Global HRM

Global HRM and the dilemma of competingstakeholder interests

Satu Lahteenmaki and Maarit Laiho

Abstract

Purpose The purpose of this paper is to study the meaning of socially responsible human resource

management (HRM) in the global business context.

Design/methodology/approach This paper is based on a multiple case study and is descriptive. The

study focuses on four case studies of two Finnish multinational companies. The data sources are

company documents and web sites, newspapers, financial periodicals and web-based open

communication channels.

Findings The study shows the contextual nature of socially responsible HRM and highlights the need

to recognise the magnitude of the issues and viewpoints that affect the evaluation of social responsibility

from the HRM point of view. The study also reveals the gap between the rhetoric used by top

management and the messages given out by the HR function.

Research limitations/implications The four cases examined in this study do not allow for empirical

generalisations.

Practical implications The study stresses that the costs and consequences of unethical behaviour

cannot be overlooked when aiming to maintain the image of a socially responsible company.

Originality/value This study addresses a research gap in HRM studies by adopting an ethical

perspective and suggesting that instead of balancing global integration with responsiveness to local

customs companies should find a balance between profitability and responsibility. The study provides

rich material for discussion and illustration.

Keywords Corporate social responsibility, Human resource management, Human resource strategies,Multinational companies, Finland

Paper type Case study

1. Introduction

In the global business context different forms of foreign direct investments (FDIs), e.g.

mergers, acquisitions or the establishment of a factory abroad, are alternative ways of

entering new markets. Because of the multiple risks associated with globalisation FDI

decisions are not made without due consideration. However, investing in distant locations or

exporting jobs into developing economies are motivated by a variety of economic reasons.

These include: following competitors in order to claim a share of a booming markets, moving

closer to raw material suppliers or customers, securing the accessibility of needed

competencies and/or a needed workforce, benefiting from economies of scale through

mass production, which is aided by increased shifts and a flexible workforce, or simply

improving cost efficiency by utilising cheap labour and cashing in on state subsidiaries. No

matter what the reason, entering into acquiring or establishing subsidiaries forces

companies to consider the ethical dimensions of the treatment of workforces in the global

context (Legge, 2000).

The ethicality of FDIs and other facets of international business have recently been

questioned by scholars (Prasad, 2008) and by those opposing globalisation (see Briscoe

PAGE 166 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011, pp. 166-180, Q Emerald Group Publishing Limited, ISSN 1747-1117 DOI 10.1108/17471111111141477

Satu Lahteenmaki is a

Professor and Maarit Laiho

is a Post-doctoral

Researcher, both in the

Department of

Management, Turku School

of Economics at the

University of Turku, Turku,

Finland.

et al., 2009). The increasing importance of international business has emphasised the

ethical dimension of global business practices and especially of employment-related

practices (Briscoe et al., 2009). Winstanley and Woodall claimed in 2000 that despite

developments in the field of business ethics, human resource management (HRM) has not

adopted an ethical perspective very often (Winstanley and Woodall, 2000). Nevertheless,

research relating ethics to HRM and to international human resource management (IHRM)

has been increasing, for instance Greenwood (2002) has presented a conceptual analysis

on HRM from an ethical perspective, Simmons (2008) has suggested a stakeholder model of

HRM and ethics, and Kolk and Van Tulder (2004) have studied the ethical dilemmas that

multinational companies (MNCs) face in the area of child labour. As far as e.g. the use child

labour is concerned IHRM policies that respect cultural values, norms and the customs of

the host country can hardly be called ethical. However, humanitarianism might be the

argument used for introducing nationally tailored HRM policies (Jackson and Schuler, 1995;

Bartlett and Ghoshal, 1998, pp. 289-90).

The number of concepts and definitions of more humane, more ethical and more transparent

ways of doing business that are used in academic debates and business environments is

vast (van Marrewijk, 2003). Corporate social responsibility (CSR) is one of these concepts

and is defined as follows:

Corporate social responsibility is the continuing commitment by business to behave ethically and

contribute to economic development while improving the quality of life of the workforce and their

families as well as of the local community and society at large (WBCSD, 1999).

The concept of corporate sustainability is closely related to CSR. From a business

perspective sustainability takes into consideration the needs of both current and future

company stakeholders such as shareholders, employees, clients, pressure groups,

communities etc. (Dyllick and Hockerts, 2002; Simmons, 2008). Wirtenberg et al. (2007, p.

12) state that the role of a companys HR function is integral in fostering the development of

more sustainable business models and continue that:

[. . .] a critical goal for the HR field as a whole is to develop the individual competencies,

collaborative strategies, and organizational capabilities required to support their organizations

sustainability journeys.

The above-mentioned perspectives demonstrate the most essential aspects of sustainable

business, namely company success, employee wellbeing and an inclusive long-term

perspective (Docherty et al., 2009).

The purpose of this case study is to examine the meaning of socially responsible HRM in the

global business context. In order to do this, four cases relating to the actions of two Finnish

multinational companies have been examined. The cases under examination consider the

foreign operations of the companies (mergers, acquisitions and the establishing or shutting

down of a factory). The study aims at recognising the multiple issues that affect the

evaluation of social responsibility from the HRM point of view.

