Int. J.

of Human Resource Management 13:2 March 2002 232253

Modes of convergence and divergence: an integrative view of multinational practices in Pakistan

Shaista E. Khilji

Abstract The last two decades have witnessed an immense growth of globalization activities, making the study of multinationals a very popular one. However, most of these studies have focused upon the use of socio-cultural variables to support the divergence theory or upon contextual and organizational variables to support the convergence theory. In the present study, it is debated that both sets of variables must be used in combination to develop a comprehensive understanding of various issues that multinationals face. A sample of ve multinationals operating in Pakistan is analysed and classi ed as per the various modes of convergencedivergence proposed by McGaughey and De Cieri (1999) after an investigation of organizational, socio-cultural and contextual variables. The conclusion drawn is that both convergence and divergence issues may occur simultaneously in the process of human resource management (HRM) change; and that the variables used to explain them are, in fact, not immutable in nature, as has been assumed by many. Keywords Convergence; divergence; human resource management; international management; multinationals; Pakistan

Introduction Increased globalization has given birth to the debate about convergence and divergence in the study of international management. However, ideas seem to bounce from one extreme to the other. The divergence view, becoming more dissimilar, (McGaughey and De Cieri, 1999) proposes that differences among societies result from their parochial sets of values and that individuals maintain diverse, culturally based values despite growing economic and social similarities between nations. Indeed, it is a very popular approach, and management literature is lled with empirical evidence to support it. Laurent (1991) points out that human resource (HR) practices and philosophies are deeply grounded in the surrounding national culture. While parentcountry HR managers may desire to apply consistent HR practices across nations in the interest of fairness or in order to promote a single corporate culture, it is possible that a certain practice may convey an entirely different and perhaps unintended meaning in another culture. For example, management by objective (MBO) and open performance appraisals, based on the Western philosophy of individual competitiveness and
Shaista Khilji, Faculty of Management, Samuel Broneman Building, McGill University, 1001 Sherbrooke St. West, Montreal PQ H3A 1G5, Canada.
The International Journal of Human Resource Management ISSN 0958-5192 print/ISSN 1466-4399 online 2002 Taylor & Francis Ltd http://www.tandf.co.uk/journals DOI: 10.1080/09585190110102350

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accountability, are viewed as an invitation to open confrontation in Chinese culture. McEvoy and Cascios study (1990) has documented evidence of lower levels of satisfaction with open appraisals when used in Taiwan. Newman and Nollen (1996), in their study of the European and Asian work units of one MNC, emphasized the importance of congruence between management practices and national culture and concluded that practices should be adapted to the local context to be most effective. Multinationals are, therefore, advised to take national cultural values as a given and adjust their practices accordingly in order to be globally competitive. The results of Schuler and Rogovskys study (1998) suggest that culture provides an important explanation for the variance in the utilization of different practices around the world. The principal argument is that multinationals (without a doubt the dominant agents in the world economy) that strive for greater productivity have to take into account a countrys culture, which is jealously guarded (Giddens, 1990: 72). Based upon similar arguments, many more studies also outline the importance of divergence or preservation of core characteristics within multinationals (Baldacchino, 1997; Bartlett and Ghoshal, 1989, 1995; Beechler and Yang, 1994; Lu and Bjorkman, 1996; Martin and Beaumont, 1998, 1999; Monks, 1996; Pucik, 1988; Rosenzweig and Singh, 1991; Rosenzweig, and Nohria, 1994; Wasti, 1998; Whitehill, 1994). By contrast, the convergence approach, becoming more similar (McGaughey and De Cieri, 1999), proposes that managers around the world embrace attitudes and behaviours common to managers in other countries, despite cultural differences. Factors such as globalization, contextual contingencies and business environment are viewed as cosmopolitan forces leading to more homogeneity among organizations (Ralston et al., 1993, 1997). Proponents of this approach suggest that traditional contrasts between countries, as depicted by the cultural effect approach, have been over-emphasized. Diverse evidence suggests that aspects of work organizations, government policies and training arrangements have changed substantially over the last decade or so, and multinationals have been effective in diffusing practices across borders (Kirkman and Shapiro, 1997; Mueller, 1994; Mueller and Beaumont, 1998; Negandhi, 1987; Woods, 1998). At the same time, contextual changes such as deregulation of the economy have also brought about a general weakening of cultural effects (Ohmae, 1990), resulting in the convergence of organizational practices. Insofar as a subsidiary draws resources from the parent company, its internal structures and processes are substantially in uenced and shaped by them (Martinez and Ricks, 1989). By drawing resources from the parent company, a subsidiarys dependence on the local environment is reduced (Rosenzweig and Singh, 1991). It has also been argued that multinationals, in their various forms, are obvious vehicles for cross-border transfers, both directly, as they take their home-grown policies and practices to their subsidiaries and af liates, and indirectly, as they become a source of inspiration to local organizations (Tayeb, 1999). The implication is that globalization and other contextual factors (such as government regulations and business environment) counteract the cultural effects, and the presumption that cultural effects are dominant should be open to a modi ed analysis. The above review of the literature illustrates that studies have employed three different sets of variables in order to understand international management issues: 1) socio-cultural variables such as work-related values or national cultures upon which the divergence theory is built; 2) economic and contextual variables such as the phenomenon of globalization and deregulation of economies upon which the convergence theory is built; and 3) organizational variables such as parent-company

