Who is in Charge Here? Evidence of the Division of Roles and Responsibilities between

Global and Local HR Managers in MNEs Operating in the CEE Region

EXECUTIVE SUMMARYThis paper focuses on the roles and responsibilities of HR managers in multinational

enterprises (MNEs) in the region of Central and Eastern Europe (CEE). The authors analysed

705 questionnaires completed by foreign owned subsidiaries operating in five countries

(Hungary, Poland, Romania, Serbia and Slovakia in three rounds of surveys (from 2009,

2011 and 2015).

The findings show that both the culture of the MNEs mother country and the host country,

but also the research and development mandate influence the HR control relationship

between the headquarters and the subsidiary. Furthermore, the decentralization of the HR-

related tasks at subsidiary level is influenced by the culture of the headquarters, the business

sector, the mode of market entry, the size of the subsidiary, and the importance of the HR

executive knowledge.

The paper concludes with a series of observations and outlines how practitioners may gain

from the results of this study.

Keywords: Multinational human resource practices, Central-Eastern Europe

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Introduction

A long term area of interest in international human resource management (IHRM) has to do

with comparative or cross cultural issues in managing people. How do complex historical,

cultural, institutional and georgraphic factors impact the institutional heritage of firms in a

nation or a region (Brewster, Mayrhofer & Farndale 2017)? Central and Eastern Europe,

characterized by relatively recent discontinuous political, social and economic changes,

provides an excellent platform for comparative IHRM analysis (Morely, Heraty &

Michailova 2007).

A second major area of interest in IHRM is the form, intention and action of multinational

enterprises (MNEs). In order to facilitate stable, sustainable economic development one has

to be able to comprehend the business logic of MNEs (Brewster, Mayrhofer & Smale 2016;

Dowling, Festing & Engle 2017, particularly chapter 3).

The relationship between MNEs and their subsidiaries and how the two parties share roles

and accountability has become increasingly important and relations between headquarters and

subsidiaries have been intensively studied over the last few years. For example: value

congruence between headquarters and subsidiaries (Reiche, Harzing & Pudelko 2015), the

criticality of balancing the local perspective with the global perspective (Smale et al. 2015),

the complexities of knowledge transfers within dispersed MNEs (Morris, Hammond & Snell

2014), as well as the ways and extents resources, mandates and roles are granted to

subsidiaries (Belizon, Gunnigle & Morley 2013; Schmid, Dzedek & Lehrer 2014) are topics

of ongoing interest and attention.

The role played by subsidiaries in this relationship had increased over time (Huang 2011),

impacting their own performance and the competitiveness of the headquarters. O’Donnell

(2000) emphasizes the significant level of management know-how of the subsidiaries, which

triggers the dynamics of the relationship between the origin and the host entities. Subsidiaries

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attempt to gain importance by expanding their mandates to supra-national (regional or even

global) level, by demonstrating their capabilities and competencies to the corporate HQ

(Bartlett & Beamish 2014; Schmid, Dzedek & Lehrer 2014).

In our paper we assess the roles and responsibilities for HR policies, practices and decision

making by the local subsidiary HR staff. Following the institutional theoretical framework

(Davis & North 1970), the aim of the paper is to explore how the roles and accountability for

the various HR processes are shared between the HR corporate center and the local HR unit,

by identifying the factors that influence the control relationship role of the headquarter over

the subsidiary HR, and the level of centralization in the decision making process for the HR

function at the subsidiary level.

Literature review

Factors influencing the autonomy of the subsidiary in relation to the headquarter as

regards human resources management decisions and practices

The autonomy of the subsidiary can be viewed as "the extent to which the subsidiary acts as a

policy-making ‘authority’" (Belizon, Gunnigle & Morley 2013) or "the degree of freedom

enjoyed" and "the extent of discretion" granted to the subsidiary (Edwards et al. 2007).

Taylor, Beechler & Napier (1996) identified three basic systems of relations between the

subsidiaries and the parent company: (1) the exportive system of relations (subsidiaries adopt

HR systems developed in the parent company without changes; (2) the adaptive system of

relations (HR systems developed in the parent company are adapted by subsidiaries to their

local needs); and (3) the integrative system of relations, which encourage the implementation

of good and applicable HR solutions all over the company, regardless of their origin.

Drahokoupil (2014) identified five theoretical perspectives adopted by researchers dealing

with decision-making in multinational companies: the resource-based view of the firm, the

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transaction cost model, the institutionalist, the actor-centred, and the network-based

approaches.

Recent research had identified several factors influencing the relationship between

headquarters and subsidiaries as regards human resources management decisions and

practices.

