and middle management. Second, the internal middle-level manager and his/her external counterpart helped each other as listeners and analyzers. Participation by an outsider alleviated prejudice about one’s own top management. Also, points not well understood by the outsider could be covered by the middle manager from the company in question. Thus, the process of interview and analysis per se provided opportunities for the top manager to reflect on and clearly express his/her own experiences, and for the middle manager, the interviewer, to learn from them. As in the case of the middle management study conducted by Recruit Works Institute, experiences and lessons were cross-tabulated with the results of the study

224

T. Kanai and Y. Furuno

carried out by the Kansai Economic Federation. This is shown in Table 12.2. The Kansai Economic Federation study report addresses seven topics, including the distribution of quantum leap experiences by seniority. In this chapter, we would like to focus on (1) the importance of early work, (2) lessons from first supervision, and (3) influence from others.12 Is early work important? Asked about quantum leap experiences, five out of 20 top managers interviewed cited events that happened at an early stage of their careers. First-year event: experiencing production in a factory. The interviewee, now a top manager in the liquor and food manufacturing industry, was assigned to the company’s factory where he experienced manufacturing work. The factory had a clear hierarchy among managers, regular workers, operators, and workers from associate companies. Operators and workers from associate companies were engaged in manufacturing. Of course it took other members of the company to efficiently operate the plant but, as he found out, there were quite a few important factors for the plant that the managers were unaware of. From this experience, he learned that it is necessary (1) to accurately understand the actual mechanism, structure, and reality of the organization, and (2) to nip bureaucracy in the bud, i.e. to ensure the day-to-day maintenance of an atmosphere where everyone can discuss work issues frankly to prevent the deterioration of operation. Through assignment or transfer to a new or different post the five interviewees learned (1) that there is a lot to learn at work that they were not taught at school and (2) the whole mechanism of work, i.e. what kind of process is undergone to complete a project, what kind of people get involved and what motivates them. The interviewees said they observed these things and internalized them. Right after entry into the company the interviewees made a shift from student life to working life, established relationships with many people, particularly their co-workers, and had their abilities tested in many ways. All this shows that the exciting start of their working lives provided them with quantum leap experiences from the early stage of their careers. What can a rookie manager learn? Of the 20 top managers, two interviewees referred to events they encountered when they became managers for the first time as quantum leap experiences. Ninth-year event: sole charge of collective bargaining with the union. When in his ninth year in the company, a top manager in the transportation and telecommunications industry was appointed as manager (in charge of collective bargaining) of an area where labor-management relations were especially difficult. At that time, the manager in charge of collective bargaining was expected to take sole charge of negotiations with labor. He was handling union demands for pay rises and improvements in the working environment. At the same time, he was calling for streamlining in the workplace. Collective bargaining took place almost every

Managing interpersonal relationships

1

3

1

Negotiation strategies

1 1

2

1

How to work with executives

How executives should be

1

Making people solve problems

1

1

Managing politically driven situations

Innovative problemsolving

3

1

5

3

2

2

1

1

1

2

3

(5) Start (6) from scratch Fix-it

Building and utilizing organizational and managerial systems

1

(4) Line-tostaff switch

1

1

1

(3) Project/ taskforce

Bearing total responsibility

Strategic thinking

2

Task Learning technical planning and knowledge and skill implementation Overall work involved 1

(1) Early work (2) First experience supervision

Types of transfer and Types of lessons assignment

Table 12.2 Distribution of 20 top managers’ quantum leap experiences

3

2

2

1

(continued)

1

2

1

1

2

(7) Change (8) in scope Other

Basic values

Managing interpersonal relationships (cont.)

How basic management should be

Sensitivity to management of people 1

Awareness of the fact 1 that it is impossible to do everything on one’s own

Maintaining good relations with former bosses and colleagues

Managing subordinate performance problems

Training other people

Educating and motivating subordinates

1 2

1

1

1

1

1

Managing confrontations/conflicts

7

2

2

1

3

1

6

2

1

1

3

1

(5) Start (6) from scratch Fix-it

1

(4) Line-tostaff switch

Understanding other people’s thinking

(3) Project/ taskforce 1

(1) Early work (2) First experience supervision

Managing those outside one’s control

Types of transfer and Types of lessons assignment

1

4

2

2

1

(continued)

4

1

1

1

3

(7) Change (8) in scope Other

Personal insights

Qualities as executive

Managing one’s own career (continued)

1

2

One’s limits and blind spots

1

1

2

3

1

1

6

1

(7) Change (8) in scope Other

Knowing what work one feels is most worth doing

Worklife balance

1

1

Addressing ambiguous situations

Distinguishing use of power from abuse of power

3

1

Resistance to difficulties 3

1

Addressing situations that seem impossible to handle by oneself

2

1

(5) Start (6) from scratch Fix-it

1

(4) Line-tostaff switch

Confidence in oneself

(3) Project/ taskforce 1

(1) Early work (2) First experience supervision

Toughness to cope with different situations

Types of transfer and Types of lessons assignment

Table 12.2 (cont.)

1

Personal insights (cont.)

(3) Project/ taskforce

(4) Line-tostaff switch

1

1

(7) Change (8) in scope Other

Notes: 1. Responses were cross-tabulated for each of the quantum leap experiences of the 20 executives, taking the contents of lessons learned as listed in the classification column (each lesson was counted as 1), and categorizing experiences into (1)–(8) in the Types of Transfer and Assignment table. 2. Data were collected and coded by Keizo Nishikawa from the Secretariat of the Human Resource Development Committee (chief advisor: Kanai) of the Kansai Economic Federation, Yoshiro Komaki from Daiwa Bank and 18 other people from the federation’s member companies.