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control and in uences tend to support a convergence view. McGaughey and De Cieri (1999) argue that the contrasting ndings are emerging not only because of the isolated use of these variables but, on a more fundamental level, because of the differing theoretical perspectives adopted. They also argue that these sets of variables are not immutable and there is the possibility of change within each. Hence, they suggest that forces of both convergence and divergence ought to be studied simultaneously. This seems quite appropriate in the face of signi cant changes that have challenged traditional management approaches and developed new expectations for organizations and employees around the world. For example, Khilji (1999a), in her study of Pakistani employees, reported that the use of the internet, among other factors, had exposed them to new up-to-date information, making them aware of developments taking place around the world. As a consequence, their perceptions have changed and they have developed new expectations to which organizations are gradually responding. She concludes by re ecting that, had she turned a blind eye to the contextual factors, she would not have fully understood the phenomenon of change. It has also been argued that the neglect of one set of factors or the other can often lead to incorrect ndings (Ralston et al., 1997). Singh (1991; quoted in House et al., 1995: 79) has argued that, If the variables of a theory are correlated with other variables not included in that theory, then models of the theory will necessarily be incorrectly speci ed and estimates be biased. In accordance with the latter view, that neither the convergence nor the divergence debate alone is adequate to explain the dynamic interactions between organizations and their environments, the current study combines organizational and contextual variables from convergence theory with socio-cultural variables from divergence theory. Regarding the de nition and selection of these variables, evidence from existing empirical data was sought and has been explained earlier in this paper. As divergence theory uses a most limited de nition of culture, i.e., as a set of shared values, this concept is used for the current study. To examine culture in its broadest sense, including a discussion of various national factors such as economic and legal aspects, can create confusion by encroaching upon the domain of contextual variables; therefore, this will be treated separately, for the purpose of this paper. Hence, the analysis of socio-cultural variables includes only the work-related values of employees and those key in uences upon the society that have helped to shape these work-related values. Similarly, as convergence theory focuses upon the dynamics of globalization and economic policies, the study of contextual variables includes a selection limited to these factors. Investigating both socio-cultural and contextual variables was facilitated by an analysis of previous studies and current government policies; these provide a richer understanding of the country-speci c environment. In examining the process of HRM change, identifying the organizational variables pinpoints factors such as the level of control exercised by the parent company and the personality of the managers that are unique to the sample organizations. An integrative approach was adopted to encompass an effective analysis and to propose a more comprehensive theory of behaviour in multinationals operating in a country like Pakistan, where, in the past decade, changes are leading away from traditional management practices and towards increasing foreign investment by deregulating the economy, thus facilitating the convergence of management practices. At the same time, however, Pakistani organizational culture, with a high power distance, high uncertainty avoidance and high collectivism, is characterized as distinct (Hofstede, 1980; Trompenaars, 1994; Khilji, 1999b). By resisting the process of

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change, this may then act as a divergent force. Such a dilemma is faced by many developing countries where local cultures are distinct, therefore posing challenges to the adoption of principles of HRM, yet levels of direct foreign investment have more than quadrupled since the late 1980s (United Nations, 2000), facilitating the growth of multinationals and the transfer of management practices across borders. These issues pose unique problems for organizations that are grappling simultaneously with issues of convergence with local cultures and divergence from parent-company practices. However, in the absence of any empirical evidence that combines an analysis of the two issues, it is not yet clear which force is stronger and what the results will be when they are studied together. Hence, the major research questions of the present study are: a) What changes are taking place in the divergence and convergence factors? b) What set of management practices would be the result of these changes? And, c) How do employees view the resultant set of practices? The success or failure of any management practice is determined by the impact it has on employee outcomes. It is, therefore, important to understand employee attitudes towards these resultant practices. An in-depth analysis combining the many convergence and divergence variables, using modes of convergence-divergence proposed by McGaughey and De Cieri (1999), will shed light on this complex issue. The above discussion has already outlined three sets of variables, socio-cultural, economic or contextual and organizational, which will be discussed simultaneously in order to understand their impact and to point out changes in HRM practices, if any, that may have taken place. Using multiple variables, this study will facilitate an open and analytical understanding of multinational rms, a perspective that has been neglected. This paper will rst lay a theoretical background of modes of divergenceconvergence as proposed by McGaughey and De Cieri (1999) that will be used to understand the resultant practices at sample multinationals. Second, it will introduce the research design. Third, socio-cultural and economic variables prevailing in Pakistan will be reviewed to introduce the context in which the research is situated. Fourth, organizational variables from the sample multinationals will be outlined to highlight the impact of parent companies in developing HRM policies. Finally, a discussion of key issues and limitations of the current research will conclude the study. Research model: modes of convergencedivergence As elaborated above, organizations are exposed to a host of in uences at the organizational as well as the socio-cultural and contextual levels. Recognizing that market mechanisms are dynamic such that all of these in uences are in a state of constant change, McGaughey and De Cieri (1999) argue that it is not always one way or the other for the multinationals, i.e., neither completely convergent nor completely divergent. They have proposed that, depending upon the degree of in uence of certain variables, organizations may respond in one of the four different modes of convergence divergence dynamics (shown in Figure 1), namely integration, assimilation, separation and novelty. Integration is characterized as a melting pot philosophy of value formation (Ralston et al., 1997) or a unique value system that borrows from both national culture and contextual affects (Ralston et al., 1993). In integration, some core characteristics are maintained while some alternative practices are adopted. Sparrow et al.s study (1994) shows that organizations pursuing truly global operations are likely to pursue practices

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Preservation of core characteristics YES NO

