The Impact of Globalization On HRM: The Case of South Korea

Johngseok Bae Chris Rowley

Globalization can have far reaching implications for human resource management (HRM) and management practice in general. For some, globalization creates pressures for a common, often taken as best, transferable set of HRM practices that can spread around the world. These best practices are considered powerful enough to override existing systems. In contrast, others see national based HRM systems as more resilient, partly because of the systemic underpinnings of particular cultural and institutional milieu. Both views contain important implications and lessons. We outline these, a framework for viewing them and the case of HRM in South Korea to demonstrate the issues, contradictions and dilemmas and ways of thinking so that practitioners can make informed choices concerning HRM practices to develop competency enhancing HRM systems.

mportant impacts in the human resource management (HRM) area stem from globalization. With its perceived power to inuence, and even override, nationally specic HRM with the transfer of common, sometimes taken as best, HRM practices, globalization may result in convergence towards similar systems. Yet, continuing countervailing forces to
Johngseok Bae, Assistant Professor in Human Resource Management, School of Business, Hanyang University, Seoul, 133-791, Korea. Tel: 822-2290-1069; Fax: 82-2-2296-5893 jsbae@ hanyang.ac.kr. Chris Rowley, Senior Lecturer in HRM & Employee Relations, City University Business School, Frobisher Cresent, Barbican Centre, London EC2 8HB, U.K. Tel: 44-020-7477-8641; Fax: 44020-7477-8546 c.rowley@city.ac.uk.

such universalistic tendencies may keep HRM more nationally distinctive, not least those originating in cultural and institutional forces which underpin specic systems, including HRM. Some transferred practices may even be problematic in their results. This raises key issues: what causes convergence; what practices are best and are they best for all rms; and at what levels are they actually transferable? These form the focus of this paper over the following seven sections. First, the implications of globalization are dealt with, including forces for convergence and best practice issues - what they are, their impacts and ideas of benchmarking. Next, contingency ap-

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proaches and why universal tendencies may be restricted are noted. This is followed by a section on possible transfer of HRM in a more disaggregated fashion in terms of level, alignment and acceptance. A framework and the case of more traditional and newer aspects of South Korean1 HRM are then used to indicate the difculties, contradictions and dilemmas. The discussion section is followed by some implications and wider relevance and a conclusion. In short, globalizations universal-like tendencies in HRM do not wash unhindered across economies, but have to navigate the rocks of contingent variables. While these may not totally impede entry, they nevertheless moderate their progress and impacts.

IMPLICATIONS

OF

GLOBALIZATION

Globalizations impacts on HRM may come via the opening up and penetration of economies to external forces and inuences. This may be two-way, with both indigenous and foreign multinational enterprise (MNE) operations and investment leading to exposure to other countries HRM practices, greater publicity and even direct importation. Indicative of this was the attention from the 1980s given to Japan, with attempts to imitate their practices (as in Fords After Japan and Malaysias Look East campaigns) and the so-called Japanization of industries. Globalizations universalizing tendencies and implications can be located within work of long antecedence (e.g., Kerr et al., 1962) and more recent exponents (e.g., Peters & Waterman, 1982; Womack et

al., 1990). For management an implication is that there were universal truths, including in HRM, that could be applied everywhere. A central proposition is that because of political, economic, social and technological forces, now including globalization, there is a worldwide tendency for countries, and within them HRM, to become similar as the copying and transfer of practices, sometimes taken as best practices and linked to benchmarking, was encouraged. In short, HRM systems would converge. However, there may be reasons other than globalization (or earlier political, economic, social, and technological changes) for why and how convergence occurs. For instance, institutional theory may play a role. For Meyer and Rowan (1977) the formal structures of organizations reected institutional environments. Legitimacy can be gained through isomorphism with environmental institutions. DiMaggio and Powell (1983) suggested three mechanisms of institutional isomorphic change: rst, coercive isomorphism to gain legitimacy; second, mimetic isomorphism to avoid uncertainty; third, normative isomorphism, which stems primarily from professionalization. Thus, practices are adopted not because of effectiveness, but because of three specic social forces (McKinley et al., 1995). First, constraining forces, which shift as practices once viewed negatively become interpreted positively and gain legitimacy. This shift in social constraints subsequently encourages rms to conform to legitimate structures and management activities. Second, cloning forces, which pressurize rms to mimic
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the actions of leading companies in the face of uncertainty. A cloning force (associated with mimetic isomorphism), is promoted by conditions such as ambiguous performance standards, uncertain core technologies and frequent interaction between rms. Third, learning forces, which are shaped through processes in educational institutions and professional associations. Together these forces push rms to adopt institutional rules, which may then create pressures for convergence. Irrespective of causation, is it best practice that is transferred? One view of best practice (in employee relations) is . . . managing by behaving in a fair and reasonable manner. . . which . . . help to add value to the business (Gennard & Judge, 1999: 3). Yet, what does this involve? What is considered best practice is often subjective and variable between practitioners, authors, locations, sectors, and time. For instance, earlier examples of what we would now call best practice were subsequently repudiated. A classic would be collective bargaining in the U.K. The broad consensus, encouragement and belief it assisted employee relations and was integral to the good employer ethos pre-1979 were followed by an erosion of such views and support (Salamon, 2000). Some practices are taken as best on the basis of fashion or presence in what were viewed as model successful companies, some of which subsequently failed. Even within similar periods differences remain. For instance, several studies (Storey, 1992; Wood, 1995; Wood & Albanese, 1995), were distilled by Marchington and Wilkinson
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(1996) into clusters of best practice HRM but with only partial agreement over some practices. There is also debate on the ways that HRM may affect organizations. For the universal approach there is a set of best practices that have additive and generalizable effects on performance (see Appelbaum & Batt, 1994; Huselid, 1995). More cautiously, for Pfeffer (1994), other things being equal, utilization of best practice can lead to competitive advantage, although with caveats - not all organizations with/ without such practices will inevitably be more/less successful. Critically, some emphasize t - synergy among systems and holistic approaches (Delery & Doty, 1996; Dyer & Reeves, 1995). Thus, horizontal integration, the achievement of a high degree of internal t, is needed to gain from best practice (Marchington & Wilkinson, 1996: 396). In other words, . . . individual practices must be aligned with one another and be consistent with the HR architecture if they are ultimately to have an effect on rm performance (Becker & Gerhart, 1996: 786). The implication is that gains from HRM need a more comprehensive and integrated take-up, rather than a pick and mix of a few, isolated practices. Furthermore, can best practice be transferred globally? Here benchmarking is seen as useful with its implicit assumption that best practice effects are not rm specic, but rather universal and transferable. Without benchmarking, rms may be at a competitive disadvantage (Barney & Wright, 1998). However, benchmarking may be seen as only imitation (copying), rather

