International Human Resources Management of Japanese, American, and European Firms in Asia: The Roles of Headquarters and Subsidiaries

JCER DISCUSSION PAPER
No.98






International Human Resources Management of

Japanese, American, and European Firms in Asia: The
Roles of Headquarters and Subsidiaries




Paper for presentation at the Conference,

Japan Center for Economic Research, Tokyo, June 1, 2006
(This research project “Multinational Firms' Strategies in East Asia: A Comparison of

Japanese, U.S., European and Korean Firms” was sponsored by Nihon Keizai Shimbun, Inc.)



Hiromichi Shibata

(Yokohama National University)
Andrew Doyle

(Merrill Lynch)



2006 年 8 月


社団法人 日本経済研究センター
Japan Center For Economic Research

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International Human Resources Management of Japanese, American, and European
Firms in Asia: The Roles of Headquarters and Subsidiaries



Hiromichi Shibata
Professor
Faculty of Business Administration
Yokohama National University






Andrew Doyle
First Vice President
Head of Global Private Client Rewards & Information Services
Merrill Lynch






May 14, 2006

Acknowledgments

This research has received funding support from the Japan Center for Economic
Research. We wish to thank the people with whom we conducted interviews.


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International Human Resources Management of Japanese, American, and European
Firms in Asia: The Roles of Headquarters and Subsidiaries




Abstract

The main role of the headquarters international human resources
departments/business units of seven Japanese firms we researched is to manage the
Japanese expatriates at their subsidiaries in Asia; they have little involvement
with the management of local employees. The headquarters international human
resources departments/business units at five researched American firms tend to
maintain strong company value/mission that drives use of their performance
appraisal/promotion systems for employees worldwide. In addition, the
headquarters human resources departments/business units of the American firms
tend to supervise senior-level managers regardless of their nationalities.
Although two researched European firms manage senior-level managers worldwide,
their international human resources management systems are not as rigid as those
of American firms.



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The principle objective of this paper is to examine the relationships between the
headquarters/business units of Japanese firms and their subsidiaries in Asia, in terms of
international human resources (HR) management, and those of American and European
firms.

The transfer overseas of management systems can be viewed typically in three
forms: cultural (Hofstede, 1980; Trompenaars, 1993), institutional (Edwards and
Kuruvilla, 2005; Ferner and Quintanilla, 2002) and strategic choice analyses（Bloom
and Milkovich, 1999）. The transfer of Japanese management systems has inspired
many researchers, including Abo (ed.) (1994), Itagaki (ed.) (1997), and Boyer et al.
(eds) (1998). Much of the research indicates that Japanese human resources
management systems, characterized by concepts like long-time employment systems,
cooperative industrial relations, and skill formation systems, have not been
completely transferred outside of Japan, especially in North America (Doeringer,
Evans-Klock, and Terkla, 1998; Kenny and Florida, 1993 and 1995; Kenny and
Tanaka, 2003; Milkman, 1991). Adler (1995) and Adler, Glodoftas, and Levine
(1998) stress that transplants of Toyota in the United States have firmly introduced
its lean production system. Yet, human resources management systems and
industrial relations at the transplants are hybrid of the Japanese and American
systems. Japanese human resources management systems have also failed to be
transferred fully to their operations in the Philippines (Amante, 1995), Malaysia
(Wilkinson et al., 2001), and China (Taylor, 2001). According to Bae, Chen, and
Lawler (1998), because Japanese firms are highly sensitive to local practices in
Korea and Taiwan, it is difficult for the Japanese firms to fully transfer their
Japanese human resources management systems to these countries. Skill
formation systems, especially those of integrated skills with troubleshooting, have

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not been implemented in the United States and Asia (Koike and Inoki, 1987;
Shibata, 2001 and 2006).