The paper is structured as follows: the next section offers an overview of the recent

theoretical discussions related to IHRM strategies and provides the background to MNCs

international HRM and thus builds the theoretical framework of the study. Then the research

methodology and data collection sections are followed by descriptions of each of the four

cases and the context in which the decisions were made. The interpretations of the cases

are made by examining them against the assumptions of the theoretical framework. Finally,

in the concluding chapter the findings are discussed by focusing on the content and

meaning of what constitutes responsible HRM from different perspectives.

2. Theoretical frame

Strategic international HRM

International HRM decisions are expected to depend on a companys strategy. The term

strategic HRM denotes the view that HRM activities are assumed to enhance organizational

VOL. 7 NO. 2 2011 jSOCIAL RESPONSIBILITY JOURNALj PAGE 167

performance (Schuler and Jackson, 2005). Concern over the ways in which HRM is critical to

organizational effectiveness is at the heart of the strategic HRM (SHRM) debate (Boxall and

Purcell, 2000), and the concept of integration is an integral part of this discussion. Vertical

(strategic) integration refers to the congruence of HRM practices with a companys strategy

(external fit). Horizontal integration, in turn, implies the internal consistency of the HRM

policies and practices (internal fit) (Delery and Doty, 1996; Wright and Snell, 1998; Guest,

1997).

Further, since the early 1990s IHRM researchers have been concerned with the integration of

HRM policies throughout companies, including their foreign units. Earlier studies (e.g.

Schuler et al., 1993; Paauwe and Farndale, 2006) have demonstrated this to be not only a

strategic, but also a critical issue regarding HRM effectiveness. Thus it is thought that when

companies enter into a global business environment they should consider whether the HRM

model of the company, e.g. investors in people standard (Silcox, 2008), is transferable to a

foreign subsidiary as such, or whether it should be modified or tailored according to local

culture and labour market conditions. It follows that a companys responsiveness to the

national values, norms and customs of the host country is a focal aspect of global HRM (see

e.g. Jackson and Schuler, 1995; Bartlett and Ghoshal, 1998, pp. 289-90). In addition to

culture, researchers point out the importance of paying attention to several local factors e.g.

the economy, the legal system and religious beliefs (Schuler et al., 1993).

Consequently, one of the most interesting challenges in the international HRM discipline is

the use of HRM in order to link globally dispersed units while also taking into account the

specific requirements of host societies. MNCs can then be defined as firms that need to be

local and global at the same time (Schuler et al., 1993; Bartlett and Ghoshal, 1998, pp. 9-12).

Thus, decision making about whether HRM integration or differentiation is required is an

essential part of strategic IHRM. A MNC needs to consider to what extent it is effective to

administrate HRM issues via headquarters (centralised model) and to what extent it is

effective to do so via the local business unit (Schuler et al., 1993; Wiechmann et al., 2003).

Hard and soft HRM models

Although Legge (2005) has stated that the discussion around hard and soft HRM models

has been replaced by their US-based alternatives of high commitment management (HCM)

and high performance work systems (HPWS), the dichotomy between hard and soft HRM is

still useful from the HRM responsibility point of view. Hard HRM refers to utilitarian

instrumentalism i.e. the focus is ultimately on HRM. Contrary to the hard approach, soft HRM

reflects developmental humanism and focuses on HRM (Legge, 1989, 2005; Hendry and

Pettigrew, 1990). Both models include the assumption of the close integration of HRM

policies, systems and activities with a companys business strategy (Legge, 1995), although

the ultimate expectation of the philosophies is different.

While in hard HRM human resources are harnessed to the achievement of the strategic

objectives of an organization and are the equivalent of any other factors of production, the

soft HRM approach considers human resources as not just any cost factor to be minimised

but as a valued asset, which should be treated accordingly. The soft HRM approach sees

employees as trustworthy humans, whose competencies are worthy of continuous

development (Legge, 1995). Further, a soft HRM approach is comparable to high-road

HRM striving for increased employee commitment, whereas a hard model is comparable to

low-road HRM including short-term contracts, a lack of employer commitment to job

security, low levels of training and low levels of HRM sophistication (Michie and

Sheehan-Quinn, 2001).

HRM includes the assumption that improved performance is achieved through the people in

an organization (Guest, 1997) and better organizational performance and employee

wellbeing are not contradictory objectives (Babtiste, 2008). Francis and Keegan (2006) have

stressed the need for a more balanced HRM model, including both human (employee

wellbeing) and economic (strategic) concerns. However, it has been claimed that when

companies strive for profitability they are forced to resort to HRM actions (e.g. compulsory

redundancy, reward based short-term performance results), which although consistent with

PAGE 168 jSOCIAL RESPONSIBILITY JOURNALj VOL. 7 NO. 2 2011

business strategy, are unlikely to generate employee commitment (Legge, 1989, 2005) or

wellbeing.

Psychological contract

In addition to strategic integration, HRM policies are expected to link to a companys

employment relationship. Further, organizational policies are expected to reflect an

underlying philosophy about the employment relationship (Peck, 1994) (hard and soft HRM

philosophies). Here the model of a psychological contract is a useful framework for

investigating the employment relationship (Peck, 1994; Rousseau, 1995). A psychological

contract can be defined as:

[. . .] individual beliefs, shaped by the organisation, regarding terms of an exchange agreement

between individuals and their organisation (Rousseau, 1995, p. 9; see also Rousseau and

Wade-Benzoni, 1994, p. 464).