than innovation. Additionally, benchmarking is a start rather than a result. Benchmarking best practices becomes a competitive advantage through institutionalization (Kostova, 1999). According to resource-based theorists (Barney & Wright, 1998; Lado & Wilson, 1994), unique (i.e., rare, difcult to imitate, and supported by the organization) HRM practices cannot be copied easily, hence they result in sustained competitive advantage. In sum, the paradox is that imitating best practices may lead to competitive advantage, yet it is hard for these to be imitated when embedded implicitly in the organization. Such skepticism has echoes of earlier contingency-type arguments, which we deal with next.

CONTINGENCY APPROACHES In contrast to ideas of universal best practices transferred around the world resulting in converging systems, are contingency approaches. These seek to explain continuing HRM diversity between (and even within) countries, even those grouped together as regions, such as Asia (see Turner & Auer, 1996; Katz, 1997; Rowley, 1997). This may be because there is no such thing as best practice in management, with even some practitioner commentators admitting the context . . . is the deciding factor (Armstrong, 1999: 75). Rather, the impact of practices is dependent upon the congruence between HRM and not just an organizations strategic posture, but also contingent variables and national context (such as institutions and culture). These limit the

pressures towards convergence. Impediments to, or factors that inhibit, full convergence revolve around particular and specic packages stemming from the political, economic, and social milieu. Therefore, HRM differences could result from not just the more obvious variations, such as a countrys stage of industrial and economic development or organizational size, but also in operational environments and the spread, impact, and way technology is congured and used. There are alternative solutions to common pressures and problems with no single response to market competitiveness. Equinality, that different collections of practices produce the same outcomes (Gresor & Drazin, 1997), is important. Indeed, management authority and autonomy to introduce practices varies and is not unilateral and unfettered globally. Critically, countries remain distinctive in cultural terms. The term country institutional prole (CIP) reects this distance (Kostova, 1999). A three-dimensional construct, the CIP is a countrys set of: regulatory (i.e., existing laws and rules), cognitive (i.e., schemas, frames, inferential sets, etc.), and normative (i.e., values and norms) institutions. Therefore, CIP and other factors, such as organizational and relational contexts, are important in successful cross-cultural transfer of practices (Schneider, 1988; Schuler et al., 1993). This sort of perspective is empirically supported. After reviewing employment practices in various countries, Locke and Kochan (1995) concluded that although new practices emerged because of the growing interdependence of naThe Impact of Globalization on HRM

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tional economies, the particular forms and the extent of diffusion varied considerably because of differences in local history and institutions and the strategic choices of actors. Similar observations also can be found in studies of industrial relations system transformation (Erickson & Kuruvilla, 1998; Golden et al., 1997; Freeman & Katz, 1995). Thus, the manner in which HRM changes are . . . introduced, mediated and handled can lead to different outcomes, so even convergence at the global level in terms of economic forces and technologies . . . may result in divergence at the national and intranational level, as these forces are mediated by different institutions with their own traditions and cultures (Bamber & Lansbury, 1998: 32). In short, despite globalization, varied national HRM systems remain as distinctive political, economic, institutional, and cultural frameworks and features restrict transference and so convergence in HRM. A further issue is that convergence and contingency approaches may operate at different levels of HRM systems (Becker & Gerhart, 1996; Youndt et al., 1996). Evidence for both growing similarity and distinctiveness may then result from different research foci. Earlier ndings indicated tendencies for convergence studies to concentrate on macro level variables, such as structure and technology, while divergence studies targeted micro level variables, such as the behavior of people in organizations (Child, 1981). This still seems to have some explanatory usefulness. Therefore, a key issue is to move beyond broad-brush portrayals, to disaggregate and distinguish aspects of HRM
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that may be transferred and so converging, from those that may remain resistant and so distinctive. Thus, we need to begin to distinguish possible dimensions of HRM that globalization impacts on. This involves the level, alignment and acceptance of HRM practices.

TRANSFER OF HRM: LEVEL, ALIGNMENT, AND ACCEPTANCE Level Transfer may occur at different levels of HRM systems. Levels can be distinguished (Becker & Gerhart, 1996: 786) as: one, System Architecture (guiding principles and basic assumptions); two, Policy Alternatives (mix consistent with one and internal/external t); and three, Practice Process (techniques given appropriate decisions at one). Implementation of best practices may occur at level three, but its effects are contingent upon levels two and one. However, the universal effects on rm performance may be expected at level one (Becker & Gerhart, 1996). If there are best practices, it seems that those best are for those rms that have a successful alignment process. Hence we now turn to this issue. Alignment Here we use three different types of alignment or t (c.f., Bae, 1997), as in Table 1. These are: one, Architectural t between HRM system architecture and policies/practices; two, Structural t among HRM policies/practices (internal) and HRM systems with other organizational components, such as

Table 1 Levels and Effects of Alignment

System Architecture: Level, Effect, Fit Guiding Principles
Generalizability: Convergence Effects Critical Fit: Within-Country Critical Fit: Between-Country High Universal

Policy Alternatives
Moderate Low

Practice Process

Contingent on appropriate Contingent on particular policy rm-specic alignments alternatives (not relevant) Architectural t Structural (internal & external) t Structural (external) t Cultural (organizational) t Cultural (national) t needs to be additionally considered

Source: Adapted from Becker and Gerhart (1996).