Regarding the roles of headquarters human resources departments, Aoki (1988)
compared the power “centralization” of human resources management departments
in Japanese firms with the power “decentralization” in human resources
management departments in Western firms. Jacoby (2004) theorizes that the
headquarters human resources management departments in Japanese firms
maintain strong and broad power. In contrast, he believes that the headquarters
human resources management departments of American firms play weak roles; that
daily decision-making responsibility shifts from headquarters to business units and
their line manages. Jacoby (2004) concludes that much more diversity in the
approach to human resources management is found in American firms than in
Japanese firms. Human resources management systems of Japanese firms are
partially moving from organization-oriented to market-oriented systems, while
human resources management systems of American firms are more transforming to
market-oriented systems. The gap between the Japanese and American systems
has been widening. Yet, in terms of international human resources management
systems, previous research did not clarify relationships between
headquarters/business units of Japanese and American firms and their
subsidiaries.

In this paper, we examine international human resources management systems,
i.e. relationships between the headquarters and business units of Japanese,
American, and European firms and their subsidiaries in Asia. What are roles of
headquarters international human resources departments/business units of the
firms? How do the headquarters human resources departments of the firms

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manage their employees worldwide? What are the strong and weak points of the
international human resources management systems of Japanese firms? How are
the systems of Japanese firms changing? One of the main focuses of our research
is performance appraisal systems, which play a crucial role in human resources
management system.

Overview of Researched Firms and Subsidiaries

We researched seven Japanese firms (six manufacturing firms and one
non-manufacturing firm) and their six subsidiaries (three manufacturing
subsidiaries, two non-manufacturing subsidiaries, and one regional headquarter) in
Asia, five American firms (two manufacturing firms, two non-manufacturing firms,
and one conglomerate firm) and their five subsidiaries (two manufacturing
subsidiaries, two non-manufacturing subsidiaries, and one regional headquarter) in
Japan, and two European manufacturing firms and their two non-manufacturing
subsidiaries in Japan.1 All of the firms we researched are large and leading firms
of their particular industry. The Japanese subsidiaries that were researched are
located in the Philippines, Thailand, Taiwan, and Hong Kong. Capital ownership
by the headquarters company varied from forty-nine percent to one hundred
percent for the Japanese subsidiaries. The headquarters of the American and
European firms typically owned nearly one hundred percent of the capital of their
subsidiaries in Japan (Table 1).





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Table 1 Researched Firms and Their Subsidiaries

Japanese Firms
Firm J1
J2 J3 J4
J5 J6
J7
Manu./Non-M.a M M M
M

M

M N
Subsidiary

JS1 JS2 JS3
JS4

－
JS6 JS7
Location Philippines Thailand Taiwan Hong Kong － Philippines Taiwan
Manu./Non-M.a M M N
RH

－
M
N

Capital 49%
51
100


100

－
100
100
by Headquarters


American Firms
Firm
A1 A2 A3
A4 A5
Manu./Non-M.a
M M
N
N M/N
Subsidiary


AS1 AS2 AS3
AS4
AS5

Manu./Non-M.a
M
M
N
N
RH
Location
Japan
Japan Japan
Japan
Japan
Capital

100% 86
100 100
100
by Headquarters



European Firms
Firm
E1 E2
Manu./Non-M.a
M M



Subsidiary


ES1 ES2

Manu./Non-M.a



N N
Location
Japan
Japan

Capital

100%

100
by Headquarters


a Manu. (M) : Manufacturing Non-M. (N): Non-Manufacturing
RH : Regional Headquarter





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Methodology

We researched the Japanese, American, and European firms during January of
2001 and March of 2006. The bases of our research methods were qualitative
interviews and the gathering of hard, unpublished data. We interviewed general
managers or managers at the headquarters human resources departments of six
Japanese firms, and the presidents, human resources general managers, or
managers at six Japanese subsidiaries in Asia; human resources general managers
at the headquarters human resources departments of two American firms, and
human resources general managers at five American subsidiaries in Japan; and a
president and a human resources general manager at two European subsidiaries in
Japan.