2

(5) Start (6) from scratch Fix-it

Source: Yutakana career keisei eno message [Message for Fruitful Career Development], Kansai Economic Federation, p. 15.

Changing one’s perspectives

Identifying and grasping opportunities

(1) Early work (2) First experience supervision

Types of transfer and Types of lessons assignment

Quantum leap experiences for leadership development

229

day but he had no choice but to participate in it alone. As there was nobody from whom he could seek advice, he had to make his own judgments. The two lessons he learned from this experience are as follows: The importance of making decisions by oneself: “I became a manager for the first time and stood for ‘the company.’ In that capacity, I had to negotiate with my counterparts who had different interests from us. This experience changed me.” Self-awareness as a spokesperson of the company: “I no longer had anyone from whom I could seek advice. So I told myself, ‘Why don’t I just do my best and let the company fire me or transfer me somewhere else if I foul it up? Well, they may not go as far as firing me anyway.’” He says this sense of preparedness and the attitude of taking whatever might happen to him helped him overcome the difficulties. Two out of 20 is not many. Here, too, as in the section concerning middle management, the management of direct reports does not appear to be a major issue in Japan compared to the United States. What kind of influence did others have? Of the 20 top managers, four interviewees had quantum leap experiences in their contacts with other people. Tenth-year event: the customer said: “Can’t you make any decisions without talking to your boss?” A top manager in the chemical industry was greatly influenced by his boss and a customer after ten years in the company. His boss was so tough that the manager tried to do everything perfectly, which constantly delayed his reporting. He fell into a vicious cycle where he was always behind schedule. At that time, a customer said to him, “If you can’t make any decisions without talking to your boss, I might as well do business without you. I am asking you to do this, OK?” He could not forget the customer’s words. He realized the customer was testing him to see how much influence he had within the company. He knew he had to live up to his customer’s expectations. To do so, he learned, he had to be more resistant to stress. He also learned that he should always report to his boss as quickly as possible. The key was to listen to what the customer had to say and respond right away by guessing what his boss would say, then persuade the boss later. The above example involves the relationship with the customer. In addition to customers, superiors, colleagues, and subordinates all have great influence, and there is much to learn from them, too. However, often some people will learn something from a given situation while others won’t. We believe that curiosity, sensitivity, and inclination to learn (the learner’s learning ability: see below) make the difference. Findings from the two studies and future implications What do these two studies suggest overall? We would like to emphasize the following three points. First, “leadership skills are developed through work experience.” Second, “leadership skills thus developed do not change with time.” Third, “the

230

T. Kanai and Y. Furuno

interview process itself is a learning opportunity.” The first point, which might be regarded as a matter of course, made us recognize the importance of work experience in leadership development. Only in six cases, or less than 3 percent of all the interviewees, did the middle and top managers interviewed refer to training programs as quantum leap experiences. In the top managers’ study, we asked respondents for their messages to young people. Some said, “You can learn from work experience. In fact, it is the only thing that provides learning opportunities.” Skills required of leaders, be they interpersonal skills, self-management ability, or task/job performance, cannot be acquired overnight through training programs. Inherent aptitude is also an undeniable factor. There are many skills, though, that can be obtained through experience. The cross-tabulation tables shown above give a rough indication of what lessons can be learned from which kinds of work experiences. By increasing the number of samples, we will be able to acquire more details as to what lessons can be learned from each work experience. Still, the question remains whether everyone can acquire leadership skills through work experience. If the answer is no, what kind of person can demonstrate leadership in a company? This is an unavoidable question in selecting successors to management positions. Unfortunately, we did not follow the whole picture of a chain of experiences (the t3 time span mentioned earlier) in this study. As a first step, we instead sorted out each experience as a unit for analysis. Our future task, therefore, is to give meanings to the stories over the t3 time span, using each individual as an analytical unit. Professor McCall at the University of Southern California, formerly a leading member of CCL, says that the minimum requirement for achieving leadership is the ability to learn.13 Obviously, a person without learning ability will gain nothing out of whatever difficult experiences he/she may go through. Many top managers actually say that their ability is not something inborn and they have not always acted wisely based on a wealth of experience. Often it was a case of trial and error in the early days. We also felt that the interviewees, be they top or middle managers, generally had outstanding learning ability and were ready to learn in any circumstances. Since we placed emphasis on experiences, we did not measure inborn factors such as personality or IQ. If there is any innate factor that plays a role, it might be the ability to learn. Still, learning ability that manifests itself as a positive attitude toward learning might be strengthened by experience. So we believe that apparently inborn factors interact with experience, environment, and timing (i.e. individual readiness). To explore this whole mechanism, we need to conduct more studies in the future. Secondly, similarities between the two studies will provide inspiration as to the question of leadership skills not affected by the trend of the times. While the average age of the mid-level managers interviewed was 41.4, it was 58.3 for the top managers. A difference in backgrounds between the two study groups can easily be predicted from this difference in average age. The top managers joined their companies about 30–40 years ago, during the later phase of Japan’s high economic