YES Attractiveness of alternatives NO

Integration

Assimilation

Separation/ maintenance

Novelty

Figure 1 Modes of convergence and divergence

that t under one policy umbrella but at the same time adapt to relevant local cultures, thus maintaining certain core characteristics. Assimilation occurs when an organization adopts the alternative norms by losing at least some part of the core cultural characteristics. For example, Khiljis (1999a) study of Pakistani organizations reveals that a participatory style of management is gaining popularity among employees and managers in the private sector, despite the fact that organizations have traditionally held a high power distance as one of their core characteristics. Separation occurs when an organization deliberately avoids alternative practices and preserves its core characteristics. This has also been referred to as maintenance and de ned as maintaining the level of similarity or dissimilarity, (McGaughey and De Cieri, 1999). The failure to use MBO in Chinese cultures, as referred to above, is an example of separation (McEvoy and Cascio, 1990). The nal mode, novelty, occurs where neither core characteristics nor alternatives are retained and, essentially, a novel form of practice is created. In essence, this mode refers to an organization that has freed itself from all cultural in uences, both alternatives and core characteristics. Since these modes have been proposed fairly recently (McGaughey and De Cieri, 1999), there is no evidence setting out the rationale and the conditions under which an organization may exist in a novel mode. Data from the present study, hence, may facilitate an understanding of this issue, as they will be used to categorize sample organizations under each mode. For the purpose of this study, core characteristics will refer to the traditional management practices that are typical of Pakistani organizations. These will be outlined in the following section. Alternatives will refer to the new HRM practices,1 borrowed from the world-renowned American or West European parent companies of the sample subsidiaries. Research design In order to assess the impact of culture, business environment and other organizational variables on adoption of HRM, it was necessary to select a sample of matched multinationals that were undergoing change such that the roles of each of these variables could be visibly outlined. For this reason, a total of ve multinationals were selected (see Table 1) from the banking industry, which, once monopolized by PSEs

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Table 1 The sample organizations
Bank Origin of the bank F1 F2 F3 F4 F5 W. Europe America America W. Europe W. Europe No. of expats 0 2 1 0 0 Nationality of CEO/HR manager Pakistani Pakistani Pakistani Pakistani Pakistani Degree of control exercised by the RHO Broad Broad Broad Broad Broad rules rules rules rules rules with with with with with localizatio n localizatio n localizatio n localizatio n localizatio n

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No. of employees 237 320 757 211 420

(Public Sector Enterprise) and known for poor HRM practices (Alam, 1993; Euromoney, 1994; Klein, 1992; Siddiqui, 1996), has been invigorated since the deregulation of the economy in the early 1990s. Lauded for creating a healthy competitive environment, there is also evidence to suggest that transformations in HRM are taking place in this industry (Bokhari and Graham, 1994; Pakistan and Gulf Economist, 1995; Unger, 1999). As the present research is geared towards studying multiple issues, socio-cultural, contextual and organizational in nature, and exploring employee attitudes, it was decided to use in-depth interviews as the means to collect data. These interviews allowed the exibility to probe and illuminate many organizational and cultural elements that would otherwise have remained hidden. HRM theory is often criticized for its managerial bias, as it is based upon the views of policy-makers or managers who naturally praise the very policies they implement (Frey, 1994). Hence, it was decided to include the views of non-managers as well. In addition, seeking only the opinions of policy-makers did not t well with the objectives of the present study because one of the aims was to investigate the impact of various HRM practices upon a wide crosssection of employees. Consequently, a conscious attempt was made to include employees from different age groups, educational backgrounds, locations and levels of management within the organizations. A sample of eighty-one employees (thirty-one managers and fty non-managers) was selected (with an average of fteen from each organization) to prove demographic diversity. The selection of interviewees, based upon the speci ed criteria, was made with the help of managers: the usefulness of a diverse sample was outlined and they were requested to respect this in proposing their sample, at times also being assisted by the author visiting the of ce. By providing these multiple levels of analyses, the applicability of the ndings was broadened. In the one- to two-hour-long interviews, employees were asked to share their experiences with HRM in their own organizations. During the course of the conversation, direct questions were also asked to investigate the impact of HRM on their satisfaction or dissatisfaction with the HRM systems and their commitment to the organization. However, please note that the data for employee turnover rate cited in this paper were obtained from various HR departments. The interview transcripts were analysed and coded to isolate key themes relevant to the interviewees experiences with HRM and its impact upon them in order to answer the questions enumerated at the beginning of this paper. Understanding socio-cultural and contextual variables In this section, a combined discussion of several key socio-cultural and economic variables will follow to establish the environment in which this research was conducted.

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It will also provide an enriched understanding of the in uences upon multinationals and as such help pull out key themes in the convergence-divergence debate. Socio-cultural variables Pakistani culture has been characterized as an amalgam of religion, Indian origins, British colonialism and American in uences (Khilji, 1999a, 1999b). The following discussion will outline the impact of each of these upon organizations and the workrelated values of employees. Islam was brought to the Indian sub-continent by Arabs in the seventh century, and later strengthened by other settlers and traders from Turkey and Persia. Religion seems to be prominent in Pakistan because its ideology of independence emerged from the belief that the Muslims of the Indian sub-continent are a separate nation based on their unique cultural heritage. Although 96 per cent of the population is of Muslim faith (Government of Pakistan, 2000), since they have lived under the in uence of Indians for centuries, many customs and traditions that form the structure of the society, such as roles expected of women, the manner in which a child is raised, etc., can be traced back to Indian origins. While Islam has caused change in certain perceptions, such as evolved attitudes resulting in the elimination of the caste system, it has still failed to affect many other aspects of daily life. Therefore, the two in uences together explain the existing social set-up, which is family centred. Obligations to family include both nancial and ritual practices. Family-like ties are also created with persons who are not biological relatives but who are socially integrated into a group. Family and social allegiances are abiding and generally take precedence over rules. Life is built within a group (Lyon, 1993), there is a pattern of dependence which pervades all human contact and people carry a strong need for security. The social system also requires surrendering to authority; originality and independence in decision-making are met with disapproval. Core organizational characteristics Research in HRM has shown evidence that early socialization is in uenced by various social institutions such as family and education. Interactions with these institutions (and their representatives) form the basis of many psychological characteristics impacting on the future personality. Hence, the effect of social exposure determines the work-related values of employees and even the fundamental corporate culture of an organization (Hofstede, 1980, 1991; Kanungo and Jaeger, 1990; Tayeb, 1995; Mueller, 1994). Having a family-oriented social set-up, organizational life is also community life. Employees tend to form social circles within organizations (Khilji, 1999a). Meritocracy does not prevail, as relationships take precedence over rules and can guide HRM decisions such as hiring and promotions. Organizations have high power distance and are typically authoritarian, meaning decision-making authority is located at the top management level. There is limited employee autonomy; top to bottom communication is minimal and bottom-up communication is unheard of. Employee involvement is a foreign concept. Recently, evidence from Khiljis (1999a) research suggests that, due to a high unemployment rate and fewer job opportunities, the market has become quite competitive. As a consequence, employee commitment and loyalty to their organizations has been eroded. Core HRM characteristics The British, who established a colony on the subcontinent for almost a century, have left signi cant marks on the legal systems and

