hybridization of mne subsidiaries: the automotive sector in india

Hybridization of MNE Subsidiaries

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Hybridization ofMNE SubsidiariesThe Automotive Sector in India

Florian A. A. Becker-RitterspachUniversity of Groningen, Department of InternationalBusiness andManagement, The Netherlands

© Florian August Arthur Becker-Ritterspach 2009

Foreword © Arndt Sorge 2009

All rights reserved. No reproduction, copy or transmission of thispublication may be made without written permission.

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First published 2009 byPALGRAVE MACMILLAN

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Library of Congress Cataloging-in-Publication DataBecker-Ritterspach, Florian A. A. 1972-

Hybridization of MNE subsidiaries: the automotive sector in India /Florian A. A. Becker-Ritterspach.

p. cm.Includes bibliographical references and index.

1. Automobile industry and trade–India–Case studies.2. International business enterprises–Case studies. I. Title.HD9710.I42B43 2009338.8′87292220954–dc22 2008030139

10 9 8 7 6 5 4 3 2 118 17 16 15 14 13 12 11 10 09

ISBN 978-1-349-30242-0 ISBN 978-0-230-23349-2 (eBook)DOI 10.1057/9780230233492

Softcover reprint of the hardcover 1st edition 2009 978-0-230-20669-4

Tomywife Jutta

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Contents

List of Tables and Figures ix

Foreword by Arndt Sorge xi

Preface and Acknowledgements xiii

List of abbreviations xv

Part I Theoretical Foundations 1

1 Introduction 3Background 3Research gaps and contributions 3The study’s theoretical contribution 4The study’s empirical contribution 5Research objective 5The structure of the study 7

2 Transfer and Hybridization in MNEs 8Japanization or Transplant perspectives 8Institutionalist perspectives 16International Business perspectives 28Approaches compared 36

3 Subsidiary Hybridization – Conceptualand Methodological Tools 43Introduction 43Production systems and hybridization outcomes defined 44Strategic and institutional distance, strategic choices

and hybridization outcomes 47Research design and methodology 63

Part II Empirical Results 75

4 India’s Business Context and the Automotive Sector 77India’s institutional context 77India’s strategic context in the automobile sector 87

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viii Contents

5 The Case of Maruti–Suzuki India 99Introduction 99Analysis of the hybridization profile 102

6 The Case of Fiat India 136Introduction 136Analysis of the hybridization profile 140

7 The Case of Mercedes-Benz India 173Introduction 173Analysis of the hybridization profile 176

8 The Case of Skoda Auto India 214Introduction 214Analysis of the hybridization profile 219

9 Discussion 250Core findings – similarities and differences

mapped and explained 251Conclusion 270

Notes 274Bibliography 276Index 296

List of Tables and Figures

Tables

2.1 Boyer’s four main types of hybridization 252.2 Nature and likelihood of hybridization in different

industrial models and national institutions 272.3 Distinct environmental forces and their sources 302.4 A comparison of four learning cycle models 352.5 Strengths and weaknesses compared across

different approaches 413.1 Different hybridization outcomes 463.2 Porter’s generic strategies 583.3 Entry mode combinations 603.4 Selection criteria and variance of cases based on

theoretical sampling 683.5 Summary of research activities at different research sites 703.6 Summary of data collection regarding India’s institutional

and strategic context 713.7 Interviewees’ functions and positions across firms 734.1 Institutional foundations of work dispositions in the

Indian work context 834.2 Development of India’s FDI regime in the

automobile industry 904.3 Major players in the Indian automobile industry 925.1 Overseas training programmes in MSI 1225.2 Summary of MSI’s hybridization profile 1346.1 Fiat’s suppliers in India 1686.2 Summary of FI’s hybridization profile 1717.1 MBI’s hierarchical differentiation 1847.2 Summary of MBI’s hybridization profile 2118.1 Summary of SAI’s hybridization profile 2479.1 Hybridization outcomes of all four cases compared 2529.2 Overview of strategic choices of the four MNEs 2589.3 Generic strategy, internationalization experience and

template availability for transfer 2619.4 Entry mode and local template availability 2649.5 Equity mode and local template availability 266

ix

x List of Tables and Figures

Figures

3.1 Dimensions of a production system 463.2 Different kinds of (mis)fits 483.3 Different transfer scenarios, misfits, recontextualization