Quantum leap experiences for leadership development

231

growth. The middle managers, on the other hand, entered their companies in the 1980s and assumed managerial posts after the collapse of the bubble economy. So as we mentioned above, there is a generation gap between the two groups, represented by the perception that the top managers’ times were an age of growth while the middle managers faced tougher times. Nevertheless, as far as the specific examples of quantum leap experiences are concerned, the experiences of the two groups are rather similar. For instance, events similar to the example in which the interviewee’s customer said, “Can’t you make any decision without talking with your boss?” can be found among the remarks made by the middle managers studied. From this example, we can comfortably say that both groups benefited from similar experiences regardless of the difference of the times. In other words, the trend of the times does not greatly change leadership skills, even though the way they are expressed changes (e.g. through development of information technology). These fundamental skills include getting others involved, getting along with customers, training subordinates, enhancing subordinates’ commitment, pushing ahead with projects and formulating a vision. There are always organizations and there are always people who lead organizations, and always those who follow the leaders. This basic scheme will exist at any time in any country, while there seems to be some unique aspects in the Japanese way of leading and managing people, which will have to be tackled more systematically in future empirical comparative studies. The third thing we would like to emphasize is that the interview process itself provided opportunities for learning. All the interviewers realized this point. Because the interviewees were top managers and their successors, i.e. middle managers, their stories were full of lessons that impressed and influenced the interviewers as well.14 It is not only the interviewer who learned from the process. The interviewees, too, were provided with opportunity to reflect and raise their self-awareness by talking of past experiences. In fact, it was the first soul-searching opportunity for some middle-level managers, who are regarded as next-generation leaders and are too busy to think much about their past. Even for the top managers, taking a bird’s-eye view of their experiences after entry into their companies and talking about them helped to consolidate and give meaning to their lives and sense-making out of transitions in their careers that foster leadership capabilities. We have examined whether the studies conducted in the United States for more than ten years are applicable to Japan, and if so, how the study results would help in our future leadership development. As for the first question, our study has fulfilled its mission as a preliminary one. However, with respect to the second question, which is aimed at making more practical use of the study, it would be necessary to collect more samples and carry out studies that meet the specific needs of individual companies. The results from such studies would also help achieve the first objective.

232

T. Kanai and Y. Furuno

Conclusion If people continue to grow through work experiences after their entry into the workforce, they will continue to develop naturally throughout their adult lives without any training being given by their companies’ training departments. Perhaps this is true in a sense. Still, we cannot recommend this natural development of human resources because their growth up until they become executives can take a rather random and inefficient course. It is possible that the wrong lessons from wrong experiences will be imposed on executive candidates in younger generations. So companies that need human resources who will be next-generation leaders should take the right steps to give the right people the right work in their career development. We believe the following is an ideal model. Companies should ideally start with their future strategies. It might be difficult to formulate precise strategies for five to ten years ahead, but it is possible to define to a certain extent the direction in which the company wants to proceed. From that direction, the company can envision what leadership or leadership competency model is required. Although quite a few companies draw up competency models, many of their models and leadership images are not linked to their corporate strategies. While formulating a competency model, companies should also draw a “worklearning map.” The map indicates what work in the company will lead to what sort of learning. Each company should work out its own matrix of the kind included in our study, showing the relationship between work experiences and lessons learned from them. The next step is to identify candidates for next-generation leaders. According to Professor McCall, cited above, the minimum required competency is the ability to learn. It is necessary to regularly evaluate management candidates’ growth and reassign them in accordance with the extent of their growth. In assigning personnel, the usual procedure is to identify job requirements and select those who fulfill the requirements. But human resource allocation of this kind is tantamount to creating the kind of organization that is least likely to learn, because those who are thus deployed already have the abilities required to do the work in question. So they do not have to learn anything new. Another method of human resource deployment, which we tentatively call “learning-driven transfer,” is to allocate certain work to those who are expected to learn most by doing the job. Although they are not sufficiently qualified to do the job at this moment, they are the kind of people who can learn on the job. It should be kept in mind, though, that short-term results might decline. In the actual workplace, one has no choice but to design human resource allocation by balancing short-term performance and long-term leadership development. The allocation, transfer, and promotion of people involve not only staffing new posts but also getting the people into new relationships. The combination of a boss and his/her reports is another important factor for human resource development. Now is the time for companies to design a leadership development system that comprises the competency model linked to their management strategies, the “work-learning map,” the selection and promotion of next-generation leaders, and “learning-driven human resource transfer.” Personnel evaluation systems and

Quantum leap experiences for leadership development

233

training programs are in place to support this complicated development system. However, the development system will not function properly unless learning objectives are incorporated into the evaluation system and the status of achievements is checked. The development program will function more effectively if training programs are designed for checking the progress and understanding the necessity of learning, rather than for obtaining skills quickly (and in a mysterious fashion) in a classroom environment. The final point we would like to make is the need for generational links from top to middle management and to younger employees if companies are to regard middle-level managers as a source of intellectual competitiveness and promote their development. It is not as easy as it seems. That is why the painstaking tasks of collection, documentation, and coding of quantum leap experiences are so important. These processes represent the pursuit of lessons for leadership development and the creation of knowledge about inter-generational interactions. Top management, at the top of the chain, is the source of the story-telling process. They will speak, middle managers will listen to them, and the human resources department will organize this kind of interaction. Middle managers grow through experiences but they also need occasions for listening to others’ stories and opportunities for self-enlightenment. Like the organizers of this study, surely everyone wants to work for a top manager who can develop us by telling us stories and leading us to new experiences. We sincerely hope that this article will spark the documentation, analysis, and utilization of many more “quantum leap experiences” in the years ahead.

Acknowledgments In preparing this article, the secretariat and the members of the Human Resource Development Committee of the Kansai Economic Federation and the staff of Recruit Works Institute made a significant contribution. The staff of the Research Assistance Office II of the Faculty of Business Administration, Kobe University, was most helpful in the process of proofreading. Although we do not cite their names individually, we would like to express our deepest gratitude for their generous support and assistance. At the final stage of the draft, we deeply acknowledge the thorough work by Yumiko Mochinushi.