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management structures of the country. Many prevalent laws, such as labour laws, have hardly changed since independence. The culture within PSEs is truly a replica of the colonial era: bureaucratic, centralized and not responsive to needs of the public in general. In a typical Pakistani organization, rigid HRM practices are the norm. In large PSEs, decisions are made by government-appointed committees (Klein, 1992). Managers are often forced to hire staff, not necessarily on the basis of merit, but on the recommendations of their committees or unions (Khilji, 1999b). Seniority-based remuneration is practised. Scope for creative management is limited because of rigid rules and regulations. Employees initiative is not encouraged due to low incentives. Wages and salaries are not competitive with those of multinationals (Khilji, 2000b). Despite increasing availability of training institutes dedicated to employee development, many organizations fail to bene t from them because of a lack of planning. No system of priorities driven by strategic considerations or career employees development plans has been established. This lack of strategic emphasis on training needs has led to continued acceptance of a questionable range of motivations in securing these opportunities, particularly those involving overseas visits (Eldridge, 1992). As a result, training has not created a real impact. Management has failed to develop or implement systems that are fair, led by assessment of training needs and linked to career development plans of individual employees (Qureshi, 1998). Recent American in uences In recent years, especially since the deregulation of the economy, American in uences have diluted the impact of this British inheritance and have gained signi cance, both in educational institutions and in the workplace. Today, af liates of American business schools are seen in every neighbourhood in major cities. The best-respected business schools of the country are run like top-class North American business schools (Khilji, 1999a, 2000b). Management faculties of government universities also follow American syllabuses. Many training institutes (such as PIM, the Pakistan Institute of Management) were established with aid from the Ford Foundation and Harvard, in terms both of money and of content of their training programs. Zakaria (1994) and Khilji (1995) have observed that Pakistani managers want to follow the American model in managing organizations. American management is considered to be progressive and results oriented, while British managers are labelled as slow and bureaucratic, as are the Pakistani civil services, inherited from the British. The above discussion highlights two important issues about the people of Pakistan. 1) They are open to foreign in uences and changes; core cultural values have been an amalgamation of many foreign ideas. 2) As such, organizations are caught in-between the preservation of their core cultural values and the need to modernize in an era of globalization. Hence socio-cultural variables that were initially considered to be strictly a convergent force now have both convergence and divergence issues interfacing. This supports the argument put forth by McGaughey and De Cieri (1999) that none of the sets of variables studied in international management is unchanging by nature. Contextual and economic variables Some economic realities The total labour force in Pakistan is estimated at 38.18 million, of which about 2.05 million are unemployed, giving an unemployment rate of 5.37 per cent (Government of Pakistan, 1999). If the underemployed population were

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included, this rate would probably triple. The budget allocated to education does not surpass 2.5 per cent of the GNP. The current budget (19992000) allocated Rs 142 billion for defence purposes and Rs 116.3 billion to developing the country and its 140 million people. Pakistan has lost substantial income gains due to its low investment in education, and this has contributed to the countrys lack of competitiveness in international markets (Amjad, 1992; Birdsall and Ross, 1993; Economist, 1994: 106; de Haen, 1993; Khan and Marvi, 1993). However, this does not imply that Pakistan has a shortage of educated labour. The reality is that the amounts spent on education have been disproportionately allocated, i.e., colleges and universities in urban areas have been expanded at the expense of provisions for elementary education in rural areas (Korson, 1993). This, together with a high population growth rate and the inability of the economy to provide job opportunities for both its educated and uneducated labour force, has created a paradoxical situation: an abundance of unemployed graduates and an increase of a million illiterate workers each year. Although more money has been diverted to tertiary education, it is still insuf cient to meet the needs of a population that is growing very fast and is geographically dispersed (Ahmad, 1997). The business environment Economic policies found in Pakistan can be termed as liberal; they have sought to make maximum use of market mechanisms. Where possible, direct control has been avoided. Public investment has been used to supplement rather than to displace private investment. The only exception was the 19717 period of nationalization, which created a setback to the growth of the economy. The country that had developed a sound industrial base during the 1960s suddenly went into a slump. The problems were compounded by the low level of output due to bureaucratic management and poor HRM practices (Mirza, 1995). Consequently, in 1990, a government privatization programme began, which included denationalizing PSEs and opening up the private sector to investors. This programme was deemed a success as investors interest was sparked and many new enterprises, especially in the banking sector, were begun. At the same time multinationals that had long been operating with a low pro le started reinvesting in the market through expansion of services or diversi cation of products. The government also took initiatives to foster a business-driven culture and to encourage the use of professional and modern management practices. This created a healthy, pro table and competitive business environment, making the private sector more progressive than the public sector (Khilji, 1999a, 2001). In a recent survey, The Economist reported, There are remarkable examples of the private sector taking over the duties of a corroded state and performing them well (Unger, 1999). Khilji (1999a) explains: Pakistani organizations and their culture are undergoing a dramatic change. A deregulation of the economy has added impetus; private local organizations are being set up and multinationals are expanding. It has indeed added a fresh perspective to HRM systems. Multinationals as role models Due to constrained training facilities and limited job opportunities, as explained above, Pakistan, like other developing countries, has been encouraging the growth of international corporations in order to bene t from their technical and management know-how (Pakistan and Gulf Economist, 1995). Multinationals are seen as tools for providing employment, bringing in new technology and work practices from their parent companies, as well as providing training grounds for the local workforce. Khiljis research (2000b) reveals that multinationals are expected