modes and outcomes 523.4 The fourfold embeddedness of subsidiary

production systems 573.5 Foreign ownership development of MSI, FI, MBI and SAI 694.1 Market share in the passenger car sector by manufacturer

in India, 1990–91 944.2 Market share in the passenger car sector by manufacturer

in India, 1999–2000 944.3 Market share in the passenger car sector by manufacturer

in India, 2004–2005 954.4 Development of the Indian passenger and commercial

vehicle market (sales), 1995–96 to 2004–2005 964.5 Development of the Indian passenger car market

by segment, 2001–2002 to 2005–2006 966.1 The UTE concept 1536.2 Organization of an UTE 1547.1 MBI’s ‘Clearly defined functions for our supervisors’ 1947.2 MBI’s ‘Family organization principles’ 198

Foreword

When international business and management (IB&M) researchers thinkof India, they are more likely to think of software than motor cars.However, as this book shows, India is more interesting as an ideal set-ting in which to look at subsidiaries of motor-car manufacturers fromall over the world, in all kinds of market segments, with all kinds ofnational or international production systems and local domestic con-tent. Probably nowhere else in the world is the organizational mix of thestrategy, organization, industrial relations and human resource arrange-ments in the subsidiaries of multinational enterprises as diverse andcomplete as in motor industry multinationals in India. It is amazingthat no one has looked at it systematically before. Moreover, IB&Mresearchers, over-specialized and over-generalizing in the best traditionsof the social sciences, including economics, have been adept at iden-tifying the role of particular factors such as cultural or institutionaldistance, transaction costs, learning, micropolitics, and other factors inthe internationalization of enterprises. But they have been less successfulat unravelling the interaction of such factors. In that way, they have notadequately explained what happens in concrete and complex instancesof real organizational life in multinationals. The real world was crying outfor someone to go there and see what it is like, in theoretically sampledsubsidiaries, cleverly combined to represent combinations of factors anddevelopmental histories. Florian Becker-Ritterspach has done that, andin this way he has provided a valuable service, cutting through the vagueand unhelpful discussions about ‘hybridization’. In a world in whichraces, institutions, cultures, strategies and markets evolve and inter-mingle; we are all hybrids, of course, including the cars that we drive andthe organizations in which we work. Yet, the recombinations that occurhave locally specific forms that are interesting beyond the banal fact ofhybridity, and they can be explained quite well. This is what this bookdemonstrates in exemplary form. This what makes it valuable for every-one in or looking at multinationals, also those that do not know India ordo not much care for the automobile industry in particular, like myself.

Florian was ideally prepared for this task, having grown up for someyears in Nepal, working in his mother’s business and having spent timein India, before launching himself into this study. I am very happy and

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xii Foreword

proud to have served him, first, as a university teacher at HumboldtUniversity, Berlin, then as a career counsellor, doctoral supervisor andhis immediate boss in Groningen. The results of this book could nothave been properly presented in an article, not even a series of arti-cles. Even where messages are basically simple they may have complexqualitative ramifications; books are still indispensable to make thesemessages credible. I am also happy that Florian has demonstrated thisto the number-crunching research-journal impact-score fetishists in ourresearch evaluation establishment.