business strategy and structure (external); three, Cultural t, at both organizational and national levels. This framework provides useful guidelines for issues of convergence, transfer, and best practice effects. Table 1 shows generalizabilty and convergence, effects, and critical t at each level of an HRM system. We may nd some HRM convergence at some levels, such as one, while divergent phenomena may remain at other levels, such as two or three. The underlying assumption is that a single HRM architecture may have several HRM policy alternatives and practices. Indeed, systems theorys concept of equinality indicates multiple means can be used to reach the same end. For instance, several different sets of policies and practices (in industrial relations) existed to achieve the same goals of cost reduction and exibility in U.S. steel minimills (Arthur, 1990). Although the effects of system architecture may be universal (Becker & Gerhart, 1996), those of the other two levels are dependent upon

appropriate alignments. Policy alternatives rst need to be aligned with system architecture (architectural t), then with organizational culture and other organizational structural factors. Practices need to have internal structural t among themselves and policy alternatives, and external structural t with other organizational factors. In the case of between-country transfer, either between the afliates of MNEs or between unrelated rms, national cultural t needs to be considered beyond other ts. In the case of crosscountry transfer among unrelated rms, many benchmark practices rather than system architecture. This leaves recipient units to make architectural, structural, and cultural ts. In the case of MNEs, Taylor et al. (1996: 966) suggested three different international HRM (IHRM) orientations and types: Adaptive (low internal consistency with the rest of the rm and high external consistency with the local environment); Exportive (high internal consistency and low external consistency);
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Integrative (high internal consistency and moderate external consistency). They also provided such determinants of IHRM orientation as the parents international strategy and top managements beliefs concerning the existence and context generalizability of its HRM competence. The Adaptive type means little transfer of all three levels of HRM systems; the Exportive type would transfer all three levels; and the Integrative type would transfer system architecture, but may try to make HRM practices adapt to local environments. Globalization implies an Exportive or Integrative orientation for IHRM. Yet, the Exportive type cannot resolve the think global, act local paradox. Then the Integrative orientation seems a more viable alternative. For instance, when asked about worldwide culture change efforts, the chairman of Novartis, Krauer, said the basic values are the same. Only the practices are different (in Tushman & OReilly, 1997). Hence the HRM of MNEs may need to adapt to local environments because of cultural or institutional constraints, but there is still some room for managers to make strategic choices in keeping with their basic values globally. Therefore, the issue of transferability of HRM becomes more a matter of degree, not of kind, and less about all-or-nothing, but what-aspects and how-much choice (Taira, 1990). The rst thing to choose is whether a rm wants to transfer its system architecture or not. If no, then a localization approach would be an appropriate choice, while if yes, then IHRM practitioners need to check architectural t. If it is satised, the next choice is which practices
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should be transferred and which localized. In making this strategic choice, practitioners may use two criteria in selecting HRM practices to transfer: ease of implementation (easiness of making the three types of t) and strategic importance (the extent of achieving strategic goals by adopting practices). Of course, the rst priority should be given to practices that satisfy both criteria. An example using the criterion of strategic importance was Philips standardized job evaluation with a single format to ensure they could compare people internationally as cross-national movement increases. In the case of Korean rms in general, the authors often found they often too easily experiment with new practices regardless of their strategic impact or ease of implementation. When one of the authors interviewed human resource managers in subsidiaries of Korean rms operating in Thailand, they mentioned that headquarters of Korean MNEs did not exercise strong inuences on HRM issues, nor were there consistent HRM policies. For instance, Samsung Electronic Co. (SEC) emphasizes some codes of conduct (e.g., regarding labor unions, nancial status and quality issues), although the headquarters do not have standardized HRM practices. Similarly, managers in Korean companies operating domestically did not sufciently evaluate downside problems of transferring HRM practices. Acceptance A further element concerns the degree of acceptance of transferred HRM. This involves possible gaps between

Figure 1 Transference of HRM: Impacts and Constraints

new HRM practices and the shared mindset of rms. The notion of cultural distance (Horng, 1993; Kogut & Singh, 1986) explains these gaps, and the relationships between national and organizational culture and HRM practices (Lawler & Bae, 1998; Schneider, 1988). To develop this we can see transfer success as the degree of the practices institutionalization at twin levels at recipient units (Kostova, 1999: 311). First, implementation, where formal rules are followed with objective behaviors and actions. Second; internalization, attained when employees have commitment to, satisfaction with, and psychological ownership of, practices. The internalization process is associated with institutional and organizational contexts. Gaps reect a lack of internalization, representing failure to infuse practices with values (Selznick, 1957).

It may be easier to implement, but much more difcult to internalize, certain HRM practices. Therefore, even if there are best practices, they may not bring positive effects until people fully accept and approve them. Thus, It is easier to change the HR policies than it is to change the behavior of employees (Shadur & Tung, 1997: 293). A Framework: Transference of HRM The framework in Figure 1 shows the impacts of, and constraints on, the transference of HRM. The framework has two dimensions: unit of analysis (organizational vs. national) and focal point (systems/practices vs. people/ culture). HRM can be affected by environmental changes. For instance, in Korea after the 1997 nancial crisis, neoliberalism prevailed in public policy,
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corporate management and HRM. This brought tremendous changes in many arenas, including HRM. Yet, at the same time, there can be countervailing pressures with impediments at both country (national culture) and organization (mindsets) levels. For instance, in Korea, at the national level, while some efforts (e.g., transparency) were reasonable and acceptable, other changes encountered strong resistance. At rm level, with other organizational factors, HRM systems also experienced dramatic changes towards enhanced exibilities, as discussed below. However, during the institutionalization process, internalization did not occur without trouble. The gaps identied between, on the one hand, universalism and national culture, and on the other, HRM changes and the shared mindset of people in organizations, will be explored using examples of Korean HRM. Through this case, we can observe some interesting paradoxes and dilemmas regarding the impact of globalization, convergence, and the transfer of HRM.

THE CASE

OF

KOREA

Many economies, as in Asia and Eastern Europe, have felt the force of changes, but Korea merits particular attention for a combination of reasons. There is the sheer speed of both Koreas economic growth and transformation from a rural backwater into an industrial powerhouse and world-class producer across a range of traditional and more hi-tech sectors, and more recent seemingly total collapse. Within this, Koreas culture and institutions, including
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HRM, were important (Lee, 1998). There has also been some rethinking by commentators concerning Koreas traditional tight labor control and low labor cost competitiveness (Kim et al., 2000). Moves towards a more valueadded and upgrading route, with its implications for an increased importance for HRM, is one option. Additionally, talk of globalization, or segyehwa, is commonplace. Traditionally globalization may have had impacts via Korean MNEs operating around the world being exposed to practices. There is now also the operation of MNEs and foreign direct investment (FDI) in Korea itself with the opening up of domestic markets. These are exposing Korean HRM to other practices. Korean society has also increasingly been opened-up to global inuences. Sudden environmental pressure from the 1997 Asian crisis and IMF bailout was also critical to reappraising traditional Korean HRM. Previously benecial cultural and institutional underpinnings, including HRM practices (e.g., strong internal labor markets and seniority systems) were rapidly reviewed and relabeled as problematic. Clarion calls by commentators and policy-makers, both internal and external to the country, to recast HRM with Westernized practices (e.g., more exible labor markets and remuneration) were often heard. These changes, with a move from a dirigiste economy to a more market-driven one with greater MNE and FDI penetration and unemployment, gave a culture shock to many Koreans and potentially fertile ground for the import of HRM practices. Therefore, Korea provides us with a strong example as it faced pressures to

