Multinationals, Institutions and the Construction of Transnational Practices

Over the last decade or two, scholars in the fields of international employment relations and organizational behaviour have devoted considerable energies to arguing that systematic differences in the behaviour of multinational companies (MNCs) are significantly shaped by their embeddedness in distinctive national-institutional complexes, both of their country of origin and of the host business systems in which their subsidiaries operate. More recent analyses have explored MNCs’ behaviour as the complex outcome of the interaction between influences from the parent national business system (NBS) and those deriving from the host NBS. Such work has drawn heavily on the comparative institutionalist perspective whose variants include the ‘societal effects’ school (e.g. Maurice and Sellier, 1986), national business systems theory (e.g. Whitley, 1992), and the ‘varieties of capitalism’ approach (Hall and Soskice, 2001a).

Transnational corporations (TNCs), like all large and complex formal organizations, have two core features. First, they produce goods and services that satisfy consumer needs, and in the course of doing so provide income and employment to large numbers of people. Second, they are political actors, using power to shape the conditions under which they conduct their productive activities and as a result profoundly influence the lives of employees, customers and local communities. Something of these two aspects was captured by The Economist (27 March 1993) when it called them ‘everybody’s favourite monster’. The purpose of this chapter is to contribute theoretically to the second ‘political’ view but without losing sight of the first.

Key elements of multinational behaviour have been attributed to by observers adopting an institutionalist approach to the interplay of parent and host national business system pressures (Whitley, 1999). On the one hand, the behaviour of multinationals (MNCs) is influenced by ‘country-of-origin’ effects relating to the embeddedness of companies in a parent national business system with distinctive characteristics. On the other, different national host environments impose institutional constraints on MNCs: national legislative frame-works, labour market regulation and business environments shape to what degree and in what form employment practices are transferred across countries. In the terms of the ‘institutionalist’ approach, the normative or coercive ‘isomorphic pressures’ exerted by host country legislation or collective bargaining condition the extent to which such practices are transferred (Brewster and Tregaskis, 2003). Host institutional constraints on the transfer of HR and IR practices seem to exist most notably in countries with strong institutional labour systems. In such cases, there are stronger pressures for adaptation of transferred Anglo-Saxon HR/IR practices (Muller, 1998). Host-country isomorphic pressures have also been postulated in the case where MNCs from highly regulated parent company systems establish subsidiaries in weak institutional settings (Tüselmann et al., 2003).