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to set trends. Con dence in local organizations is notoriously low; for example, the exPrime Minister appointed a Citibank-trained Pakistani and his team, all of whom have vast experience with multinational banks, to rescue the biggest nationalized bank from a crisis and to modify its management culture. In an environment with low creativity and innovation, multinationals are expected to act as agents of change. In addition, disappointment with the existing traditional HRM practices of the public sector increases openness to in uences of modern HRM techniques. In sum, multinationals are not really expected to adopt local practices. It follows that subsidiaries of multinationals operating in Pakistan are free to assimilate foreign HRM practices. Organizational variables As the current study is designed to be a multi-variable analysis, it will go beyond conclusions drawn by the examination of socio-cultural and contextual variables, both of which reveal a changed business environment calling for convergence of HRM. In this section, a careful analysis of organizational variables, including the in uences of parent companies over the sample organizations and the roles of HRM managers, will be made in order to discern their roles in the process of HRM. Control Within multinationals, benchmarking and transfer of best practices from the parent company are important processes that deliver information to the subsidiaries (Mueller, 1994). Through the use of power, authority and a wide range of bureaucratic, cultural and informal mechanisms, the behaviour and output of subsidiaries is in uenced, albeit to varying degrees (Geringer and Herbert, 1989). Thus a critical determinant of HRM in sample organizations appears to be the control exercised by the parent company. As the focus of the present study is the process of HRM change, an analysis of the degree of control exercised in terms of reporting relationships, use of expatriates and the involvement of the parent company in HR policy making will be made to capture the essence of speci c organizational in uences. The role of parent companies in HR policy making Despite the different nationalities of parent companies (see Table 1), the degree of regional head of ce (RHO) control was found to be similar across the sample organizations. Each organization reports to an RHO and falls under the jurisdiction of regional corporate strategies. Although reporting lines and policy approval structures for the subsidiaries are strictly de ned and global policy manuals are handed down, there is an adaptation to local norms when it comes to actual practices (such as taking account of peoples workrelated values or observing competitors closely). As a result, HRM is not universal across respective groups. Here, a distinction between policy and practice is made, as has been suggested by some researchers (Schuler and Dowling, 1993; Tayeb, 1998). A policy is a guideline for DM (Decision Making) and action. Practice is the actual action taken, or, in other words, refers to how a policy is implemented. While some policies, such as those involving employees in improving their work environment (for instance, those initiated at sample bank F2; see Table 1), may be the same group-wise (because they originate from the RHO or HQ), the actual practice in sample subsidiaries responds to local norms by adopting a consultative approach. Although employees are encouraged to contribute ideas, they are not given the autonomy to make decisions. The

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practices in Pakistan still remain centralized and the nal decision-making authority still lies with top management, as is supported by the local culture. The policy-approval structure in each bank is strictly de ned and requires every new policy developed in Pakistan to be passed on to the RHO for approval. This process does not take place in isolation; continual feedback from competitors (mainly other multinationals) and RHO is received. Local organizations are ignored due to their poor HR practices. The HR manager at F2 elaborated the dual task of HR policy making as:
There are two things to be seen: a) Keep concepts as close and common as possible to other sister subsidiaries. b) See what local practices are, to keep in line with competitors.

F1 is an exception in this regard, in that the HR manager makes policies independently. He is far ahead of local competitors and sister subsidiaries in the region as far as the adoption of HR practices is concerned. Nevertheless, as will be shown later, he, too, is in uenced by the local laws and culture. The use of expatriates The prominence of expatriates in any subsidiary is often measured either in terms of their number compared to local nationals or in terms of the in uence of the positions they hold in a subsidiary (Rosenzweig and Nohria, 1994). In the sample, the number of expatriates is minimal. F2 and F3 have two and one expatriates, respectively, in senior managerial positions, whereas the other sample organizations have none. All country CEOs and HR managers are native Pakistanis (refer to Table 1), due to a high unemployment rate and the under-developed structure of local industries. As explained above, multinationals are considered as training grounds for the local workforce. Hence, government discourages recruitment or placement of expatriates in local subsidiaries. Tayeb (1999) has also argued that the number of expatriates employed is largely dependent upon the nature of the available workforce. If the workforce is educated and quali ed, as is in Pakistan, then the parent companies are willing to ll most positions locally. The process of HRM change Despite glaring similarities in the policy-approval structures of sample banks and a changed business environment, the process of HRM change is taking place only in F1, F3 and F5. In these organizations, HR managers are currently involved in bringing HRM to the level of other business functions and changing long-held traditional views about little or no involvement of HR departments in conducting business. They have introduced practices like MBO (Management by Objective), open performance appraisals and needs-led training programmes. F2 and F4 have not yet applied integrated and consistent new HRM practices. Their HR departments are involved only in administrative tasks such as arranging for training (without considering it a function that responds to organizational and individual employee needs), salary disbursal and tax deductions. Marked differences in the way new HRM practices are being introduced at each of these banks are visible. An analysis highlights three key factors explaining these differences: 1) the role of the RHO; 2) the commitment and involvement of senior managers; and 3) the personality of the HR managers. Below is a discussion of each of these factors.