Two basic terms of psychological contracts, and also the ends of a contractual continuum,

are transactional and relational. A transactional contract can exist when a company recruits,

e.g. college graduates, who are willing to work long hours in low-level jobs. The employer

utilises the work contribution of the graduates, who in turn get valuable work experience and

at the same time their labour market situation is improved. A relational contract is typically

found in organizations that have a long history and strong traditions. Mutual loyalty,

commitment and continuity describe the employer and employee relationship in an

organization that holds relational contracts. A transitional (no guarantees) contract usually

occurs during a transition period, which is likely to create uncertainty among employees.

Thus, the preconditions for mutual commitment are minimal. A balanced contract can be

found in organizations where both the employer and employees share the same values and

are mutually committed. In addition to this, there is a need to carry on productive business

and attain specific business goals (Rousseau, 1995).

Tekleab and Taylor (2003) have noted that the psychological contract has usually been

conceptualised as only containing the employees perceptions of mutual responsibilities (an

organizations obligations to an employee and the latters obligations to the organization).

However, when aiming at a comprehensive and valid understanding of the employment

relationship the perceptions and reactions of the organization and its representative agents

need to be taken into account as well (Guest, 1998). Organizations havemultiple agents who

may represent it as the other party in a psychological contract; e.g. top management and

immediate managers (line-managers, superiors) and Rousseaus (1995) model of

psychological contracts provides a unifying framework for the simultaneous analysis of

both managerial and individual views. Thus the ethicality of the employment relationship

should also be evaluated from both the employers (agents) and the employees

perspectives.

In the 1990s the widely shared view was that a fundamental change had taken place in the

psychological bond between employers and employees (e.g. Hiltrop, 1996). The traditional

contract that had been characterised as stable, permanent, predictable, fair and mutually

respectful was permanently replaced by the short-term contract that emphasises flexibility,

self-reliance and the achievement of immediate results (Hiltrop, 1996). The increasing

number of international business operations is likely to be one factor behind the emphasis on

the changing nature of psychological contracts. However, research results indicate that any

violation of the psychological contract will break the trust between an employer and their

employees and lead to strong emotional reactions and feelings of betrayal (Robinson and

Rousseau, 1994; Anderson and Schalk, 1998). In addition to the unfavourable employee

reactions, the consequences of a violation of a psychological contract may be more

far-reaching and result in severe problems in employment relationships and a damaged

image for the employer amongst other things. As Mattila (2009) has stated, a good image

often equates to good business.


3. Research methodology

This descriptive paper is based on a multiple case study (Yin, 2003) of four foreign direct

investment or divestment decisions involving two originally Finnish MNCs, both in

manufacturing industries: Nokia Ltd, which operates in the electronics industry and Stora

Enso Ltd, which operates in the paper mill industry. The companies were chosen for two

main reasons. First, as large multinational companies they provide an interesting context in

which to study social responsibility issues from the HRM perspective. Second, the types of

business the chosen companies operate in are cornerstones of Finlands national economy

(Mattila, 2009).

The empirical data of the study consist of documents, articles and interviews published on

the internet. Therefore, the internet was utilised as an information resource for data collection

(Rasmussen, 2008). Since, the study aims at recognising the multiple issues that affect the

evaluation of HRM, the empirical data have been collected from three different perspectives.

First, material representing the management perspective consists of the companies official

press releases, annual reports, financial reports, strategy and CSR statements, and

published interviews with company representatives. For example, a companies official

justification for their operations is considered to be a manifestation of their HRM philosophy.

Second, as far as company personnel are concerned, published interviews and statements

given by employees or union representatives in the media have been utilised as research

material. Third, the general publics point of view, which does not form such a uniform group,

has also been taken into consideration by following public opinion as presented and

reflected in the media i.e. newspapers, financial periodicals and web-based open

communication channels i.e. by scanning the HR-related media publicity surrounding each

case.

Data were collected from January to July in 2008. Both, the search of the article databases

and the internet search engine (www.google.com) were utilised for finding texts related to

each case. The search keys used were: name of the company, name of the host country,

geographical location of the operation and personnel. The primary search was restricted

to the companies web sites (www.nokia.com and www.storaenso.com) for three years

around each operation (year of the operation ^ one year). These searches found a wide

range of press releases and articles (one to 295). An additional data search was conducted

as an open Google search by using the name of the foreign direct investment or divestment

location for three years around each operation (year of the operation^ one year). This phase

resulted in roughly 130,000 relevant hits (references). However, two of the cases accounted

for more than 99 per cent of the hits.

A step-wise cluster sampling procedure was applied when going through the internet

references resulting from each search. In those cases that resulted in a limited number of hits

all the internet material was scanned. In those cases that really had gained the interest of the

general public, resulting in masses of hits, the material was read in clusters of 30 references.