Table 2 Characteristics of Korean HRM

HRM Areas
(1) Core Ideology

Old Characteristics
Organization rst Collective equality Community oriented Mass recruitment from new graduates Job security (lifetime job) Generalist oriented Tall structure Line and staff; function based Position-based Seniority (age, tenure) Pay equality pursued Evaluation to advance in job & grade No appraisal feedback Single-rater appraisal Relatively less involvement Relatively less information sharing

New Characteristics
Individual respected Individual equity Market principle adopted Recruitment on demand Job mobility (lifetime career) Development of professional Flat structure Team systems Qualication-based Ability and performance (annual pay) Merit pay systems Evaluation for pay increases Appraisal feedback 360 appraisal Involvement of knowledge workers More information sharing

(2) Human Resource Flow

(3) Work Systems

(4) Evaluation and Reward

(5) Employee Inuence

change its HRM and so could be taken as receptive to transfer. If transfer it constrained in such circumstances, then its chances in less conducive environments may be bleaker. Thus, the Korean example allows insights into how HRM transfer washes over and crashes on the rocks of an economy that was formerly mostly closed and based on its own particular strong culture and institutions, including HRM. We can see the interactions of the import of what might be seen as somewhat alien HRM practices on more traditional ones. Characteristics of Korean HRM Confucian values and heritage, despite Japanese and American inuence in the 20th century, remained important and strong in Korean culture and were reected in its HRM practices (Lee,

1998; Rowley, 2001). The old and new characteristics appear in Table 2. Within these, lifetime employment and seniorityism (with some similarities to Japanese versions) are commonly identied as key underpinnings to Korean HRM. They are also integral to other HRM areas, including performance evaluation, remuneration, promotion (Bae, 1997; Lee, 1998; Rowley, 2001), and reect, and are related to, the heritage of Confucianism, which emphasizes family and clan, education, moral disciplines in human relations, and so on (Moore & Ishak, 1989; Lee, 1998). Furthermore, such practices can be related to lists of best HRM practices. For example, Marchington and Wilknsons (1996) clusters include on the one hand exibility, internal promotion and employee security (relating to lifetime employment), and on the other perThe Impact of Globalization on HRM

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formance related rewards (relating to seniorityism). Additionally, it is argued that increasing exibilities in these areas improves competitiveness and systems need to change, developments presented as widespread and best practice. In addition, we also use the example of high performance work systems (HPWS). These show the ambivalence, with both supports and constraints, in HRM transference. Changes in Korean HRM Employment Adjustment A system of lifetime employment and job security existed, and albeit restricted in coverage and comprehensiveness, it acted as a model for other Korean companies. Thus, the adjustment of employment levels was relatively difcult with numerical labor exibility classied as low (Bae et al., 1997). Post-1997 economic problems, prompting legal change allowing dismissals, would seem to be a conducive environment for greater employment adjustment and the transference of exible labor markets. Has this been the case? Flexibility can be increased via a range of options. One, employment adjustment from reduced hiring, presents difculties for organizations operating systems of lifetime employment. After all, this inow labor is young and therefore relatively cheap and may bring fresh ideas, compared to existing long-tenured employees who are increasingly expensive because of seniority-based pay, but perhaps less productive. Therefore, so-called honor412 Journal of World Business / 36(4) / 402 428

ary retirement plans were used for redundancies. To enable adjustments, the clause on lay-offs upon business dissolution was introduced to the Labor Standard Law in 1996. A general strike followed, resulting in a more lenient and postponed version of the law. However, a condition of the postcrisis IMF bailout was the immediate ending of legal support (but as we shall see, not necessarily practice) for lifetime employment, requiring further legislative revisions, which followed in 1998. According to a recent survey,2 overall labor exibility swiftly increased for the two-year period between 1996 and 1998, that is, before and after IMF bailout of 1997. Numerical exibility dramatically increased via boosting recruitment postponement (6 rms in 1996 to 29 rms in 1998) and retirements (22 to 72 rms, respectively), while reducing working hours (5 to 61 rms, respectively), overtime (11 to 104 rms, respectively) and recruitment (33 to148 rms, respectively). Workers employed on less than the formerly typical full time, permanent basis, were increasingly used, with temporary and parttime workers now even outnumbering full timers (Burton, 2000). Functional exibility also increased through dispatch to afliated companies (11 rms in 1996 to 21 rms in 1998) or redeployment to other departments (19 to 95 rms, respectively) and to sales (12 to 53 rms, respectively). The most dramatic increases occurred in nancial exibility, as via wage freezes (only 1 rm in 1996 to 78 rms in 1998) or reduction of base pay (0 to 41 rms, respectively), bonus (0 to 116 rms,

respectively) or fringe benets (4 to 141 rms, respectively). Numerous company cases also highlight employment adjustments. One example is SEC, an important case as it was something of a trendsetter in HRM, even the object of study by other Korea rms. Under postcrisis restructuring, SECs employment was massively reduced by 20,000, about one third of its workforce, to 40,000. However, there were limits to these adjustments. Even though the economic and legal contexts changed, neither the government nor chaebols were keen to rush to put the new legislation to use (The Economist, 1999: 7). This inertia can be seen in the earlier survey (Park & Ahn, 1999) and cases of constrained adjustments. Alternatives to simple layoffs spread, such as reductions in working hours (5 rms in 1996 to 61 rms in 1998) and overtime (11 and 104 rms, respectively), while boosting temporary leave, both unpaid (5 to 24 rms, respectively) and paid (2 to 26 rms, respectively). Similarly, A Samsung subsidiary asked for both men and women to take unpaid paternity leave, Kia had remained proud of its no-lay-offs agreement (although now part of Hyundai, which may produce a different ethos) while Seoul District Court protected jobs by refusing to close Jinro (The Economist, 1999). Recently, Samsung Electro-Mechanical categorically stated that no lay-offs were planned despite its closures and spins-offs (Burton, 2001b). One high prole example concerns Hyundai Motor (Maeil Business Newspaper, 1999; The Economist, 1999), whose initial plan to dismiss 4,830 of its 45,000 workers was diluted