Gunnigle et al. (2015) emphasize the importance of the interaction between macro-

institutional and firm-level factors, while Fenton-O’Creevy, Gooderham and Nordhaug

(2008) state that both strategic and institutional context are important determinants of

subsidiary autonomy and can influence the level of centralization.

Regarding subsidiary characteristics, the sector of operations has been considered an

important factor of influence by several authors (Gunnigle et al. 2015; Lamare et al. 2013;

Menz, Kunisch & Collis 2015; Belizon, Gunnigle & Morley 2013; Fenton-O'Creevy,

Gooderham & Nordhaug 2008), some of them mentioning that manufacturing MNEs are

more likely to afford higher levels of autonomy to their subsidiaries (Gunnigle et al. 2015).

This can be explained, among others, with the higher level of unionisation of manufacturing

companies, as the level of unionisation was also found relevant for subsidiary autonomy

(Fenton-O'Creevy, Gooderham & Nordhaug 2008, Menz, Kunisch & Collis 2015;

Drahokoupil 2014; Gunnigle et al. 2015; Lamare et al. 2013).

Some factors of influence are related to company demography, such as the entry mode (the

establishment of new sites is significantly associated with lower levels of subsidiary

autonomy) (Ferner et al. 2004; Gunnigle et al. 2015), the age of the subsidiary (Edwards et al.

2007; Ferner et al. 2004; Belizon, Gunnigle & Morley 2013; Fenton-O’Creevy, Gooderham

& Nordhaug, 2008), also referred as maturity by Menz, Kunisch and Collis (2015) or well-

establishment by Edwards et al. (2007), and the size of the subsidiary (Belizon, Gunnigle &

Morley 2013; Edwards et al. 2007; Fenton-O’Creevy, Gooderham & Nordhaug, 2008; Menz,

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Kunisch & Collis 2015; Ferner et al. 2004).

The importance of the subsidiary for the overall firm can also influence the degree of

freedom enjoyed by the subsidiary in HR matters (Menz, Kunisch & Collis 2015), generally

in a negative way: more important the operation of the subsidiary is for the multinational

company, more control is exerted over it. Ferner et al. (2004) refer to this aspect as "the

degree of international integration of operation" and "the importance of the subsidiary for the

parent’s overall performance", Belizon, Gunnigle and Morley (2013) present "the

responsibility for global mandates of the subsidiary", while Fenton-O’Creevy, Gooderham

and Nordhaug (2008) point out that subsidiaries serving international markets get more

control than those serving only domestic markets.

The presence of a mandate to perform R&D activities has also been mentioned as factor of

influence (Edwards et al. 2007; Belizon, Gunnigle & Morley 2013), as well as product or

service diversification (Gunnigle et al. 2015; Lamare et al. 2013) and corporate

innovativeness (Williams & van Triest 2009).

Positive correlation between the strength of subsidiary capabilities and the level of subsidiary

autonomy in industrial relations has been found (Gunnigle et al. 2015).

Other factors, as the presence of parent-country nationals in management positions of the

subsidiary (Edwards et al. 2007), and geographic context (Menz, Kunisch & Collis 2015) can

also have an impact on the level of autonomy granted to the subsidiaries.

Both home country (country of origin, where the headquarter is established) and host country

(where the subsidiary operates) characteristics related to cultural, economic, legal and

institutional environment have been identified as being influential for the autonomy level of

the subsidiary (Edwards et al., 2007; Ferner et al. 2004; Williams & van Triest 2009; Fenton-

O’Creevy, Gooderham & Nordhaug 2008; Gunnigle et al. 2015; Drahokoupil 2014).

The institutional context of the country of origin strongly influence the control mechanisms

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exerted by the MNEs (Ferner 1997), having an impact on the strategies, the decision making,

and the practices implemented by organizations, and consequently, the relationships between

the headquarters and subsidiary. Peng (2000) explains the variation of the strategic decisions

of similar organizations in different countries, by considering the institutions as an

independent factor that impacts the strategic choices and the corporate control mechanisms.

National traditions and local market backgrounds influence companies approach of managing

foreign subsidiaries (Dowling, Festing & Engle 2017). The subsidiary may follow the HRM

practice adopted by the parent company because that is perceived as a global best practice

(dominance effect).

The culture followed by the parent company’s management is also a significant explanatory

variable and may also be worth repeating; specifically, the ethno-, poly-, region- or

geocentric cultural typology (Perlmutter 1969). MNEs strongly embedded in the local

economy are more likely to grant a greater autonomy to their subsidiaries (Gunnigle et al.

2015).