This method was chosen in order to keep the data as original as possible and include all

possible voices. Trying to limit the search with extra keywords would automatically have

meant also taking the risk of not only cutting the number of hits, but also the scope of the

discussion. The reading procedure was continued as long as additional references brought

out new aspects in the perceiving and evaluating of the case in question. At the point of

evident saturation scanning additional clusters of references was halted. Although

saturation in both factory closure cases was clearly achieved prior to the hundredth

reference, scanning was continued to take in 120 references.

The collected data were content analysed by using a twofold analysis procedure. The

rationale and reasoning for each operation is described as it was presented in the

companys published material and the press. This discourse is seen as representing the

managements point of view. On the first level of analysis these decisions were placed

against the companys competitive strategy, HRM policy, CSR policy and financial

performance figures as published on their web sites. On the second level of analysis the

reasoning was placed against the reactions of the employees and labour union


representatives (internal stakeholders) who were interviewed by newspapers and

periodicals or the reactions which were written up in newspapers opinion sections or in

social media e.g. chat channels. Similarly the reactions of the general public (external

stakeholder groups) were included in the data as external opinion leaders can provoke

boycotts or adversely affect the sales of a company.

The interpretation of the reactions of the companies personnel and the general public to the

operations and any HR-related actions resulting from them, as well as the evaluation of the

general attitude concerning the acceptability of the operations are based on:

B the amount of articles published;

B the general tone of those articles; and

B the way the operations were dealt with in the media.

4. Case descriptions

Stora Ensos cases

The first two cases come from Swedish-Finnish owned Stora Enso Ltd. Stora Enso is an

integrated paper, packaging and forest products company that produces newsprint,

magazine paper, fine paper, consumer board, industrial packaging and wood products.

Stora Ensos sales totalled EUR 11.8 billion in 2007. Its annual production capacity is 13.1

million tonnes of paper and board and 7.5 million cubic metres of sawn wood products. The

Group has 36,000 employees in more than 40 countries on five continents.

Case 1: Conquering the Americas by acquiring Consolidated Papers Inc. Stora Enso is a

relatively young company, which was formed by the merger of Swedish Stora Ltd. and

Finnish Enso Gutzeit Ltd, both are majority owned by the state and have roots going back

more than 100 years. After the merger the new company was listed on the Helsinki and

Stockholm stock exchanges and neither state had more than a 50 per cent ownership.

Competition for market share made Stora Enso expand into North America. In 2000 it

acquired Consolidated Papers Inc. in the USA and became the world leader in paper and

board production. However, the price was 4.9 billion euros, out of which the value of goodwill

was estimated to be 2.8 billion euros. The CEO of the company commented on the

acquisition as the first major step towards the successful execution of a North American

strategy and described Consolidated Papers as being an ideal strategic fit for our

business. The marketing outlook of the company seemed especially promising due to

Consolidated Papers having a century old good reputation, outstanding customer relations

and synergies in its sales network. Thus shareholders were reassured of the value of the

company. The data search for this case resulted in 29 press releases on the company web

pages and 28,000 hits in the open Google search. However, when the year of the operation

was used as an extra search criterion for relevance the number of hits decreased to 97.

The rationality of the investment was, however, questioned every now and then.

Organizational changes in the North American organization and management took place

one after another and investment did not appear to bring about the synergies that had been

anticipated. In 2003 Stora Enso introduced a profit enhancement programme which meant a

12 per cent reduction of personnel over two years. After merging the North American

operations in 2005 the separate presentation of their financial performance ceased and

voices critical of the acquisition were silenced. However, when restructuring in Europe

began the critics were roused again and claimed that the real cause of the financial plight in

the company at that time was the CEOs overly expensive odyssey in the USA.

Case 2: expansion in China. In the beginning of the first decade of the twenty-first century it

had become apparent that the paper industry was facing severe financial challenges in

Europe and North America. Production costs were rising too high due to too heavy a cost

structure, a shortage of raw materials and continuous price increases for energy. Workers

unions were repeatedly demanding and striking for salary increases to already high salaries

and old production technology at some sites needed replacing. All these factors


unavoidably shifted the weight of production to growing markets in under-developed and

transitional economies. Serving business-to-business customers Stora Ensos strategy was

to focus more and more on the growing markets in China, Latin America and Russia. In 2005

a labour dispute concerning a refusal to work over the Christmas and Midsummer holidays

and an illegal strike against labour cuts kept Finnish paper factories shut for more than six

weeks. The effects of the labour dispute were estimated to have reduced operating profit by

EUR 40 million. In addition, some 100,000 tons of lost paper and board production meant

severe disruptions to deliveries to customers and thus injured the future sales of the

company as well as those of its partners in the logistics industry.

Coincidentally or not, in October 2005 Stora Enso informed stakeholders and employees via

a newsletter of the beginning of Profit 2007 and an Asset Performance Review in order to

cut costs and improve competitiveness in Europe, where it was suffering from poor

profitability due to rising input costs, structural overcapacity and increased competition from

low-cost regions. The subsequent closing down of four mills with the poorest profitability, and

divestments in ten others were anticipated to mean personnel cuts of 2,000 to 2,300 people

in Europe (Stora Enso Financial News, 2005). The list of factories concerned was released

simultaneously (in Finland only the Varkaus factory was to be closed, while the Pankakoski

and Veitsiluoto mills were said to be facing divestments and Summa was put under scrutiny).