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The role of the RHO In F5 and F3, the change was initiated by the RHO upon whom, in fact, it was dependent. Employees remarked that the involvement of the RHO (impacting on the HR department) started to increase with a more frequent ow of information in the form of brochures explaining what the changes might entail. A presentation was given by the regional head of human resources for local employees within Pakistan. A new HR country CEO was appointed. The HR department was restructured, given more authority, and newer functions, such as training and development, had been added and training manuals had been distributed. On the contrary, F1 is a pioneer in the eld among group subsidiaries in the region. Primarily, new HR systems were originated locally by the HR manager himself (for example, the annual appraisal forms and system, and training needs analysis). Initially, some feedback from other subsidiaries on their policies was received during the formulation process. This was then analysed in terms of strategy in Pakistan and the needs of Pakistani employees. The HR manager speci ed that help from the RHO is sought only when deemed necessary. This depicts a support relationship with the RHO rather than a dependent relationship, as has been revealed by F3 and F5. At the same time, policies pursued by F1 Pakistan have been appreciated by the RHO and are being adopted by many sister subsidiaries. Commitment and involvement of senior managers Fundamentally, top managers played a key role in bringing about a change of the HRM image in their organizations. At F5, the new country chief executive (Pakistan) and the new regional head of HR initiated this change. At F1, after deregulation of the economy, when the new country CEO reoriented the organization, resulting in it becoming a market leader, a need was felt to set up an HR department that was also at the forefront. In the words of an HR manager, who was appointed for this speci c job:
Given the needs of employees and the kinds of career paths they were aiming at, there was a desperate call for putting HR systems in place. The country manager was most keen and pushed ahead to establishing a professional HR department. We have the best people and our job is to retain them and develop them.

In F3, changes eventually began to occur after the appointment of the rst professional HR person in the RHO who introduced many new concepts to other subsidiaries by training HR managers at the RHO. The personality of the HR manager The idea to bring about change may have been initiated by senior managers, but implementing these changes was not easy. Line managers may show resistance because the new role of the HR department affects their authority by empowering the HR function and designating to it a status equal to their own functions. Each manager, however, depending upon his or her personality, has dealt with the situation in a different manner. This has had a direct impact upon the speed with which HR policies are implemented as well as the attitudes of employees. The F1 manager remained adamant and found he had to persist in arguing his points. He disclosed: In my rst two to three months, there were a number of arguments and rows with other line managers. They wanted to continue things the way they were and I was not willing to do that. I said to them if you want to go back to that stage, get rid of me rst. Gradually he built a culture of openness to change. Formulation of each new policy begins with presenting ideas to the employees and inviting their feedback.

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Employees are encouraged to make suggestions directed towards areas that need immediate attention. Therefore, employees tend to be positive about the new HR role. They termed HRM in their organization as forward looking, professional and proactive. On the other hand, the HR managers in F3 and F5 have been receiving new policy guidelines from the RHO. Their job is to ensure the new policies comply with local norms before implementation. In this sense, they have assumed the roles of followers and act as implementers only after some adaptation. At F5, the regional HR head and the country CEO are involved in each change, give useful advice and are so supportive that the HR manager has little dif culty making changes and nds he does not need to argue with line managers. At F3, however, the HR manager is solely responsible for bringing these changes in her subsidiary. No senior manager, from either the RHO or her own subsidiary, is involved in or committed to the process. Talking of her experience, she said:
To project HR people as business partners has been especially hard for me. Even today, I have support only from top two members of the management committee. They are the ones to push things forward. The rest of the lot thinks you are trying to interfere with the way they are doing things.

This may be the reason that most employees at F3 seemed disillusioned with the role of the HR department; they desired a proactive set of HRM practices. However, at F5, due to the commitment of senior managers and the RHO to the process of HRM, some employees used terms like counsellors and mentors to describe the role of their HR department. Others were sceptical and wanted to see the results before voicing their opinions. Implementation: preserving core characteristics or adopting alternatives? While new policies at all organizations incorporated similar concepts of employee empowerment and employee involvement, the outcome was not the same. A gap between policy and implementation (or practice, as has been de ned previously) was observed, especially in F3 and F5. Although policies were formulated in the HR departments, the implementation was dependent upon line managers. Used to being in a high power distance culture, some of them are referred to as old dinosaurs. For example, feedback-oriented performance appraisals that called for greater employee involvement were introduced at F3. According to the policy, line managers are required to hold individual meetings with their employees during which they are asked mutually to discuss strengths and weaknesses. It is clear that employees are given the freedom to express themselves and input feedback. In the case that they disagree with their managers, an impartial arbitrator is to be appointed by the HR department to make nal recommendations. However, in practice, some line managers do not follow the guidelines but conduct individual meetings solely for the purpose of communicating their own decisions to the employees and, when an employee does not agree, he is ignored. Eventually, this leaves the employee frustrated and angry. Despite differences of opinion with their managers, most employees sign off their appraisals, either not knowing they had the right to disagree or not sure if it would do any good. One employee remarked,
I know many of my colleagues who have signed off their appraisals without necessarily agreeing with their managers. The reason is that we really dont think a confrontation would bring any good. After all it is the same manager we are going to be working with; so why make things even more dif cult by defying him?