Devolution of HR tasks towards line managers at subsidiary level

Literature suggests that human resource management (HRM) roles and responsibilities of

line managers are increasing (Gooderham et al. 2015; Andolšek & Štebe 2005; Perry &

Kulik 2008; Mathis, Jackson & Valentine 2014; Larsen & Brewster 2003; Maxwell &

Watson 2006; Purcell & Hutchinson 2006; Ulrich & Brockbank 2005). Sometimes line

managers are satisfied with the HR activities devoted to them and are working closely with their

HR counterparts (Whittaker & Marchington 2003), but the relationship between line

managers and HR specialist can also be conflictual, as they have different competencies

and perspectives regarding business and HR-related issues (Maxwell & Watson 2006).

The extent to which HR issues are devoted to line managers varies from country to country

(Larsen & Brewster 2003; Andolšek & Štebe 2005; Gooderham et al. 2015), and may be

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influenced by organizational factors, such as HRM strategies and policies (Andolšek & Štebe

2005) and the power held by the HR function within the organization (Gooderham et al.

2015), as well as environmental factors, such as the economic sector (Andolšek & Štebe,

2005) and the the institutional, legal and cultural characteristics of the country (Andolšek &

Štebe, 2005; Gooderham et al. 2015).

Research design and approach to data analysis

In this paper we present the results of a longitudinal survey undertaken by the Central and

Eastern European International Research Team (CEEIRT), a consortium of academics

working in 12 countries, formed in 2009 to gather and disseminate research results focused

on the HR practices, issues and concerns particular to MNEs operating in the CEE region.

For our survey the same centrally planned questionnaire was used in all countries, being

translated from the English original into the language of the country involved. Most questions

asked the participating subsidiaries to provide information on the characteristics relevant for

2009, 2011 and 2015. We collected information about local survey providers and the

CEEIRT organization as well.

The responses were collected via interviews or web survey. In order to facilitate statistical

analysis, we used the same questionnaire during the personal interviews at the companies and

during the online survey. Data collection was carried out by researchers or consultants.

Except for the first survey (2009), there was no extra research funding. Each participating

country carried out research with its own resources. Some countries used a panel in their

countries to obtain feedback on your results. All responding organizations giving us their e-

mail addresses are entitled to get our regional report in English. Central control of collected

data was provided.

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This particular paper reports results from three rounds of questionnaire surveys carried out

between 2010 and 2016 in Hungary, Poland, Romania, Serbia, and Slovakia.

We analysed 705 questionnaires completed by foreign owned subsidiaries from five countries

for three reference years (Table 1). The number of companies involved is less than the

number of responses, as some companies participated in two or three rounds.

Table 1: Total sample of responsesReference year Hungary Poland Romania Serbia Slovakia Total

2009Responses (n) 74 87 16 20 22 219Percentages (%) 33.8 39.7 7.3 9.1 10.1 100.00

2011Responses (n) 118 53 34 19 30 254Percentages (%) 46.5 20.9 13.4 7.5 11.8 100.00

2015Responses (n) 90 57 37 31 17 232Percentages (%) 38.8 24.6 15.9 13.4 7.3 100.00

TotalResponses (n) 282 197 87 70 69 705Percentages (%) 40.0 27.9 12.3 9.9 9.8 100.00

Source: Authors’ own research

We used statistical methods to find out the main patterns of HR roles and responsibilities’

division between MNEs headquarters and their subsidiaries, and to explore which factors

influence the role of the corporate headquarter and of the line managers in the HR processes.

We run two regression models to identify: (1) the factors that influence the control of the

Head quarter over the subsidiary, and (2) the factors that influence the degree of autonomy of

the HR decision making at the subsidiary level (see Figure 1).

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Figure 1. Overview of the regression models

Source: Authors’ own design

The study focused on two dependent variables. The first dependent variable measured the

Headquarter control on the subsidiary, on a Likert scale from 1 to 4 (where 1 was the

Autonomy both in decision-makings and in implementation and 4 was the Centralized

decision-making with tight control). The second dependent variable measured the

Centralization of the decision making in the HR function at the subsidiary level, and was built

as a composite index of the average values of nine items measuring on a scale from 1 to 4 the

primary responsibility for the major policy decisions on the main HR functions: HR planning,

recruitment, selection, performance evaluation, training and development, compensation and

benefits, employee relations, communication, HRIS (Cronbach's Alpha 0.84).