Relationships between Headquarters Human Resources Departments/Business
Units and Subsidiaries
Concerning the relationship between headquarters human resources
departments/business units and subsidiaries in Asia, there is some diversity among
researched Japanese firms and among researched American firms. However,
distinct differences are found among the Japanese, American, and European firms.
Japanese Firms

According to human resources managers of the J1 firm, “localization” of its
subsidiaries means that higher management positions, except finance/accounting
positions, are occupied by local employees. Yet, almost all presidents at the
researched Japanese subsidiaries in Asia are Japanese expatriates. At the JS4
subsidiary in Hong Kong, all positions higher than (and including) general
managers are filled with Japanese expatriates. In contrast, a president and a

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senior vice president are staffed with local employees at the JS3 subsidiary in
Taiwan. In terms of the incomplete localization, a Japanese human resources
manager at the JS4 subsidiary in Hong Kong stressed that Japanese expatriates
can communicate easier with managers of Japanese headquarters/business units
than local employees. Another Japanese human resources general manager at the
J2 firm stated that the skill level of local employees is generally lower than the
Japanese expatriates would ideally like to see. However, a general human
resources manager at the J5 firm predicts that president positions of Japanese
subsidiaries in Asia will be occupied by local employees in the near future, like
Japanese subsidiaries in America and Europe.

Under the supervision of the presidents at Japanese subsidiaries, vice
presidents or general managers are responsible for human resources management.
Almost all of the vice presidents or human resources general managers are
Japanese expatriates, some of whom have no work experience at human resources
departments of the Japanese headquarters. At the JS6 subsidiary in the
Philippines, a local employee is a human resources general manager, a position that
was once held by a Japanese expatriate. Other lower-level human resources
managers at the Japanese subsidiaries are all local employees.

Concerning relationships between headquarters and the their subsidiaries, the
main tasks of headquarters human resources departments of Japanese firms we
studied are to manage Japanese expatriates and to help their subsidiaries work
through major issues and/or changes. The headquarters human resources
departments make performance appraisal systems for Japanese expatriates, which
are not affected by company vision/mission. Performance appraisal systems for
Japanese expatriates at the J4 firms are more merit-oriented than performance

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appraisal systems for Japanese employees in Japan. In terms of actual
evaluations, business units of the Japanese firms are often involved with the
appraisals for the Japanese expatriates. (When Japanese expatriates are sent
from headquarters departments, the departments often evaluate the expatriates.)
At the JS3 subsidiary in Taiwan, the president first evaluates Japanese expatriates.
And then, business units in Japan, which the Japanese expatriates belong to,
appraise them. At the JS7 subsidiary in Taiwan, the Japanese vice president first
evaluates the Japanese expatriates, followed by the president. Concerning job
transfers of Japanese expatriates within the firms, a headquarters human
resources department of the J7 firm decides transfers of the Japanese expatriates
of the JS7 subsidiary in Taiwan, while accepting suggestions from the Japanese
president of the subsidiary. Job transfers of Japanese expatriates of the JS3
subsidiary in Taiwan are decided by business units in Japan.

An example of support from a headquarters human resources department to its
subsidiary can be seen with the way in which the JS1 subsidiary in the Philippines
introduced a new wage system for local employees. The headquarters human
resources department of the J1 firm first offered the J1 firm’s wage system to the
subsidiary. After reviewing with the JS1 subsidiary, the wage system was
modified to local contexts, creating a new wage system. When strikes occurred in
the subsidiaries, the headquarters human resources departments of the J2 and J4
firms sent their experts to the subsidiaries to support the local management.
Because the J4 firm had many Japanese employees back at headquarters who used
to work at the subsidiaries overseas, it had a fairly good understanding of the issue
and how to respond to the problem. At the J3 firm, human resources managers
and union executives periodically visited the subsidiaries and received requests on

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