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The problem is that these organizations have preserved core cultural characteristics by retaining a formal and hierarchical structure. Consequently, HRM is centralized. Policies are formulated at head of ces in isolation and then cascaded down to each of ce or division trying to attain a uniformity of objectives and culture. Employees cannot approach their HR departments directly. Going though the proper channels is almost always stressed. Employees are given little autonomy and they are not encouraged to provide feedback in the process of policy formulation or implementation. As mentioned previously, the social set-up requires surrendering to authority; hence, employees generally accept authority unquestioningly. A similar situation is exhibited in F2 and F4 where traditional HRM is practised. Employee satisfaction with HRM and organizational commitment in these organizations (as has been described during interviews) is low; turnover is high. This is in direct contrast with F1 where employee satisfaction is high and turnover is the lowest in the industry. F1 is called the employer of choice and is known for being able to retain its employees. What differentiates F1 from the others is that it has changed its culture gradually to match its policies. The core organizational characteristics of little autonomy, limited communication and high power distance have been eliminated. All employees are fully involved in policy formulation. Any time there is a change of policy or a new policy to be introduced, there are initial presentations to large groups of employees (from all levels) in order to evaluate their responses and to collect their feedback, which in turn makes an impact on the nal policy. Each employee is given on-line access to manuals to ensure policies are crystal clear to them. Managers are trained to ensure policy guidelines are followed in a uniform manner. Employees are encouraged to approach the HR department directly in the case of a problem, such that any deviation from policy is brought to the notice of the HR department. This organization has succeeded in building a culture that truly involves employees. Managers do not feel threatened by sharing their power because senior management has taken great pains to ensure they understand and adopt the positive elements of this kind of a culture. Analysis The above discussion has shown that, at times, both divergent and convergent in uences may occur simultaneously within one variable. For example, although culture may be treated as one variable, it has three main constituents in the Pakistani context, each one of which exerts a different in uence (see Table 2). The cultural antecedents of the people, as has been explained previously, point towards accepting foreign ideas, and thus facilitate convergence to modern HRM concepts. Similarly, American management education acts as a convergent in uence by exposing employees and students (thus future generations of employees and managers) to modern HRM approaches. On the other hand, a traditional social upbringing, characterized by dependence, little autonomy, dominance of social circles, and the colonial bureaucratic culture of traditional organizations tend to exert divergent in uences. As a result, although some organizations have formulated progressive policies, implementation is low because managers brought up and trained in a hierarchical and centralized set-up resist sharing power and involving employees in decision making. A related factor is the small number of expatriates in the sample organizations. Local employees occupy the key managerial positions, country CEOs and HR managers (see Table 1). As a consequence, work-related attitudes associated with local employees in uence management practices, hence acting as a divergent in uence. As was

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Table 2 Explanation of the effects of socio-cultural, contextual and organizational variables

Variables Culture Indian origins Work-related values American in uences British inheritance Contextual Business environment Role expected of multinationals (due to underdeveloped HRM systems) High unemploymen t Quali ed workforce Organizational Role of RHO in policy-makin g Use of expats (low due to economic conditions a high unemployment and quali ed workforce) Role of RHO in the process of HRM change Convergence YES YES YES YES in F3 and F5 Divergence YES YES YES YES YES YES Allowing for some divergence YES Allowing for some divergence in F3 and F5 (localization ) Maintenance in F1, F2 and F4 Allowing for some divergence in F3 and F5 YES (in F2, F3, F4 and F5)

Involvement of senior management in the process of HRM change Personality of HR managers

YES in F1, F3 and F5 YES F1

explained previously, this is, in fact, attributable to a high unemployment rate and the easy availability of a quali ed workforce, factors included in contextual variables which were at the outset considered to be convergent in uences. This illustrates the need for a thorough understanding of each variable and factor in the study of international management before labelling them one or the other. The above discussion has highlighted the interplay of socio-cultural, contextual and organizational factors that together explain the process of HRM change. However, this study shows that a changed business environment, with deregulation and direct foreign investment, launched this process. This supports the convergence view that proposes that, as economies around the world get deregulated, more and more companies will begin converging towards similar sets of practices (Kirkman and Shapiro, 1999; Mueller, 1994; Mueller, 1998; Negandhi, 1987; Woods, 1998). This is of particular relevance to countries like Pakistan where faith in local management practices is low and there is, to some degree, an absence of exemplary approaches to HRM. As a consequence, multinationals are expected to transfer best practices from their respective parent companies into Pakistan, thus paving way for convergence. However, the process is not as simple as it may seem. First, RHOs exercise loose control over these subsidiaries and offer them autonomy in decision-making, leaving them the freedom to diverge, either by maintaining local practices or by adapting RHO guidelines to local

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norms. Most multinationals seem to be following this latter pattern. At the same time, the involvement of regional HR departments in policy-making and in the introduction of new ideas is organization dependent; i.e., it is more evident in some organizations than in others. Where involvement is stronger, convergence (with some adaptation) is prominent. In the case of little involvement or interest in the subsidiarys operations (such as in F2 and F4), maintenance has been observed. Second, core local cultural characteristics such as little autonomy, hierarchy and large power distance also tend to have a divergent impact by hindering successful implementation of many of the new HRM policies. Organizations, therefore, are simultaneously exposed to forces of both convergence and divergence. The resultant outcome is in uenced by other factors, such as organizational strategy, personality of managers and involvement of senior managers in the process of HRM change. For example, RHO managers have initiated the changes at F3 and F5. The Pakistani HR managers were carefully selected or trained speci cally for this purpose. As RHOs themselves are undergoing an HRM transformation, it is intended to impact similarly on the subsidiary level as well. On the other hand, F1 initiated its change as a response to expanded operations and an organizational strategy of leading the market. Despite the negligible role of RHO in the entire process, F1 has the most advanced and well-integrated policies, which have been successfully implemented throughout the organization. This is due to the HR managers commitment to the change and the clarity of his goals, which he has communicated effectively throughout the organization. These practices are neither directly descended from the RHO nor do they represent the core characteristics associated with Pakistani organizations. Despite that, following the explanation of convergence and divergence made at the beginning of this paper, the process will be referred to as convergence. It is because concepts that have been introduced, such as strategic integration, MBO, open feedback appraisals, needs-led training and development, are not novel. They have been examined for over a decade in the West and have been tried out by many organizations. There is evidence of the in ltration of thoughts from one culture to another and homogeneity in practices that further the convergence thesis so that managers around the world embrace common attitudes and behaviours. As F1 has been rst among its subsidiaries to develop new HRM policies and implement them with success, it also illustrates the fact that the transfer of best practices does not only have to take place from the parent company to the subsidiary, but it can also work in the other direction, from the subsidiary to the parent company. Due to the total commitment of the HR manager and his understanding of business strategies, the core organizational culture has also been revamped, thus minimizing the effects of divergence. However, both F3 and F5, where new HRM policies were also introduced, did not make adjustments to the traditional aspects of the organizational culture. As a consequence, they must continually deal with divergent forces while trying to converge. The status of F2 and F4, similarly, is due to inertia on the part of either the RHO or local HR managers, or both. Which mode of convergencedivergence? In the case of F3 and F5, as has been described above, contributions from the RHO were made and then blended in with the local norms, such that core local characteristics (of hierarchy, bureaucracy, minimal communication and minimal autonomy) were maintained. This is called integration (see Table 3), as has been explained in the research model (Figure 1). F1, on other hand, is an example of assimilation where local norms are ignored. The culture of involvement, empowerment and autonomy