Notes 1 One cannot ignore, of course, the emotional atmosphere that a good coach or a good leader creates. In the world of business, leadership without any intellectual factors is unthinkable. 2 We would like to express our deepest appreciation to the Human Resource Development Committee of the Kansai Economic Federation for showing us its report in advance and giving us permission to use and re-code the data contained therein. The report will be published by the end of May 2010 under the title Yutakana career keisei eno message: keiei kanbu eno interview chosa o fumaete (Message for Fruitful Career Development: the results of the survey on quantum leap experiences and lessons learned).

234

T. Kanai and Y. Furuno

3 Kanai suggested three of these shifts in the following article: Kanai Toshihiro (2001), “Jiki keiei kanbu o sodateru leadership no soshutsu to densho no yotei [How to develop next-generation executives: the vital points in creating and maintaining leadership]”, Keieisha (Management), Tokyo: Japan Federation of Employers’ Associations Press, 55(3): 71–3. 4 For example, see Jay A. Conger and Beth Benjamin (1999) Building Leaders: how successful companies develop the next generation, San Francisco: Jossey-Bass, pp. 133–43. 5 Morgan W. McCall, Jr., Michael M. Lombard and Ann M. Morrison (1988), The Lessons of Experience: how successful executives develop on the job, Lexington, MA: Lexington Books. 6 Noel M. Tichy and Eli Cohen (1997) The Leadership Engine: how winning companies build leaders at every level, New York: Harper Business. 7 See the book by Jay A. Conger and Beth Benjamin (1999) listed in Note 4. Also see Jay A. Conger (1992), Learning to Lead: the art of transforming managers into leaders, San Francisco: Jossey-Bass. The former book discusses in-house training and the latter training programs provided by training companies. 8 This distinction was prompted by the following two motives. First, we discovered that Professor Michael Useem at the University of Pennsylvania was looking at momentary leadership behavior. Second, we realized that various documents concerning personality address such topics as personal projects, life tasks, and striving for goals. As for the former point, see Kanai Toshihiro (2000) “Shin no leadership wa leader to follower no aida ni aru [The real leadership lies between the leader and the followers]”, Hanbai to Hito (Sales and People), Toyota Motors, 109 (Winter): 8–12. As for the latter, see Kanai Toshihiro (1997) “Career design ron eno kirikuchi: fushime no design toshite no career planning no susume [Introduction of the theory of career design: how to plan your career at the turning point of your life]”, Business Insight, 5(1): 53–5. 9 James M. Kouzes and Barry Z. Posner (1993), Credibility: how leaders gain and lose it, why people demand it, San Francisco: Jossey-Bass. 10 The research of Kansai Economic Federation was conducted earlier than that of Recruit Works Institute. Therefore, Kansai Economic Federation uses the 1989-version codes and Recruit Works Institute uses the 2000-version codes. 11 In this chapter, we make a distinction between the “experience” and the “event.” While the “event” is a fact, the “experience” represents the subjective perception and interpretation of the event. 12 See the reports mentioned in Note 2 for details of overseas work experience and other challenging experiences that we did not address in this article. 13 Morgan W. McCall, Jr. (1998), High Flyers, Boston, MA: Harvard Business School Press. 14 This process itself can be incorporated into training programs. In that case, trainees can listen to the stories of those at the top or in close-to-the top positions in their company and, at the same time, the contents of the stories can be accumulated, which will help clarify learning opportunities in the company.

References Argyris, C. and Schön, D. A. (1974) Theory in Practice: increasing professional effectiveness, San Francisco: Jossey-Bass. Badaracco, J. L., Jr. (1997) Defining Moments: when managers must choose between right and right, Boston, MA: Harvard Business School Press. —— (1998) “The discipline of building character”, Harvard Business Review, March–April, 1998: 115–24.