In the same newsletter a planned new establishment in China was mentioned for the first

time and this information was released as a corner article. The total number of company

press releases came to nine and the number of internet references 284. Through the joint

venture company with Fosham Huaxin Packaging Co. Stora Enso aimed at becoming the

first producer of liquid packaging board for aseptic end uses in China. This meant, however,

changing the scope of the investment by modifying the machine to manufacture

primary-fibre-based products such as liquid packaging boards, cupstock, cigarette

boards and other carton boards at an estimated additional cost of USD90 million.

On 24 October 2007 Stora Enso announced its intention to permanently close down the

Summa Paper Mill and one magazine paper machine at Anjala Mill, and pulp mills at

Kemijarvi and Norrsundet. The number of personnel affected by these planned mill closures

was supposed to total about 1,100 to 1,400 employees in Finland and about 300 in Sweden.

This news was received with shock in the Kemijarvi region because in the previously

mentioned profitability improvement plan the Kemijarvi mill was not listed at all, not even

amongst the mills under scrutiny. It was noted that even the co-determination negotiations

with the personnel at Kemijarvi that were held during the summer of 2007, due to a wood

shortage, had concerned only a two week layoff. The name of the mill as one of those to be

closed down only came up when the decision had already been made.

Closing down the Kemijarvi mill provoked anger and resulted in a huge debate with

exceptional media publicity in Finland. Having previously hardly commented on the

expansion into China, the media now brought the Asian strategy into the headlines

portraying it as an unethical act and a betrayal of committed employees. The number of

press releases, management interviews and other commentaries amounted to 295 and the

number of hits in the open Google search was as high as 69,000. Transferring jobs from

factories in good economic shape to low-cost countries was labelled by citizens and

politicians as an act that was designed only to satisfy greedy owners. The Finnish

government was asked to renew its ownership policy and to use its power for strategic

guidance. Even the President of the Republic in her opening speech to Parliament accused

the Government of a poor ownership policy and of letting employees down. Strong demands

were made for the government and Stora Enso to support employment in that area. A

Kemijarvi movement insisted on taking over the factory and continuing its production. Stora

Enso refused, but offered financial help to create new businesses in its place. An

understanding of Stora Ensos actions was shown by representatives in the paper industry.

The Nokia cases

Nokia is a multinational company whose head office is located in Finland. Nokias research

and development (R&D), production, sales and marketing activities are situated around the


world. It is a company that relies heavily on R&D and is the worlds leading manufacturer of

mobile phones, and is a leader in the making of mobile networks. In 2007 Nokias turnover

topped EUR 51,058 million and it had 112,262 employees. The following two cases are

closely linked.

Case 3: Establishing a factory in Bochum. One of Nokias systematic strategies has been to

broaden its manufacturing network in accordance with the rise of new markets in developing

economies. By the end of the 1990s it had already been either number one or two in the

European market for mobile phones. In order to keep that market position it had established,

in 1993, a factory (which initially made televisions) in Bochum, a small town situated in the

Ruhr area of Germany. The company was performing well and making a profit and it had,

approximately, a 50 per cent share of the German market for colour televisions.

In the mid-1990s Nokia renewed its strategy. Instead of continuing with the conglomerate

strategy it separated its operations into three branches. This meant that specialising and the

tight control of costs were now considered to form the base of future competitiveness. The

streamlining of Nokias businesses into three (communication products, mobile phones and

telecommunications) meant the end of television manufacturing in Bochum when that was

sold to Samtec Ltd and transferred to Finland (Laitinen and Leppanen, 2001).

In the recession of the 1990s, Bochum, which was heavily dependent on a few large

industrial employers, including Nokia, suffered from a sharp economic downturn and severe

unemployment rates. At least some feelings of guilt must have been felt by Nokia when they

closed the television factory and worsened the unemployment rate in Bochum.

In order to attract foreign companies to invest in factories in Bochum special tax benefits and

direct state subsidies, for some years after the start-up of a business, were granted to

companies and in return the company had an obligation to employ local people. All the

above factors influenced the decision for Nokias next foreign direct investment (FDI) in

Europe. Soon after the withdrawal from Bochum, a decision was made to restart production

at the Bochum site. Meanwhile Bochum was used as delivery centre for Europe. Having

returned Nokia wanted to fulfil its social responsibility aims and participated in communal

charity programmes e.g. The Youth Program. In 1998 the production of Nokia mobile

phones began in Bochum. With this FDI the accumulated sum of investments at the site rose

by up to EUR 350 million and by 2008 the company employed 2,300 workers.

Entering Bochum, in 1993, had coincided with Nokias contemporary strategic period of

rapid but balanced growth and was aimed at winning German markets. Although selling the

television manufacturing business and the subsequent transferring of production to Finland

in 1996 was a disaster for Bochum, it was in line with the renewed strategy and vision to be a

leading company in telecommunications industry in Europe and to be present in growing

markets.