to 2,678 and then 1,538. Following strikes and conicts with management in 1998, a negotiated compromise was reached. The nal agreement provided for just 277 dismissals (with 167 of these from the staff canteen), along with lump-sum severance pay. As a result, while Hyundais workforce shrank to about 35,000, this was due mainly to 7,226 voluntary retirements plus about 2,000 who will return after 18 months unpaid leave. Another high prole case is Daewoo Motor and its Pupyong, Inchon plant, which employs 50% of its 15,700 workers. Here both large, violent worker protests and government ofcials insisting the plant be included in any rescue deal (Burton, 2001a), indicate attempts to restrict employment adjustment. These cases highlight several points. They contain conicting messages on employment adjustment. That actual dismissals were practiced, especially in high prole leading lights of the economy could give strong signals that others might follow this route. However, the counterexamples of challenges, with reductions and prevention of some employment adjustments, combined with seeming government and company support, also provide salutary warnings. Similarly, the level of acceptance of such adjustments can be questioned, as Kias proudness of its secure employment and Samsung ElectroMechanicals categorically reiterated no lay-off policy indicate. Seniorityism The efcacy of seniority pay systems has been questioned in Korea for perThe Impact of Globalization on HRM

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ceived systemic rigidities and weak individual-level motivational effects (Kim & Park, 1997). There has been increasing interest in more exibility and performance in rewards. Flexibility in nancial areas rose, as aforementioned, with wage freezes and reducing bonuses and benets. Further data (Choi & Lee, 1998) indicates remuneration exibility spreading, almost quadrupling from 10.7% (32 rms) in 1997 to 38.7% (116 rms) by 1998. However, it is not just a question of either or, of simply either seniority or performance to reward employees, as the basis of remuneration systems. There are a range of options between this dichotomy: rst, traditional seniorityism; second, seniority-based plus some performance factor; third, performance-based plus some seniority factor; and fourth, ability/performancebased (Bae, 1997). A survey (Park & Ahn, 1999) of both manufacturing (210 rms) and nonmanufacturing (68 rms), and small-sized (144 rms) and larger (134 rms) rms, highlights this. Thus, 42.4% used the rst (traditional seniorityism), 24.5% the second (seniority-based plus some performance factor), 29.1% the third (performancebased plus some seniority factor), and about 4% the fourth (pure ability/ performance-based) options. This indicates that some element of performance in rewardssecond through to fourth options have spread, covering well over half (almost 58%) of rms. One third (33%) of rms had performancebasedthird and fourthsystems. There seem to be common trends across sectors, although with some greater change in use of fourth option in non414 Journal of World Business / 36(4) / 402 428

manufacturing vis-a ` -vis manufacturing (5.9% vs. 3.4%). Slightly more variation by organizational size may be expected given this is a powerful variable across many HRM areas. Somewhat counterintuitively, the rst option, traditional seniorityism, was used by slightly more smaller (although dened relatively highly at up to 300 employees) rms (43.8% vs. 41.3%), while more than twice the percentage (although still a small total percentage) compared to larger rms, used the fourth option, performance-based systems (5.6% vs. 2.2%). One example is the spread of annual pay, with salary determined in advance based on individual ability or performance. A recent survey3 found 15.1% (649 rms) had already adopted annual pay; 11.2% (481) were preparing for it; and 25% (1,077) were planning to adopt it (Korea Ministry of Labor, 1999). Hence, just over one quarter (26.3%) of rms had either made, or were preparing to make, changes to increase performance elements in remuneration. Indeed, just over half (51.3%) of rms were in some stage of changing pay systems. Again, there seem common trends across organizational size. Further examples are that in January 2000, 13% (more than doubling the 6% in 1998) of companies listed on the Korean Stock Exchange gave employees share options, while 18% (more than quadrupling the 4% in 1998) of 5,116 large companies shared prots and another 23% planned to do so by year end (Ministry of Labor survey in The Economist, 2000). Individual cases of performance elements in remuneration systems also oc-

curred. LG Chemical developed a new system of performance-related pay at its Yochon plant (The Economist, 1999). Hyundai Electronics introduced share options in late 1999, while Samsung Electronics introduced performance pay (Kim & Briscoe, 1997) and even prot sharing (The Economist, 2000). Again the extent of, and constraints on, the transference of performance based remuneration systems need to be considered. These practices are relatively limited in coverage and spread. For instance, Park and Ahns (1999) survey simultaneously indicates traditional seniorityism remains in large numbers of rms (nearly 43%), with little variation in usage by size or sector, and that some performance based systems are not that widespread. Indeed, some form of seniority basis to remunerationrst and second optionsaccounted for the pay systems of over two thirds (67%) of rms, again with little size or sector variation in usage. Critically, seniority had an input in the pay systems in virtually all (a huge 96%) rms, with very few (just 4%) using only performance to set pay. Other data also indicates restrictive applications. Annual pay practices were limited to managers or the higher educated (Yang, 1999), while some rms used a base-up remuneration system, with its uniform increase of basic pay regardless of performance. Company cases also show the restricted nature of changes. For instance, the aforementioned examples of Hyundais stock option covered just 7% of the workforce, while Samsungs prot sharing was limited to researchers (The Economist, 2000). Critically, many managers argue that while se-

niorityism should change, its merits should be kept with remedies to its perceived defects. In short, it seems that while there have been some transference of performance based remuneration systems, coverage and application have been somewhat restricted, while seniority elements continue. Again, the level of acceptance can be questioned. The case of Samsungs 1995 HRM reforms, including pay, indicates this as a problem of whether employees accept changes . . . internally (Kim & Briscoe, 1997: 307).4 This reects our earlier points concerning the components of HRMs institutionalization, requiring not just implementation, but also its internalization (Kostova, 1999). The Transferability of HPWS to Korea HPWS indicates why this ambivalence may be so, with both encouragements and restrictions to its operation. HPWS is a specic combination of HR practices, work structures, and processes that maximizes employee knowledge, skill, commitment, and exibility (Sherman et al., 1998: 670). The joint optimization of HPWS two primary subsystems (social and technical) needs to be pursued (Sherman et al., 1998; Neal & Tromley, 1995). Simultaneously and paradoxically, some specic Korean factors can both facilitate and impede HPWS adoption (Bae & Lawler, 2000), as outlined in Figure 2. This shows facilitators and inhibitors at twin levels: values and routine practices.5 A set of values is a component of culture, and a basis of system architecture. Routine practices cover
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Figure 2 The Paradox of HPWS in Korea