Quantum leap experiences for leadership development

235

Bennis, W. G. (2003) On Becoming a Leader: the leadership classic updated and expanded, New York: Basic Books. Bridges, W. (1980) Transitions: making sense of life’s changes. Reading, MA: AddisonWesley. Charan, R., Drotter, S. and Noel, J. (2001) The Leadership Pipeline: how to build the leadership-powered company, San Francisco: Jossey-Bass. Conger, J. A. (1992) Learning to Lead: the art of transforming managers into leaders, San Francisco: Jossey-Bass. Conger, J. A. and Benjamin, B. (1999) Building Leaders: how successful companies develop the next generation. San Francisco: Jossey-Bass. Conger, J. A. and Fulmer, R. M. (2003) “Developing your leadership pipeline”, Harvard Business Review, December: 77–84. Dotlich, D. L., Noel, L. J. and Walker, N. (2004) Leadership Passages: the personal and professional transitions that make or break a leader, San Francisco: Jossey-Bass (Wiley Imprint). Furnham, A. F. (1988) Lay Theories: everyday understanding of problems in the social sciences, London: Pergamon Press. Kanai T. (1997a) “Soshiki no nakani ugomeku emotion [Emotional dynamics in the organization]”, CREO, Kobe: Shinko Human Create, 9(1): 7–16. —— (1997b) “Career design ron eno kirikuchi: fushime no design toshite no career planning no susume [Introduction of the theory of career design: how to plan your career at the turning point of your life]”, Business Insight, 5(1): 53–55. —— (2000a) “Keiei soshiki ron ni okeru kanjo no mondai: hitobito ga soshiki ni mochikomu kanjo o meguru research agenda [The question of emotions in the studies of management organization: research agenda concerning emotions people bring into organizations]”, Kokumin-keizai zasshi (Journal of Economics & Business Administration) 181(5): 43–70. —— (2000b) “Shin no leadership wa leader to follower no aida ni aru [The real leadership lies between the leader and the followers]”, Hanbai to Hito (Sales and People), Toyota Motors, 109: 8–12. Kansai Economic Federation. (2001) Yutakana career keisei eno message (Message for Fruitful Career Development). Kouzes J. M. and Posner, B. Z. (1993) Credibility: how leaders gain and lose it, why people demand it, San Francisco, CA: Jossey-Bass. McCall, M. W., Lombardo, M. M. and Morrison, A. M. (1988) Lessons of Experience: how successful executives develop on the job (1st edn), New York: Free Press. McCall, M. W. (1998) High Flyers, Boston, MA: Harvard Business School Press, 1998. McCall, Jr. Morgan W. and Hollenbeck, G. P. (2002) Developing Global Executives: the lessons of international experiences, Boston, MA: Harvard Business School Press. McCauley, C. D., Moxley, R. S. and Velsor E. (1998) Handbook of Leadership Development, San Francisco: Jossey-Bass. Tichy, N. M. and Cohen, E. (1997) The Leadership Engine: how winning companies build leaders at every level, New York: Harper Business. Tichy, N. M. and DeRose, C. (1996) “The Pepsi challenge: building a leader-driven organization”, Training and Development, May. Tichy, N. M. with Cardwell, N. (2002) The Cycles of Leadership: how great leaders teach their companies to win, New York: HarperBusiness. Useem, M. (1998) The Leadership Moment: nine true stories of triumph and disaster and their lessons for us all, New York: Random House.

Index

acceptance in order to survive 145 acceptance of: authority 166; change in functions 165, 166; hierarchy 86; overtime work 165, 166; restrictiveness 194, 195, 198; transfers 164, 166 adverse selection 202, 205 affiliate: employees 70, 72–74; management firms 137; sales 70, 73; size 69 agency theory 63–65, 67, 73, 74, 99 American HR managers 41, 44; local managers 111 American HRM practices 37, 38, 41, 44, 51, 53–55 American management 29, 38, 39, 44, 45, 82; practices 34, 48, 49, 51 analytical: approaches 191; skills 178, 183; strategy 147; unit 192; 230 Anglo-Saxon 29 antagonistic: concepts 86; views 186 Aoki Holdings 128 Asian companies 4, 79, 80, 82, 83, 90, 93; countries 1, 5, 79, 83, 86–91, 93, 94, 114, 133, 134, 136–38, 141, 143 asymmetric information 192 attitude: evaluation 6; toward learning 230; toward local culture 104; toward organizations 169; by younger workers 84 Behavior Observation Scales (BOS) 172 Behaviorally Anchored Rating Scales (BARS) 172 best practices 11, 14, 19, 31, 51, 86, 134, 139, 147 better performing affiliate 65, 67, 74 bicultural: executive 105; executives 105; expatriate 105; identity 109, 119 bonus payment 21

board ratio 68, 70–72, 76 bridge maker 63 bureaucratic: controlling 73; management style 81 challenges 12, 79, 106, 125, 126, 128, 172, 222 careers 15, 21, 22, 218, 223, 224, 231 casu al framework 18 Center for Creative Leadership 213 civilian jobs 172 co-determination 55 Coaching and leadership programs 210 Coding method 216 cognitive: activity among raters 186; criterion 185; elements 105; framework 5, 171, 173, 175–77, 184, 186; intellectual aspects 183; model 177; structure 175 collective: achievements 35; action 142; bargaining 224; dimensions 83; elements 83; values 86 communication: to headquarters 67; with local employees 110; network 68 competitive advantage 2, 11, 15, 21, 22, 124, 135, 138, 139, 142–45, 191, 205 computer software packages 147 Confucianism 115, 143 contextual: acuity 126–29; awareness 127; conditions 15; influences 11, 137; performance 5, 171, 174 contract theory 190, 191 contractual: agreements 55; breach 169; costs 99; fulfillment 160 control: variable 68, 69, 70, 167; variables 160, 166, 202 controlling 63–66, 73 continuous improvement 1, 21, 42, 44

Index corporate: culture 16, 42, 44, 79, 87, 94, 197; performance 206 Corporations 28, 31, 33, 54, 57, 93, 111, 136 Country of origin 4, 32, 47, 49, 50 courts 144 Cross-border: alliances 15; mergers 125; regional networks 81 cultural: characteristics 83, 137, 138; conflicts 112; context 28, 55, 56, 138, 141; contexts 14, 145; distance 61, 62, 103; identification 105; shock 103, 104, 118; sensitivity 126–29 decision-making 15, 16, 18, 23, 35, 41, 42, 44, 47, 62, 81, 87, 88, 101, 114, 115, 128, 162, 217 develop potential leaders 210 diversification: of employment 6, 188, 189; and transition 6, 188; and transition among employment 6, 188 dominance effect 48, 49, 51, 56 economic: development 1, 4, 124; growth 30, 90, 154; performance 29; shocks 20, 23 educational center for training 114 effective management 65, 135 employee: assessment 35, 40, 43, 46; attitudes 17, 20–22, 136, 147; behavior 172, 173; category 190; commitment 17, 23; evaluation 184; incentives 40, 43, 47; performance 23, 138, 177, 189; needs 16, 18; transfer 190 employment: adjustments 188; categories 6, 188–91, 198, 200, 202, 205, 206; categories in Japanese firms 6, 188; portfolio 189–91; practices 53, 79, 83, 91, 137, 139, 158; protection 155; relations 85, 155; relationships 138, 143, 158, 193, 195, 197, 206; security 21, 22, 155–58, 188, 194–97, 202, 205; system 20, 80, 85, 88, 138, 154–58, 161, 166, 167, 190; system in Japan 157, 161, 166; systems 4, 79, 80, 90, 157, 158; systems in Japanese companies 155–57; and wage security 207 ethnocentric 19, 22, 23 expatriate: board members 61, 62, 69, 70, 73, 73; board member ratio 66–68, 72; CEO top managers 61, 70; executives 99, 104, 112, 116; failure 107, 109; to Japan 64; model 104 expatriation 61–65, 67, 69–71, 73–75, 97–101, 105, 107–10, 116–19