As similar small-scale moves were made one after another, it was not surprising that there

were only a few headlines about Nokia in Bochum. The same applies to the subsequent

phases of first divesting and then reinvesting in the Bochum factory as there was not really

anything surprising or emotional in that decision, the external stakeholders simply were not

very interested in Nokias activities in Bochum. Hardly more than a handful of small corner

articles and one official press release by Nokia mentioned this case. It appears that

criticising Nokia was not the done thing as this would have been criticising a goose laying

golden eggs, which was especially true in Finland, where it was the saviour of the

economy. Therefore, all that was printed was in favour of Nokias international operations.

Case 4: establishing a factory in Jucu closing down the Bochum factory. On 15 January

2008 Nokia really hit the headlines in a press release about their plan to close the Bochum

site in Germany and transfer manufacturing to more cost-competitive sites in Europe. As the

stakeholder reactions were exceptionally negative and the divestment decision was widely

debated, the company was forced to justify it in subsequent press releases. The data search

resulted in 36 press releases or interviews that were given by Nokia management. The

response of the general public was correspondingly immense. An internet search resulted in

59,000 Bochum-related references. The establishment of a factory in Romania, however,


was barely mentioned in all of the articles and opinion sections of the various media. Even

the location of the new site remained more or less unknown. Instead the headlines were filled

with the closure of the site in Bochum that was estimated to affect approximately 2,300 Nokia

employees. The executive vice president of Nokia and chairman of the Supervisory Board of

Nokia GmbH commented on the decision at the information meeting in Germany as follows:

The planned closure of the Bochum production site is necessary to secure Nokias long-term

competitiveness. Due to market changes and increasing requirements for cost-effectiveness,

production of mobile devices in Germany is no longer feasible for Nokia. It cannot be operated in

a way that meets the requirements for global cost efficiency and for flexible capacity growth.

Therefore we have to make this tough decision.

Immediately after Nokias announcement a mass movement against Nokia emerged in

Germany and Nokia phones were boycotted and a huge demonstration was arranged

against Nokia in Bochum on 22 January. Two days later Nokia announced a record result and

Nokias president and CEO apologised for Nokias actions to the Germans. At the end of

January, the European metal workers union planned to start industrial action against Nokia

and in Germany the union IG Metall was convinced that Nokia must be made to pay, if it was

to close the factory. Nokia was required to pay back the state subsidies that had made it set

up a factory in Germany and stay in Bochum ten years longer than was first planned. Even

chancellor Angela Merkel took a stand by accusing Nokia of caravan capitalism.

Negotiations with the Northeim-Westfalen federation administrative heads were held for

several months and finally a costly support package was agreed. Nokia paid EUR 200

million compensation to those people who were left unemployed and EUR 1.3 million to the

federation responsible for attracting international investors to Bochum. The federation also

put EUR 20 million into the support package aimed at preventing the slow economic decline

of the area. Nokia did this in spite of the fact that it had fulfilled its obligation to create and

maintain jobs. It admitted that it had not informed workers clearly or early enough that the

closure of the factory was imminent and therefore it took responsibility for the employees.

According to the companys own accounts the result of Q2/2008 contained EUR 259 million

of charges related to closure of the Bochum site in Germany.

Nevertheless, eventually another point of view also emerged. Numerous comments and

articles were written that did not blame Nokia, but accused Germany and its chancellor of

having double standards. This was expressed in the media in the following words:

It is certainly normal for local and even regional politicians to try to stop a decision like Nokias

they need such kind of actions in front of their own constituencies. Never mind that from an

economists point of view, Nokias move from Bochum to the small Transylvanian village Jucu

makes sense: Romanian employees cost ten times less than German ones.

5. Findings

Both of the case companies have been considered to be good employers in Finland while

being market leaders worldwide. Having invested in people by offering a wide sphere of

professional training, competitive pay, secure jobs and international careers, they are

considered as forerunners of sophisticated HRM. However, because of the operations

described above the employer image of both MNCs suffered badly and they were accused

of breaking their promises and not bearing any social responsibility (Vihma, 2008). As almost

all of the internet references that were found concerned the closures and hardly any attention

was paid to the establishment or restarting of production, the result of the study states that

the closing down a factory is the one strategic move that will stir the emotions of the general

public and result in protest against a company.

The examination of the companies logic of operations revealed that they were more or less

systematically following their business strategies and published SHRM principles. Neither

can they be blamed for breaking promises to their personnel, nor of violating the social

responsibility principles stated accordingly. In the Stora Enso cases this is manifested as

follows. Stora Ensos principles for CSR address concrete questions related to human rights,

business practices, communications and community involvement. Equality, safety, working


conditions and child labour are examples of topics covered by the principles. The principles

focus on the social and socioeconomic aspects of responsibility. Like other paper

companies in Finland it has a long record of local social responsibility from the time when

many communities developed around the saw mills or paper mills of its predecessor Enso

Gutzeit. During that time a patriarchal attitude was developed by the mill owners that created

a relational psychological bond (contract) with employees and their families. Not only did

they try to ensure employment, but they also took care of their employees welfare and the

schooling of their children. However, gradual changes to the psychological contract were

expressed by the CEO of the company in 2001:

[. . .] today one must also consider responsibility at the global level. At a time of intensifying

consolidation, responsibility in all operations is the way to prepare for a truly global presence [. . .]

Updating quality management systems and monitoring and reporting performance in social and

socioeconomic areas are examples of actions to be taken.