both policy alternatives and practices. Therefore, the relationship between values and routine practices is closely related to architectural t. Positive/ negative relationships between values and HPWS mean they have good/bad architectural and cultural (national) ts. Positive/negative relationships between routine practices and HPWS mean they have good/bad structural/cultural (organizational) ts. First, the values of Korean society (e.g., loyalty, cooperation, and harmony), which have been closely related to Confucian traditions, underlie most Korean corporations labor policy (Lee & Johnson, 1998). These values mesh well with high involvement HPWS. Therefore, Koreas collectivism can actually be well aligned with HPWS approaches. Second, contemporary Ko416 Journal of World Business / 36(4) / 402 428

rean culture is complexa composite of Asian and Western values, such as in-group harmony and intergroup competition, hierarchical principles, optimistic progressivism, and personal achievement based on individualism (Bae, 1997; Cho & Park, 1998). While HPWS implementation requires some individualistic features, for example, for empowerment, Korean emphasis on education and employee self-development helps rms to adopt cross training, also a necessary condition for empowerment. However, although Koreas collectivist culture facilitates workers to accept work teams, a linchpin of HPWS, its bounded collectivism (i.e., the limited scope of collective solidarity), can restrict their functioning. Korean collectivist culture addresses in-group har-

mony to which individuals willingly subordinate their own goals to collective goals (Cho & Park, 1998). This harmony, however, is exclusively limited to within the group boundary. For out-group members, different rules are usually employed. Furthermore, when the team leader is more junior, this produces large difculties in demonstrating leadership as seniority rules still remain. In hierarchical cultures the empowerment aspects of HPWS are generally not so readily accepted by either managers or their subordinates (Kirkman & Shapiro, 1997). If collectivist countries show large power distances (Hofstede, 1991), the efcacy of participation is questionable because of employees fear and distrust (Newman & Nollen, 1996). Thus, workers are less likely to have the requisite sense of self-efcacy to act independently. Traditional features of Korean organizational culture, such as authoritarian and paternalistic leadership, hierarchical structures, and bureaucratic managerial styles (Cho & Park, 1998; Steers et al., 1989), are thus inimical to HPWS. This example links back to the debate in the following way. HPWS consists of many ingredients classied into three generic factors: competence enhancement; commitment and motivation; and opportunity to participation. Appelbaum et al. (2000: 39) also observed that effective HPWS requires three basic components: opportunity for substantive participation in decisions, appropriate incentives, and training and selection policies that guarantee an appropriately skilled workforce. Multiplication of these factors may bring the

effectiveness of HPWS, but lack of one of them may result in failure (see Kandel & Lazear, 1992; Milgrom & Roberts, 1995 for theoretical rationales for this view). These factors are commonly found in many different HPWS-type systems established in diverse countries. These include American lean and team systems, Japanese lean production, Italian exible specialization, German diversied quality production, and Swedish socio-technical systems (Appelbaum & Batt, 1994). These components can be considered as system architecture, may have universal effects, and accordingly can be converged. However, there may be multiple sets of practices that can achieve the three generic components of HPWS. This is, we assume, one reason that HPWS varies signicantly as to the practices included. Therefore, one task of management is making the strategic choice of appropriate practices with contingency perspectives. Management may take those practices that can enhance the three generic components of HPWS, and at the same time, that can easily be implemented. Here again, the equinality argument can be applied. Their next task is making good alignments of all three types for a synergistic effect of bundling these practices into a coherent system. Their nal task is, because both values and routine practices have a double-edged nature, managing selected practices ambidextrously by encouraging facilitators and discouraging inhibitors. This is a change management issue. At the value level, encouraging facilitators means reinforcing desirable values and norms (i.e., culture) through reThe Impact of Globalization on HRM

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wards and recognition and symbolic actions; discouraging inhibitors can be achieved through the unlearning (or unfreezing) process. At the routine practices level, encouraging facilitators and discouraging inhibitors can be achieved through the continuing efforts of the realignment process among practices. For example, when performance-based annual pay systems were rst introduced at Samsung and Doosan, strong resistance arose from employees who had been accustomed to the traditional values of harmony and uncertainty avoidance. Their management proactively created internal crisis so as to encourage employees to accept the change. At the same time, they also changed traditional performance evaluation systems towards more reliable and valid ones to align with pay systems.

DISCUSSION While exibility and performance may have come to be a more valued elements in Korean HRM, this shift in HRM system architecture demands consistent policy mixes and practices. For example, to move towards performance based systems may require attempts to reduce the well-known tendencies towards subjective behavior and increase objective measurement of employee performance (i.e., state-of-the-art 360 appraisal systems). Yet, a steady stream of well-known research notes contextual limitations to such practices in Asian contexts because of both structural and cultural incongruence. Therefore, the transfer of practice is one thing, and making it effective another.
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The relationships among globalization, best practice and competitive advantage are much more complicated than as one thinks. In terms of best practice effects, according to resourcebased theory, competitive advantage comes through building-up imitation barriers (Barney, 1991). Without valuable resources6 (such as best practices), rms suffer competitive disadvantage resulting in poorer performance. However, benchmarking best practices would bring just competitive parity producing normal performance as other rms would also adopt them. Only after rms build imitation barriers would best practice bring competitive advantage (Barney & Wright, 1998). This implies best practices do not generate competitive advantage by themselves. How can management create those imitation barriers? One way is to develop high t (i.e., as aforementioned, architectural, structural and cultural). Before the 1997 crisis, there was a good alignment among Korean culture, corporate philosophy and management practices. Confucian culture addressed in-group harmony and paternalistic leadership. With this cultural milieu, owner managers had an employeerst philosophy and took care of employees and their families. To achieve this kind of orientation rms had lifetime employment, seniority-based pay and many allowances for family members (e.g., for education). Then employees displayed loyalty and commitment, even sometimes sacricing personal leisure time. All these had been a driving force for rapid economic development. This conguration had been a source of