237

exploratory: factor analysis 160–62, 164, 177; research about Japanese expatriate executives 116 external: capital 86; context 20; drivers 20; interference 83; labor market 85, 87, 196, 197 familiy owned: businesses 86, 89; companies 91; conglomerates 85 “fast track” system 84 firm performance 3, 11–14, 18, 19, 21, 23, 135–37, 144 firm specific skills 195, 198 flexibility 11, 15, 17–21, 29, 38–42, 80, 84, 87–89, 137, 157, 161, 163, 173, 190 foreign-based affiliate 61 frequent traveling 65 fulfillment 5, 154, 158–60, 166, 168, 192; / breach 5, 154, 155, 161, 166–68 Futata 128 future: challenges 128; leaders 213; power houses 126; pressing concerns 4, 124; research 74, 111, 133, 134, 144–46, 167 Gaishikei-kigyo soran 68, 74 German HR managers 32, 34, 38, 44, 55 German HRM practices 28, 37, 42 global: business 4, 124; economy 128, 173; leadership 15, 128, 129; markets 185; talent management 4, 124–29; workforce 15, 125, 126 globalization 29, 38, 39, 41, 44, 45, 125 globally: competitive 1; dispersed 15, 125 government 29, 85, 91, 92, 138, 188 Greek philosophical thoughts 185 headquarters: managers 63, 65; representative 65 hierarchical: authority systems 139; expressions 114; level 101; levels 47; linear modeling 146, 147; positions 118 high: caliber 63, 67; cost 64, 90, 98, 102; potential 178, 183 high commitment 80, 83, 89; HRM 196, 207; work practices (HIWP or HCWP) 139 high-performance work systems 13, 23, 83, 135 HPHRM (high-performing HRM) 3, 12–14, 20 hoikuen 129 Hokuetsu Paper 128 holdup problem 194, 195, 201, 202, 205

238

Index

holistic: concern 163; perspective 17; principle of inquiry 134 horizontal: axis 191, 197, 200; communication 35; division 202, 205, 206; fit 134, 135, 137 host country: management 47, 49; managers 62, 63; practices 47–49 HR manager’s assessment 35, 36 HRM: categories 32–34, 46, 47, 49, 55, 57, 82; model 3, 28, 30, 32, 34, 37, 38, 42, 44, 45, 51, 54–56; models 32–34, 46, 47, 49, 55, 57, 82; philosophy 84, 86; policies 11, 12, 16–20, 22, 30, 113, 135, 137; restructuring 92; system 2, 4, 14, 16, 18, 19, 21, 23, 33, 35, 36, 53, 80–82, 84–89, 94, 135, 136; systems 2, 3, 15, 16, 19, 34, 37, 82, 83, 87, 88, 94, 133, 136, 141, 145 HR policies 15, 18, 19, 20, 23 human resource: architecture 190, 191; development 30, 110, 111, 211, 215, 216, 228, 232, 233; function 12, 79; capacity 11; management function 12; planning 12, 136; portfolio system 6, 188, 191, 198, 200; training 12 HRPS (Human Resource Portfolio System) 6, 188, 191, 192, 194, 197–200, 205; model 191 hybrid: 45, 55, 126, 193, 197, 198; approaches 19; category 201, 202, 205, 206; system 19; systems 83; treatment 201 “hybridization” 202

internal labor: market 14, 16, 18, 83, 85, 91, 138, 140, 193, 196; markets 6, 188, 189 international: assignment 4, 100, 101, 103–09, 111, 116–19; atmosphere 65, 74; business 75; human resource management 11, 12, 15, 19, 98, 99; perspective 2, 3, 9; subsidiaries 13, 18 interpersonal: abilities 109; influences 115; relations 173; relationships 217, 225, 226; sensitivity 211; skills 218, 230 investment: climate 89; in firm specific skills 194, 202; by the headquarters 66; in human capital 189, 195; in HRM practices 139; in skills 207 ippan shoku 189

IHRM 11, 12, 15, 18, 19, 61, 105, 107, 109 individual development 63; level 133, 147, 156 individualism 54, 86, 116, 154 industrial relations 55, 82 immigrant workers 93, 126; immigrants 127 inborn factors 230 inspiration 28, 37, 45, 47, 51, 53, 55, 56, 82, 230 institutional theory: perspective 139, 144, 145; views 144 Interaction 4, 97, 233; adjustment 4, 100, 101, 102, 106, 107, 109, 110, 112, 115, 118 Intercultural: adjustment 4, 97, 98, 100–03, 105–10, 116, 118; training 106, 107, 109, 118