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Table 3 Organizational response to various variables

Implementation of new practices Personality of managers Process Divergence/ Convergence

Business environment Direct involvement of RHO in HRM change NO

Organizational variables

Response

Control

F1

Changed business strategy

Support

Convergence Assimilation

F2

No response

Dependent

NO

Maintenance

F3

Changed business strategy

Dependent

YES

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F4

No response

Dependent

NO

Both: divergence and convergence. Integration Maintenance

F5

Changed business strategy

Dependent

YES

Leader Innovator Change. Not preserving core cultural characteristics. Becoming communicative, educating employees and line managers, seeking feedback, employee involvement. ASSIMILATION Follower No change. Preserving core characteristics and avoiding adoption of any alternatives. SEPARATION Follower Change. Maintaining core characteristics. Global policies amended to local norms. INTEGRATION Follower No change. Preserving core characteristics and avoiding adoption of any alternatives. SEPARATION Follower Change. Preserving core characteristics. Global policies amended to local norms. INTEGRATION

Both: divergence and convergence. Integration

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is new to Pakistani organizations. F1 has shown consistency by educating its employees and ingraining new values in a way that employees have appreciated. A low turnover rate and a high satisfaction with HR is evidence of the acceptance of the new culture. The other two organizations, F2 and F4, can be classi ed as being in a separation mode (see Table 3) since neither have they let go of their core characteristics nor have they found alternative practices that have been adopted by their competitors attractive, despite the changed economic and business environment. This illustrates the fact that, while the economic environment has the same impact, organizations respond differently. According to an old adage, Experience is not what happens to you, but it is what you do with what happens to you. The same could be said of organizations. It is not what the business/economic change may imply, but how that speci c change is interpreted and the response it brings. Obviously, organizations that wish to remain at the forefront of the competition treat the changes as an advantage, just as F1 has done. Finally, employees perceptions of what constitute good HRM practices are quite similar to those alternatives espoused and implemented in the West. In organizations where new HRM practices are not yet adopted or have not been implemented effectively, employees are dissatis ed. They have outlined the need to develop participatory management and to develop a proactive role for HRM. In these organizations, turnover is high and organizational commitment is low. By contrast, in F1, where new HRM has been implemented effectively after rebuilding a culture that supports the changes, employees are satis ed. Khilji (1999a), in her study of Pakistani employees, has also concluded that employees are ready to depart from traditional organizational cultures and practices, despite the fact that not all organizations are. Organizations that have done so are reaping the bene ts in terms of a higher satisfaction and lower turnover. This shows that globalization in its broadest sense has not only been effective in transferring practices but also in diffusing ideas and philosophies, thus supporting the convergence view. Limitations This study has a number of limitations. First, it is cross-sectional in analysis. As a result, it presents evidence from only one speci c period of time. Changes at all of these organizations are taking place and continue to take place. Following these organizations over a period of time to observe whether F3 and F5 adopt a more open and communicative approach towards the process of HRM change would add more value to the research. In addition, it would have been interesting to study the impact of HRM change over a period of time to see if and how best practices get ltered into other multinational and domestic organizations. Second, it is a study of only one country and should be expanded to multiple environments of similar and dissimilar natures to better understand the impact of varying business environments. Third, it investigates only one industry, that of banking, in its research and analysis. As a result, its ndings (of organizational variables) may be criticized for a lack of wide empirical application, although it is argued that an analysis of socio-cultural and contextual variables, or of speci ed core characteristics, is widely applicable because it has been drawn from a countrywide analysis. However, since the ndings of the study reveal that organizational variables lend a certain unique quality to each organization, making generalizations that extend outside the sample, even in the same industry, is questionable. Despite that, arguments and evidence of the present study can serve in a way that

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previous ones have failed: as an in-depth description as well as a rich reference point for future comparisons and contrasts. Conclusions This paper has highlighted several of issues, and more signi cantly the need to make an integrated analysis for a comprehensive understanding of international human resource management practices. It has shown evidence to illustrate that both divergent and convergent issues act simultaneously, and hence are often complementary in the understanding of international business practices. Research focus needs to be shifted to incorporate organizational and contextual variables with socio-cultural variables in order to have a full understanding of how the general processes play out in multinationals. It also shows that the transfer of best practices is not always from the parent company to the subsidiary, as is often assumed, especially when referring to subsidiaries in developing countries, but can also be in the other direction, as has been exhibited by F1. The study raises an important question: which is the best choice for developing countries like Pakistan? Is it integration, assimilation or maintenance? Using the employees response as a measure, as has been mentioned above, their satisfaction is highest and turnover is lowest in F1, the assimilation mode. Traditional Pakistani organizations have been criticized for their passivity, bureaucratic and hierarchical cultures, which are manifestations of a national culture and social set-up: a divergent factor. However, the success of F1 clearly points out the need to move away from traditional structures and towards the adoption of a new organizational culture that is communicative and offers autonomy to its employees. This means that Pakistani employees are ready for a change and calls for managers in Pakistan (and in other developing countries) to reassess the needs of their employees and opt for novel approaches to human resource management. Acknowledgements The author is grateful to Rabinder Kanungo and anonymous reviewers for their helpful comments. Note
1 New HRM practices espouse employee involvement, developing a communicative culture, aligning the business strategy with the HRM and incorporating practices like needs-led training and performance-led rewards and remuneration (Legge, 1989; Storey, 1992).

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