competitive advantage of Korean rms that deed imitation. In contrast, transferred HRM may bring problems. Flexibilities and performance-based elements in remuneration are not necessarily panaceas, especially in Asian cultures. Interestingly, lightly regulated or high exibility economies (e.g., the U.K.) do not necessarily out-perform (e.g., by GDP, productivity, worker conditions and benets) more regulated or rigid ones (e.g., Germany, France). A recent Korean report (Samsung Economic Research Institute, 1999) raised serious questions about labor exibilities and noted countervailing trends elsewhere, with support for lifetime employment. It concluded that Korean rms would benet from mutual investment, rather than unbalanced, employeeorganization relationship approaches (c.f., Tsui et al., 1997), with some return to longer term employment relationships. Other examples include rms declaring they would try to pursue lifetime employment even in bastions of neo-liberal free markets. For instance, some U.K. companies experimented with guaranteed employment, and such ideas may receive a boost with the vogue for workplace partnership schemes.

values may produce future liabilities. Second, HRM systems should become competency enhancing, rather than competency destroying. Third, the extent, speed and impacts of change are important. Fourth, restrictions to transfers need to be considered. Simultaneous Realization of Multiple Values There is a paradox here. Originally, Confucian heritage, Asian values and collectivism were considered impediments to economic progress. Then, many attributed rapid industrialization and growth to such traditions (Sinha & Kao, 1988; Hofstede & Bond, 1988). Following the 1997 crisis, once again this legacy came to be seen as a weakness. Earlier models of economic development focused on dichotomizing the attitudinal characteristics of traditional and modern societies (Triandis, 1973). This implies that some change of attitudes and value systems is necessary for economic development. This paradigm of development has been challenged. Sinha and Kao (1988: 12) argued that Asian productivity and growth is . . . widely attributed to both management styles and work attitudes that are rooted in Confucian social values, familism, and institutional structure that are not necessarily Euro American. Triandis (1988), dealing with the relationship between collectivism and development, argued that both individualism and collectivism provided onesided inuence on organizational effectiveness. The relationship between values and development is not uni-directional, rather it is interactive, or even circular
The Impact of Globalization on HRM

IMPLICATIONS

AND

WIDER RELEVANCE

The above has implications and wider relevance for Korean organizations and management interested in Korea, IHRM and business more generally and for practitioners in other contexts. First, imprudent discarding of so-called Asian

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in causation, in a way that development affects cultural change and this change impacts on development (Sinha & Kao, 1988; Triandis, 1994). Therefore, we may expect some cultural change along with development. Thus, less developed countries could lower their cultural threshold to become more ready to accept other values for development. However, in so doing, the values that are more peripheral, more task/ technology-related, and more universal, are probably changed rst (c.f., Triandis, 1994; Lincoln et al., 1986; Lincoln & McBride, 1987). It can be argued that Korean HRM has changed direction from a community-based, towards a more competition-based, system. Traditional HRM was characterized by a community orientation and paternalistic relationships. Basic norms for this system were harmony, care and equality. It was not uncommon for managers to take responsibility not only for subordinates work, but also personal and family life. After rms adopt more exible and performance-based practices, the characteristics of HRM shift towards a greater transaction orientation, market principles and contract. The basic norms for this are, in contrast, competition. One problem for rms is not simply absorbing this second set of norms, but rather totally discarding the rst set for the wholesale and uncritical adoption of the second. Evidence of this is the recent outow to venture rms of large company core employees disappointed with HRM changes.7 Without the high care climate and family-like organizational community, employees become more restrictive and skeptical
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about giving their loyalty. Such reduced commitment and work ethic has been noted generally and specically, as with the lack of loyalty and problems following dismissals at Samsung Life Insurance (Lee, 1998). Ironically, some Western rms have recently emphasized greater relationship over transaction, orientations (Keltner & Finegold, 1996), with trust and commitment for knowledge creation and sharing and high care climates (Leonard & Sensiper, 1998; Nonaka, 1991; Von Krogh, 1998). This can be seen in partnership agreements signed between management and unions in some companies in the U.K. Therefore, one task for rms is not to simply totally discard community for transaction orientations, but to achieve the simultaneous realization of multiple values (c.f., Goudzwaard, 1979), that is pursuing both Korean values and other values from foreign countries. Towards Competency-Enhancing HRM Systems Management theories (e.g., resourcebased, knowledge management) argue that people are a critical source of competitive advantage. Appelbaum and Batt (1994) concluded that across countries a common thread was that rms gain a strategic advantage from training frontline workers and utilizing their full participation and that of their representatives at various levels of the organization. Locke and Kochan (1995) also observed that skill development and exibility in work organization are becoming critical sources of competitive advantage. Similarly, Rowley

(1997: 207) concluded there was some convergence around greater recognition of the importance of employees to success across Asian economies. Yet, there are competing forces here. On the one hand, while knowledge management has been emphasized, on the other hand neoliberalism-based globalization pressures encourages more exible practices. Pressures by the later subsequently erode key ingredients required for the former knowledge creation and sharing and technological and production upgrading routes to competitiveness (Rowley & Lewis, 1996; Rowley & Fitzgerald, 1999). Korean rms have turned away from earlier overinvestment (characterized by high employment security and training investment, but with contributions through immediate jobs) towards underinvestment (characterized by full commitment from employees, yet with high numerical exibility) employment relationships. Enhancing market functions and competition have weakened the harmony and cooperation of organizational members and the high care climate. Neither has it helped training. Koreas 12.2% cut in training investment between 1997 and 1998 (Cho et al., 1999) does not bode well for employees, rms, the country and upgrading routes to competition. In particular, enhanced exibility in employment adjustment may bring with it problematic outcomes. For instance, in times of crisis MNEs look rst for plant closures in locations with the least restrictive regulations that make redundancies quicker, easier and cheaper, as frequently happens in the U.K. Yet, this route has long term implications for in-