Kaizen 1, 42–45 Kanban 1, 42–45 Keidanren 188, 190, 191 Keiretsu 1, 143 know-how transfer 64, 65 knowledge based: economy 90; creation 127, 210, 213; management 2; sharing 93, 125–29; transfer 15, 16, 64, 99 Kobe University 2, 5, 6, 211, 233

Japan-based foreign MNC affiliates 61, 62, 64, 66–70, 75 Japanese: employment practices 21, 168, 190; HR managers 3, 28, 38, 51, 54–56; HRM practices 17, 22, 23, 28, 37, 41, 42, 44, 45, 53, 133, 134, 138, 139, 141, 145 Japanese: business research 5, 31; management philosophy 30 job attitude 6; experience 211; factors 100; guarantee 84, 85; performance 5, 21, 65, 171–73, 175, 230; requirements 97, 173, 232; satisfaction 136; security 21, 22, 43, 85; rotation 16–18, 21, 40, 81, 144, 195; training 81, 194 Joint Venture 20 just-in-time 1, 44

labor: laws 55, 138; management 21, 109, 110, 224; market 14, 16, 18, 83, 85, 87, 88, 91, 114, 138, 140, 145, 156, 190, 193, 196, 197 laws 55, 88, 138, 144 lean: management 43; manufacturing 1, 124 Leader Behavior Description Questionnaire 214

Index leadership: development 6, 15, 210–14, 216, 218, 222–24, 230–33: skills 210, 229–31; study 212; theory 212, 213 learning: ability 229, 230; driven 99; driven transfer 232; human resource transfer 232; to lead 234; opportunities 6, 210, 218, 230, 234 leitmotiv 54 liberalization 38, 39, 44, 79, 88 lifelong employment 38, 39, 41, 42, 45 Lifetime employment 16, 17, 20, 22, 23, 82, 138, 158, 161, 162 LN (logarithm) 69–73 local: candidates 63; conditions 13, 15, 19; culture 104, 110, 112, 116, 118, 119; employees 19, 63, 65, 110, 113, 114, 119; environment 18, 119; host managers 64; operations 99, 119; manager 61; managers 3, 19, 61, 62, 64; practices 51, 52, 53 localization 15, 19, 47–51, 53, 56, 81; effect 47–49, 51 logarithm 69, 70 “long thin arm syndrome” 128 longitudinal 33, 47, 74, 146, 147 long-term: career development 82; commitment 14, 17; employment 18, 138, 139, 157, 158, 161–63, 166–68, 190, 195, 197, 205; employment security 157, 158; job experience 211; job guarantee 84, 85; perspective 83, 87; relations 81 “lost decade” 1, 206 maintenance of: employment 195; human relations 161, 164–66; a global perspective 61 management: development 63–65; strategies 45, 232 managing: divergent pressures 217, 219–21; an employment portfolio 189; human resources 53, 138; interpersonal relationships 225, 226; laterally 217, 219–21; lean manufacturing 124; multinational enterprises 15; the organizational culture 113; people 5, 133, 231; subordinate 226; teams 140, 142, 207 manufacturing 1, 21, 31, 46, 92, 117, 124, 159, 176, 199, 202, 205, 224; Japanese 14, 137 mediating variables 4, 61, 62, 64, 73, 136 Mergers and acquisitions (M&A) 1, 39, 41, 45, 79, 125

239

Micro issues 2 military 172 Mitsubishi trading 129 multi-: country study 63; level 147; task problems 196, 197; tasking 196; regression 202, 203 multinational: companies (MNCs) 2, 12, 15, 81, 98, 102, 124, 137; affiliates 61, 62, 64, 66–70, 73, 75; corporations 28, 57, 93, 136; enterprises 15; organizations 28, 57, 93, 136 multicultural: experience 125; identities 104; identity 104; managers 126; workers 126 narrative: description 176; employee evaluations 183; essays 171, 175–77, 179; evaluation 175, 183; evaluations 5, 171; statements 176, 176–78 network: analyses 147; analysis 147; building 144, 211; for workers 16 new HRM: system 4, 87, 88; systems 87 next-generation: executives 213, 234; leaders 231, 232; leadership 215, 216 non-regular: employees 188–90, 194, 196–98, 201, 202, 205, 206; workers 6, 206, 207 North-American: case 107; companies 107; expatriates 98, 107, 109 Oji-Kanzaki Seishi 128, 129 opportunistic behavior 192, 194, 196, 206 ordinary least squares (OLS) 146 organizational: behavior 47, 108, 129, 142, 211; culture 100, 103, 111, 113–16, 118, 119, 136, 219–21; development 43, 63, 64, 66, 67, 73, 74, 99; domains 4, 124; efficiency 206; goals 133, 174; learning 19, 99, 136; performance 11, 12, 15, 17, 18, 100, 135, 141, 142; maintenance (PM) theory of leadership 214; outcomes 16, 134, 136, 141, 147; sub-units 127 opportunities: for growth 4, 124; for theory advancement 133 outperform 2, 3, 61, 62, 73, 75 overseas affiliate 64 overtime 165, 166, 222; unpaid 161, 163 ownership 4, 16, 61, 62, 64, 67–73, 75, 76, 136, 143, 207 participative decision-making 44, 162; processes 18–21; leadership 41; system 21

