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.
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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
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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
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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
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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,
VOL. 7 NO. 2 2011 jSOCIAL RESPONSIBILITY JOURNALj PAGE 173
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
PAGE 174 jSOCIAL RESPONSIBILITY JOURNALj VOL. 7 NO. 2 2011
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
VOL. 7 NO. 2 2011 jSOCIAL RESPONSIBILITY JOURNALj PAGE 175
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
PAGE 176 jSOCIAL RESPONSIBILITY JOURNALj VOL. 7 NO. 2 2011
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
VOL. 7 NO. 2 2011 jSOCIAL RESPONSIBILITY JOURNALj PAGE 177
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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