Withdrawing from Europe and transferring production into the target areas was logical. It

was announced in time, but mistakes were made by not following the plan. Changes were

made due to the challenges of maintaining profitability and the potential future threats that

could come from the Russian state, which had recently introduced import taxes for raw

wood. Stora Enso also aimed to achieve responsible HRM by offering new jobs to highly

educated experts and those employees who were willing to retrain and specialise in areas

where operations were to be continued.

The guideline for Nokia is to ensure that all company principles are in harmony with the

companys vision and values. The leadership is attuned to creating a challenging but

rewarding work environment, having a clear vision and demanding targets that encourage

people to give their best. Even though providing a platform for personal growth through

value-based leadership for every employee is the policy (with regard to local

circumstances), nothing comes for free. Cost-awareness is also one of the guiding

principles and Nokia follows the performance level of each unit and employee thoroughly.

Nokias HRM policy can be characterised as tailor-made integration all around the world,

as Nokia trusts in shared management principles that help people to achieve more by

working together. When it adapts its HRM to a local context, such as pay level and local

cultural leadership styles, there are universal ethical principles (e.g. not accepting the use of

child labour) that are never ignored.

In the Bochum and Jucu operations Nokia systematically followed its strategy and HRM

principles. The attitude toward Nokias social responsibility, however, altered according to

the effects of each action. The results of the study indicate that exactly the same strategy that

had taken Nokia to Bochum was later on interpreted by the same society as caravan

capitalism and the mere exploitation of the community. It is natural that in the area of the

closed factory attitudes are very negative. However, general opinion soon became neutral

and the rationale behind Nokias actions was understood and presented in the media.

Having openly admitted that it had made mistakes and humbly paid quite generous

compensation Nokia finally emerged with its reputation restored and criticism turned against

Germanys political leaders. This was demonstrated in the media as follows:

[. . .] Europes biggest economy, loves to outsource some of its industries to the much cheaper

Eastern European countries. Its half socialist, half conservative and free trade supporting

government allegedly understands the importance of freedom. Freedom of movement, freedom

of investing, freedom of relocating. Beautiful principles, as long as they dont affect German

workers.

Germany itself, having persuaded Nokia to stay by offering subsidies, did not see the double

standards of its own behaviour, let alone the fact that it was acting against the free movement

of finances and labour within the EU. This example reveals that socially responsible

behaviour is often in the eye of the beholder and solidarity ends at national borders.

Although the cases have many similarities, the context in which the decisions were made

and the consequences they had, are totally different. The criticising of a company not only

results from the unethical behaviour of a company, it can also be the result of the double


standards of stakeholders that are influenced by a decision. This was shown when the heads

of the nations become involved in both cases in a questionable way and demonstrated

political double standards. In both cases public opinion turned against the companies partly

due to their lack of information prior to the decisions being made public and the poor ways in

they disseminated information to workers. It seems that the companies decisions as such

were not unethical, but their implementation of them failed to live up to a high standard. In

addition, the international HRM strategies in the companies differed remarkably and so did

their outcomes not only with regard to how the companies signalled social responsibility, or

the lack of it, but also with regard to how the people and regions affected reacted to those

signals.

6. Discussion and conclusions

The purpose of this case study was to examine the meaning of socially responsible HRM in

the global business context and to recognise the multiple aspects that affect the evaluation

of social responsibility from the HRM point of view. First of all, the study supports Dercks

(2001) notion by stressing that the costs and consequences of unethical behaviour can not

be overlooked when aiming to maintain the image of a socially responsible company in the

global context. This has been witnessed several times lately when western companies, who

have exported jobs, have shown that under the global pressures of competition any HRM

philosophy de facto turns hard (Legge, 2005). Although the companies had originally aimed

at soft HRM and invested in human resources in order to maintain international

competitiveness via continuous improvement, at a certain point structural changes can no

longer be avoided if productivity improvement fails. Consequently, even profitable

companies might not be competitive enough to keep all their present production sites

and will need to look elsewhere for savings on labour costs.

As productivity is always relational, the least profitable units will be the first ones to be

closed. Although the company might then actually be keeping the promises it has made by

showing that the transactional contract (see Rousseau, 1995) holds and jobs can be

maintained only as long as mutual utility prevails, acting according to the transactional

contract feels unethical. A negative effect thus seems unavoidable, particularly so in the

international labour market where employees solidarity towards their fellow workers at their

companys other production sites ends, if not in their own backyard, at least at the national

border. Thus, this study suggests that ethicality and responsibility are extremely relational

concepts when examined from the HRM perspective (Legge, 2000). This is because the

evaluations not only depend on context and on other stakeholders actions but first and

foremost reflect each stakeholder groups own perspectives. Despite the multiple

stakeholders involved, social responsibility is perceived and evaluated from a very

subjective point of view.

Prior research has suggested that the direct transferability of home country HRM to host

countries is almost impossible because they rarely fit due to cultural norms and expectations

regarding leader and subordinate behaviour (Brodbeck et al., 2000). For example, soft HRM

policies and worker participation cannot be applied in the Far East due to its extremely

hierarchical and autocratic leadership culture (Glover and Wilkinson, 2007). However, it is

possible to follow the general ethical and quality principles of a company. Even in cases of

reasonable fit, direct transferability might, despite good intentions, produce an almost

contradictory outcome. For example, work safety can be endangered if written safety

instructions, no matter how detailed and well translated, are introduced at a production site

with a high number of illiterate workers.