The independent variables used in the study were the following:

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Subsidiary characteristics- mode of market entry (merger & acquisition, greenfield)- business sector (industry)- age- size (log number employees)- expatriate executives (ratio)- research-development mandate- knowledge focus

Contextual factors- host country- origin country culture- time of the survey

Roles at the subsidiary level- Centralization of the decision making in the HR function

at the subsidiary level

Role of the Headquarters- Headquarters control on the subsidiary

- the time of the survey, transformed as dummy variables, for each of the three waves of the

survey (2009, 2011, 2015);

- the culture of the headquarter, with six types of cultures, transformed in dummy variables

(South-European, Anglo-Saxon, Nordic, Eastern European, German, and Asian);

- the business sector, transformed in dummy variable: manufacturing and services;

- the age (transformed in dummy variable, established before 2000 and established in 2000 or

later);

- the mode of market entry (a dummy variable: greenfield and merger & acquisition);

- size of the subsidiary (measured as the logarithm of the total number of employees);

- the importance of the HR executive knowledge (built as a composite index of the average

values of six items measuring on a Likert scale from 1 to 4 the strength of the focus on the

following competencies: business knowledge (value chain, value creation), strategic

contribution (managing culture, championing changes, strategic decisions), personal

credibility (achieving results, effective relationships, communication skills), competencies in

HR services (recruitment, selection, training and development, performance management,

etc.), usage of HRIS, and foreign languages skills (Cronbach's Alpha was 0.65).

- expatriate executives (ratio of the expatriates in management positions transformed as

arcsin);

- research and development (the presence of a research and development mandate in the

subsidiary).

Key findings

In most of the cases (40.5%) the central HR provides general guidelines and the subsidiary

HR unit implements the actions within this framework (Table 2). For 22.1% of the

subsidiaries the headquarter grants them full authority in both decision making and

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implementation, while, 21.8% of the subsidiaries receive detailed HR models, policies,

procedures and rules. Some 7% of the respondents have centralized decision-making with

tight control. This descriptive distribution of HR role and accountability shows a tendency on

less centralized HR policies that allows the HR local unit to take responsibility on the HR

processes. The share of the companies providing detailed HR models, policies, procedures

and rules has decreased from 2011 to 2015.

Table 2: The primary role of the corporate headquarter in HR (percentages) 2009 2011 2015

Provide autonomy both in decision-makings and in implementation 23.0 19.8 27.8Provide general guidelines and framework for HR actions 43.4 44.1 38.7Provide detailed HR models, policies, procedures and rules 23.0 32.6 26.4Centralized decision-making with tight control 10.6 7.4 7.1Total 100.0 100.0 100.0

Source: Authors’ own research

In the first model, we ran a two-step regression, the dependent variable being the

headquarters control on the subsidiary. In the first step we entered the external factors (host

country, origin country culture, and the time wave of the survey), and in the second step the

characteristics of the subsidiary (business sector, age, mode of market entry, research-

development mandate, the size of the subsidiary, and the ratio of executive expatriates). The

model significantly predicts the control of the headquarters on the subsidiary (F = 1.89,

p<0.05), and accounts for 11% of the variance in the control.

The findings show that both the culture of the MNEs mother country and the host country, but

also the research and development mandate influence the control relationship between the

Head quarter and the subsidiary (Table 3). The MNEs originating in Anglo-Saxon cultures

exercise a stronger control over their subsidiaries from CEE countries. Also, the subsidiaries

from Romania and Serbia are stronger controlled by the Headquarter. The results show that

the subsidiaries that have a research-development mandate are under a stronger control

relationship by their headquarters.

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In the second model, we run a two-step regression with the dependent variable Centralization

of decision making in the HR function at the subsidiary level. In the first step we entered the

external factors (host country, origin country culture, and time of the survey), in the second

step the characteristics of the subsidiary (business sector, age, mode of market entry, the size

of the subsidiary, the headquarters control on the HR unit, and the focus on the key

competencies of HR managers). The model significantly predicts the control of the

headquarters on the subsidiary (F = 5.31, p<0.001), and accounts for 30% of the variance in

the decentralization of the decision making in the HR function at the subsidiary level.

The findings (Table 3) show that the decentralization in the decision making and

implementation at the subsidiary level is influenced by the following factors:

- the culture of the headquarters (South European is negatively related to the decentralization

at the subsidiary level);

- the business sector (the manufacturing industry of the subsidiaries is positively related with

decentralization);

- the mode of market entry (the merger and acquisition type of market entry is positively

related with decentralization);

- the size of the subsidiary (the size of the subsidiary is positively related with

decentralization)

- the importance of the HR executive knowledge (the stronger focus on competencies is

positively related with the decentralization);

- the control of the headquarters over the subsidiary (a stronger control is negatively related

with the decentralization level).