240

Index

participatory 16, 23, 137 part-time employees 199–202 paternalistic: corporate culture 87; HR management 86; system 16 pay system 21, 89, 196, 197 performance: appraisal 5, 6, 14, 136, 171–77, 183, 185, 186; based evaluation 155, 157; criteria 5, 171, 172, 175, 176; evaluation 6, 14, 18, 80, 83, 86, 113, 174, 175, 177, 185; measures 173 “periphery-type” workers 88 person-environment 17; job 17; organization 17 personnel evaluation 183, 185, 201, 203, 232 physical: asset 192; capital 135 position filling 65, 67 president’s council membership 143 principal agency relation 64 professions 91, 144 promotion: criteria 35, 40, 43, 47; system 84, 85, 178 promotions 16, 196, 201, 203, 219 protection of company 164–66 psychological contract 5, 16, 80, 86–89, 154–61, 166, 167, 169, 197, 207 psychometric: proporties 172; validity 172 qualitative study 18, 113 quantification 177 quantum leap experiences 6, 210–19, 222–25, 228–31, 233 rating: elements 172, 174–76; formats 183; forms 185; methods 171; scales 171, 172, 174; systems 178; tools 176 recognition 14, 87, 161, 163, 174, 183 recruitment 15, 35, 38–43, 46, 80, 85, 86, 90, 92, 138, 161 reform 28, 30, 55, 56, 84, 88, 183 regression analysis 5, 73, 154, 161, 166, 168, 202, 203 regulations 35, 55, 89 relation-specific investment 192. 194, 195, 198 relational contract 207 relationship network 139, 142; networks 143 relative size 61, 66, 68–73 remuneration 38, 40, 41, 42 Rengo 188 retrenchment 80, 86 ROA (return on assets) 216 ROE (return on equity) 216

resource-based view (RBV) 11, 99, 135, 144, 190 reward 14, 84, 86–89, 136, 138, 155, 164, 166; non-reward 164–66 Royal Canadian Mounted Police 173 sales growth 202, 203, 204 seikashugi 21 selection 14, 15, 17, 21, 29, 35, 85, 86, 105, 106, 109, 115, 138, 172, 191, 205, 232; adverse 202, 205; self 205; enlightment 233 semi-ethical relationship 193 seniority: -based 16, 18, 20, 21, 23, 80, 84, 85, 161, 162; -based promotion 161, 162; criteria 113; principle 38, 42 seishain 188 sensitivity: and inclination to learn 229; to management of people 226; and network building 211 shareholder: model 16; value 39, 41, 45 Silicon Valley 128 skill 14, 17, 138, 140, 195, 222, 225 social capital 12, 139, 141–44, 147, 195 socio-cultural 28, 55, 56, 83, 101 sogo shoku 189 soul-searching opportunity 231 South-East Asian: family-owned businesses 86; companies 80; countries 83, 86, 87, 89, 90; country 89; region 81; region’s HRM system 81 spot market 197, 198, 200, 201; contracts 193 “step by stop” transitions 189 Story-telling process 233 strategic human resource management 5, 12, 15, 133 SHRM: framework 144; literature 133, 134, 139, 146, 147; research 5, 133–37; 139–41, 143–47; researchers 134, 135, 139, 142, 143; theories 134, 139; topics 134 structural: adjustment 88; equation modeling 146; feeling of insecurity 89; relationships 178 synergistic potential 128 subsidiary data 51, 53, 56; level 3, 28, 30, 45, 46, 48 superior-subordinate 35, 41, 44, 129 supportive: labor-management communications 21; network for workers 16; processes 21; relations 161–63, 166–68; work-life balance 22

Index tacit: communication 114; knowledge 6, 22, 210; practical knowledge 212 team: consensus 216; development 136; players 129; unit 207 team-based: 14, 16–18, 23, 138, 139; employee activities 18; problem solving 14, 17, 139; processes 23 teamwork 14, 17, 18, 20–23, 41, 45, 83, 129, 136, 142, 196, 206, 207 temporary: and other limited-contract workers 155, 169; agency workers 191, 199–201 ten-day: program 211; training 211 theory: advancement 133; of leadership 214; in practice 212–14 top management 18, 69, 110, 118, 127, 144, 211, 215, 216, 223, 233 traditional Japanese: approaches 55, 56; HR practices 45; HRM 28, 30, 42, 53, 54 Transaction Cost Economics (TCE) 190–93 transaction costs , 99, 191, 192, 193, 195, 197; post-transaction costs 192; pretransaction costs 192 transactional: based psychological contract 87; contract 158, 207; contracts 157, 158; inefficiencies 192–94, 196; relationship 193; uncertainty 193 transaction-specific: asset investment 192; employment categories 198; value of assets 192 traveling executives 63, 65 two-tiered employment 21, 22

241

uchi/soto 127 uncertainty avoidance 54; within tasks 6, 188, 194, 196–205 unitarist type corporate culture 87 universal: approach 135; best practice 20; model 102, 108 universalistic: approach 135, 139–41; best HRM practices 140, 143; and contingency approaches 137, 141; perspective 134, 139; view 139 U.S. Army 171, 172 vertical: axis 190, 197, 200; communication 35; disintegration 191, 197; fit 134, 135, 137 volitional: aspects 183; domains 186; functions 185 voluntarily refrain from: brief job changes 164; pro competitor behavior 165, 166 wage 17, 20, 23, 84, 88, 89, 138, 171, 207 Western: companies 11, 80, 81, 158; contexts 12, 13, 23; management 29, 30, 56; managers 3, 28 Westerners 2 Work: adjustment 4, 100–02, 106, 109, 110, 112; -life balance 22, 161–63, 166–68 Workforce 4, 15, 17, 20, 21, 90, 93, 124–27, 138, 194, 229 Works in the West 166