On the other hand, even transferring only the best of the home countrys HRM practices,

albeit those which fit local culture, and tailoring the rest to meet local needs, might have a

negative effect on a companys image and market demand. The majority of the public is not

interested in a companys operations in its host countries but is interested about the transfer

of jobs there. Therefore, a company is likely to be blamed for unethical behaviour and the

breaking of a psychological contract with the home countrys employees. This is especially


true if, simultaneously, cuts and layoffs are made in the home countrys personnel (Robinson

and Rousseau, 1994; Anderson and Schalk, 1998).

Overall, this study suggests that any international operation brings significant challenges in

terms of HRM integration and industrial relations (IR). One reason for this is the ambiguity of

IHRM. It is evident that integrating HRM according to a host countrys practices is unlikely to

prove responsible, if the benefit from lower employment costs and looser employment

regulations for improving cost-efficiency is the rationale behind the operation. However,

transferring jobs might break a psychological contract with existing employees and

subsequently put a black mark on a companys image regarding social responsibility and

negatively affect the companys market position as well. Public opinion concerning the moral

evaluation of an operation seems to be far more influenced by its consequences to

employment domestically rather than by the ethicality of the working conditions and terms of

employment in foreign subsidiaries. This emphasises the importance of understanding the

contextual nature of socially responsible HRM and the influence of each stakeholders point

of view on the interpretation of an outcome. Consequently, instead of looking to balance

global integration and local responsiveness companies should look to balance profitability

and responsibility.

Decisions on international operations cannot be made without there being solid reasoning

behind a decision. From the top management perspective structural changes and the

outsourcing of work to low-cost countries are the unavoidable consequences of the

globalisation of business. To assure owners and potential investors of the rationale behind

the decisions a CEOs reasoning will be rooted in strategic management rhetoric and refer to

improved competitiveness in the global market that will allow a company to anticipate

continuous profit increases every three months. The HR function, in turn, has internalised

modern HRM rhetoric, whereas their counterparts, e.g. union representatives, stick to IR

rhetoric. The media, local politicians and general public utilise CSR rhetoric when

demanding companies secure local employment.

Despite the fact that top management as an organizational agent has communicated the

changing nature of the psychological contract through strategic rhetoric, the general public

has refused to accept the message. Instead, it has read between the lines and generally

believed that companies CSR principles and statements cover employees as well. The HR

function, in turn, has focused on employee commitment in its rhetoric and has therefore

given an impression of prevailing employment security. Consequently, the rhetoric used by

top management and the HR function are in conflict. As was mentioned before, employees,

the general public and the media, similarly to other stakeholder groups, tend to interpret

business communications solely from their own perspective, and in a way that is as

favourable as possible for them. Therefore, it is no wonder that the differing groups ideas do

not conform and that there is distance between them on such issues as those presented

above.

It seems that distance between the different types of rhetoric is difficult to avoid. The failures

to build an understanding on the issues described above were, first and foremost, due to the

media not recognising the inevitable distance between the companies rhetoric and

employee expectations. On the other hand, the unrealistic expectations held by employees

are understandable because HR and IR rhetoric typically implies that a lifelong contract is

possible, although the language used by top management does not confirm that. Therefore,

it is integral to distinguish deceit from misunderstanding, when the responsibility for

business operations is evaluated. In other words, the distance between personnels

expectations and companies strategic moves will not disappear until a willingness to

internalise ones counterparts rhetoric is accepted. Thus, in order to find out the actual

sources of the conflict described above, future studies should concentrate on analysing the

rhetoric used by the different parties involved.

With regard to the evaluation of the study and the reliability of the data, it should be kept in

mind that this study was largely data-driven. The aim was to deliver a picture of the time

period the events occurred in and describe the immediate reactions of the different


stakeholders. Thus, topicality was the number one criterion when the data was collected,

and this determined the reliability of the data as well. Although the four cases examined in

this study do not allow for empirical generalisations, they can serve as rich material for the

discussion and illustration of the issues surrounding the differences between the rhetoric

used by those managing MNCs and the rhetoric used by HR functions and IR

representatives.

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About the authors

Satu Lahteenmaki is a Professor in Management and Organization and Director of TurkuSchool of Economics, Turku, Finland. She specializes in HRM, leadership psychology andvirtual working contexts. She has published books and articles on the strategic issues ofHRM, flexibility, career management, age management, virtual organizations, leadershipand organizational learning. She lectures on leadership training programs at leading Finnishcompanies and is also visiting professor at Johannes Kepler University in Linz, Austria. Sheis currently on the board of two listed companies in Finland. Satu Lahteenmaki is thecorresponding author and can be contacted at: [email protected]

Maarit Laiho is a Post-doctoral Researcher of Management and Organization in theDepartment of Management at the Turku School of Economics, Turku, Finland. She receivedher DSc (Econ. & Bus. Adm.) from Turku School of Economics. Her research interests focuson strategic HRM, international HRM, and organizational behaviour.


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