vestment, training and dynamic productivity as incentives for these are reduced while producing a downward spiral of searching for ever lower labor costs, with all its commensurate downsides. Furthermore, a lack of training reduces other possibilities, such as high valueadded production or mass customization,8 which require substantial employee training to operate and compete with. Recommendations to boost Koreas competitiveness by increasing its skills base (McLean, 2001) recognizes this. Is All Change Good? Many in academia and the business world have something of a changes are good mentality. Yet, changes that occur may be echoes of institutional theory and not based on efciency. For example, from the mid-1980s rms in Korea experimented with various new approaches, including total quality management, business process reengineering, team-based work systems, and enterprise resource planning, not because of their economic effectiveness, but rather to align with institutional forces. For example, the take-up of team-based systems was explained better by institutional legitimacy rather than by economic rationality (Lee & Kim, 1999). Likewise, workforce reductions and recent recruitment occurred partly because of institutional legitimacy because others were doing so. Therefore, practitioners need to bear in mind two points. First, not all things change with the same extent and speed. For visionary companies, core ideology
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(i.e., core values and core purpose) had the enduring character of an organization, hence it should be preserved; while goals and strategies (Collins & Porras, 1996) need to be stimulated for change. Some Korean medium-sized rms, such as Medison Co. (diagnostic imaging), Yuhan Corporation (pharmaceuticals), Mirae Corporation (semiconductor equipment), and KSS Shipping, have steadily grown from their founding. It is well known in Korea that these rms commonly have strong corporate cultures and have kept their core values, even during periods of environmental turbulence. However, these rms also stimulated changes and pursued technological and organizational innovations with an entrepreneurial spirit. Second, practitioners need to be careful not to change things that may be hard to recover. If not, recovery costs would exceed the benets generated from the changes. For instance, during recent downsizing many Korean rms lost their human touch and broke the psychological contract of long-term attachment and trust. Now many managers comment that it was both hard for them to expect loyalty from employees, and it had become more difcult to motivate and retain core employees. Recommendations to boost Koreas competitiveness by increasing the value of a motivated and committed workforce (McLean, 2001) recognizes this. Transfer Restrictions Impediments to HRM transference remain. These factors that inhibit full convergence stem from particular and specic political, economic and social
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milieu. Furthermore, even if HRM practices are transplanted, their acceptance may occur only at certain levels. At least two points are relevant here. First, we need to understand the dual structure of a system: guiding principles and practices. This distinction is related to the division of IHRM orientation and functional focus (Rosenzweig & Nohria, 1994; Schuler et al., 1993; Yuen & Kee, 1993). Taylor et al. (1996: 966) dened MNEs strategic IHRM orientation as the general philosophy or approach taken by top management. . . . They also explained that the orientation determines the way of managing the IHRM function (such as mechanisms for sharing HRM policies and practices). In MNE subsidiaries they may share a common HRM orientation, but have different sets of HRM practices. For successful transfer (or benchmarking) of HRM practices, practitioners need to understand the basic assumptions and guiding principles of the specic practices (Schneider, 1988). Without this architectural t, a practice would not work properly or as expected. Second, practitioners need to give attention to the internalization process of practices. As Kostova (1999) suggested, it is important for practitioners to help employees to have satisfaction with, commitment to, and psychological ownership of, practices. One way to enhance these perceptions is to provide opportunities to participate during the process of practice transfer (Lawler, 1986). Much well known research suggests that employee participation increases ownership and acceptance, and decreases resistance to practice adop-

tion. Another way, as suggested in motivational and change management literature, is to recognize and reward desired attitudes and behaviors by both formal and symbolic reward mechanisms. Finally, managers may need to provide a vivid image of the future state when new practices are implemented, to reduce uncertain and uncomfortable feelings that employees may have.

CONCLUSION We have examined the impacts of globalization on HRM using Korean examples. In Korea, globalization has become commonly discussed and implied global integration and standards and the market function. This phenomenon was especially prominent regarding nancial and accounting systems, with emphasis on transparency. With this trend, and labor market exibility issues, some Korean rms looked to apply global standards to HRM. Therefore, globalization may push convergence through the transfer of best practices. As a result, there have been some changes in HRM practices. However, how much HRM transfer, its causes, level of occurrence and acceptance and its results, are open to debate. There may be change at the policy, but not acceptance level. Even if the practice is changed, it may not be integrated (but rather pick and mix), nor infused in the mindsets of companies and employees and may even be competency destroying. One concern with the changes in HRM is that current strategic choices are contradictory to skill development and knowledge accu-

mulation, by building competencedestroying, rather than competenceenhancing, HRM systems (c.f., Lado & Wilson, 1994). This orientation will become increasingly problematic over time and may become a self-fullling prophecy. Key issues include alignment/t and institutionalization (implementation and internalization). First of all, during the transition period, rms should be cautious in changing their HRM systems and not to discard their merits to gain some benets of other systems. We argue that it is quite possible to realize multiple values simultaneously. Second, there is a paradox of best practice which are not best for all rms. For rms to have best practice effects, they need to have adequate alignments of architectural, structural, and cultural aspects. Third, the transferability of systems hinges on, on the one hand, cultural and institutional factors, and on the other, organizational factors. Finally, to have competitive advantage through HRM practices, rms should have successful internalization processes for their employees even after all the aforementioned factors are considered. In sum, even in an era of globalization, national systems of HRM remain robust in their individuality and usefulness.

NOTES
1. 2. 3. From now on we use Korea as shorthand for South Korea. Two hundred seventy-eight rms across various industries in November 1998 (Park & Ahn, 1999) Of rms with over 100 employees in 1999, 4,303 out of 5,097 business units replied.
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4.

Interestingly, in support of our earlier point concerning varied restraints on management prerogatives, Kim and Biscoe (1997) note that constraints could stem from the process. For instance, this HRM change was initiated in a traditional Korean top down fashion, and while such approaches were unquestioned in the past, the increase in the levels of democracy and participation, now produces more questioning. 5. For Korean values and routine practices see Chang and Chang (1994); Cho and Park (1998). 6. Authors variously dene resources, to make the argument on HRM issues we follow Barney (1991: 101) as in rm resources he included all assets, capabilities, organizational processes, rm attributes, information, knowledge and so forth controlled by a rm that enable the rm to conceive of and implement strategies that improve its efciency and effectiveness. 7. This disappointment may not be the sole reason for outow. Beyond push factors (i.e., dissatisfaction with rigidity and job insecurity in big companies), there are also some pull factors (i.e., attracting power of venture rms such as high income and entrepreneurial culture). Indeed, some younger Korean employees, like counterparts in other countries, streamed to venture rms and dot com companies in anticipation of instant and easy wealth. We thank the editors for reminding us of this point. 8. Variations in the product line to make different products in small batches.

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