Table 3. Regression results

Independent VariablesModel 1

(dep.var. Control over the subsidiary)

Model 2(dep.var. Autonomy at the

subsidiary level)Step 1 Standardised β Standardised βWave 2 of the survey 0.06 -0.17**Wave 3 of the survey 0.16** -0.19**

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Culture Head quarter

South-European 0.20 -0.24*Anglo-Saxon 0.25** 0.04Nordic 0.09 -0.03Germanic 0.09 0.04Asian -0.08 0.12

Host countryHungary 0.15 0.12Serbia 0.18** 0.16*Poland 0.06 0.01Romania 0.19** -0.05

Model F 2.53** 2.59**R2 0.09 0.10Step 2 Wave 2 of the survey 0.09 -0.06Wave 3 of the survey 0.17** -0.08

Culture Head quarter

South-European 0.18 -0.28*Anglo-Saxon 0.26** -0.06Nordic 0.09 -0.11Germanic 0.11 -0.12Asian -0.05 0.04

Host countryHungary 0.14 0.03Serbia 0.19** 0.08Poland 0.06 -0.04Romania 0.20** -0.05

Subsidiary age 0.04 0.06Business sector -0.03 0.10*Mode of entry 0.03 0.16**Size (Log number employees) -0.05 0.21**Ratio executive expatriates (arcsin) 0.03 -0.07Research-development mandate 0.11*Control over the subsidiary -0.11*Focus on knowledge 0.24***Model F 1.89** 5.31***R2 0.11 0.30Change in R2 0.02 0.20Signif. codes: ***0.001, **0.05, *0.1

Conclusions

The authors want to begin by reinforcing that this is a preliminary analysis of what promises

to potentially be a rich data set. More analysis on the many other issues contained in the wide

ranging questionnaire are forthcoming. Given the limited scope of this report a series of

observations are in order.

First, the observer is struck by the relative stability of the findings from 2009 to 2011 to

2015. Perhaps this should not be surprising as six years may be a relatively short time span in

strategic terms and MNEs many not be particularly nimble, even in a region like CEE, a

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region that has seen so many changes in the last 30 years. Perhaps the region is “taking a

breath” after the exertions of the last several decades. The only real change reported relates to

a reduction (from 10.6% to 7.1% of respondents) in a tightly centralized form of HR policy

control (see Table 2).

Second, cross-cultural differences still count. On the sending side, Anglo-Saxon HQs exert

more control over subsidiaries in the CEE region. It is mere speculation at this point as to

whether this may be due to “cultural distance” (Black & Mendenhall 1990; Shenkar 2001), a

heritage from U.S./U.K. based Tayloristic precision (Koumparoulis and Vlachopoulioti 2012)

or the geographic – and potential psychological distance – between New York or London and

Warsaw or Bucharest. Interestingly Southern European based firms also appear to follow less

decentralized HR policies in the CEE – possibly for similar reasons. Further pursuit of this

line of findings is warranted.

Finally, “contextual settings” – that is business sector and subsidiary size as well as local HR

reputation show an effect. Larger manufacturing firms allow subsidiaries more authority and

control. At the same time, a MNE that emphasizes both HR competencies and concurrently

perceives local HR units to have these HR capabilities reflects increased patterns of

decentralization. How higher levels of this HQ demand meets a subsidiary supply of HR

capability is another area worthy of further investigation. These HR capabilities may be more

critical if and when the local firm has an enhanced subsidiary mandate for R&D activities.

We are not aware of any previous empirical research that shows a positive relationship

between R&D mandate and HR decentralization.

Implications for Practitioners

There is no substitute for an in depth understanding of doing business in a nation or a region.

Short cuts can be dangerous. Given that caveat, findings may be interpreted such that:

1. Differences across regions are not as great as one might expect. Only Romanian and

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Serbian operations show a tendency for increased centralization of HR activities.

National differences are not as pronounced as differences between HQ and local

culture and a series of institutional factors. This finding mitigates for a greater

standardization of activities in the region, although the authors admit this case is by

no means settled.

2. Many MNEs appear to be comfortable with a decentralized approach to HR practice

controls. In terms of Scullion and Starkey’s (2000) typology of HR practice

relationships in the U.K, most firms are either “decentralized” or in “transition” to

decentralization; very few are “centralized”.

3. Relationships appear to have settled down (at least from 2009 to 2015). The days

when the radical micro and macro level discontinuities required country chiefs,

regional executives and corporate managers to track events weekly or monthly may be

over for now. Regular assessment and recalibration are always a good thing, but the

pace of change may have slowed.

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