Arndt SorgeUniversity of Groningen and

Wissenschaftszentrum für Sozialforschung,Berlin

Preface and Acknowledgements

Writing this book was a painstaking process in a number of ways: get-ting access to companies during my stay in India, living in a developingcountry on a tight budget, and filling threatening white pages withmeaningful thought, appeared at times a never-ending, insurmountabletask. Or using the analogy of flying an aircraft: I started with a planeloaded with fuel, all systems and engines running smoothly. However,once in India two of my engines were suffocated by the thick dust hang-ing over New Delhi, when two firms decided they no longer wanted toparticipate. After some intense efforts and a mobilization of all possiblesocial capital, I managed to re-ignite the engines by replacing the lostfirms with two alternatives. However, this was only the beginning; along flight back was still lying ahead. On my way back to the Nether-lands, loaded with voluminous empirical cargo, it felt too heavy, as if toomuch fuel was being burned without covering enough distance. And asif this was not enough, it felt as if all navigational systems were beinglost during night-flight, when I started to explore and make sense of theempirical quagmire. Strangely, hard work, instinct and maybe a handof God guided me and kept me on route. Approaching home, circlingaround the airport several times was unavoidable due to bad visibility.Running low on fuel, the clouds suddenly broke and the runway cameinto sight. I finally managed to touch down on the last drop of kerosene,leaving everything miraculously without major structural damage. Itshould not be forgotten here that this flight was only possible with thesupport of air traffic controllers, a highly supportive ground crew andinfrastructure. Therefore, I would like to thank very much a number ofpeople and institutions, without whom this project never could havegot off the ground and brought back home safely. First of all, I wouldlike to thank my parents and my wife Jutta. I would like to thank myparents, who lay the foundations of what I was able to achieve and neverlost faith in my work when I was uncertain. I would like to thank mywife, who helped me to structure my thoughts in numerous discussions,who comforted me when I faltered, and who took on the arduous taskof proofreading some of my work. In this context, I also would like tothank Christoph Dörrenbächer who gave me invaluable comments torevise my book for Palgrave Macmillan.

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xiv Preface andAcknowledgements

Moreover, I would like to thank a number of people and friends, whosupported me during my research stay in India and helped with thedifficult task of gaining access to companies. In this context, I wouldlike to particularly thank a number of Indian women including Vijayand Pushpa Bhatia, Kavita Datta, Anandi Iyer, Sonia Prashar and PriyaJaikishan, who proved much more dependable than their male coun-terparts. I am also very grateful to Augustus Mallier, whom I got toknow years ago, during my first research stay in India and who hasbecome a close friend. Moreover, I would like to extend my thanksto a number of New Delhi–based organizations, which were very sup-portive, including the German Embassy, the Indo-German Chamber ofCommerce, and the GTZ (Gesellschaft für Technische Zusammenarbeit).And I would like to thank of course the companies and organizationswho granted me interviews enabling me to realize this project. Finally,I would like to thank my supervisors Arndt Sorge and Jacob Wijngaard.Here, I would like to thank especially Arndt Sorge, who has been a verydependable air-traffic controller, who monitored my flight and providedme with invaluable support and direction to master air turbulence andother navigational challenges. Arndt Sorge has been in the best senseof the German word a Doktorvater to me. Last, but not least, I grate-fully acknowledge the grants received for this study from the GermanAcademic Exchange Service (DAAD) and the Research School Systems,Organization and Management (SOM).

Florian A. A. Becker-RitterspachUniversity of Groningen and Wissenschaftszentrum

für Sozialforschung,Berlin

List of Abbreviations

ACMA Automotive Component Manufacturers’ AssociationAITUC All India Trade Union CongressBEMs Big Emerging MarketsBMS Bharatiya Majdor SanghCITU Centre of Indian Trade UnionsCKD Completely Knocked DownCPI Conduttori di Processi IntegrateDB Daimler BenzDC DaimlerChryslerEWA Engineering Workers’ AssociationFDI Foreign Direct InvestmentFERA Foreign Exchange Regulation ActFIAL Fiat India Auto LtdFI Fiat India Private LtdGoI Government of IndiaGM General Motors CorporationHCV Heavy Commercial VehicleHML Hindustan Motors LtdHMS The Hindu Majdoor SabhaHR Human ResourcesHRM Human Resource ManagementIB&M International Business and ManagementIAL India Auto LtdIB International BusinessIDA Industrial Disputes ActIEA Industrial Employment Standing Orders ActIIT Indian Institute of TechnologyINTUC Indian National Trade Union CongressITI Industrial Training InstituteJIS Just In SequenceJIT Just In TimeJV Joint VentureKEPS Kamgar Ekta Premier Sanghatana

xv

xvi List of Abbreviations

LCV Light Commercial VehicleMB Mercedes-BenzMBI Mercedes-Benz India LtdMBO Management by ObjectivesMBPS Mercedes-Benz Production SystemMD Managing DirectorMNE Multinational EnterpriseMoU Memorandum of UnderstandingMPS Maruti Production SystemMRTP Monopolies and Restrictive Trade Practice ActMSI Maruti–Suzuki IndiaMUEU Maruti Udyog Employees’ UnionMUKU Maruti Udyog Kamgar UnionMUL Maruti Udyog LtdMUV Multi Untility VehiclePAL Premier Auto LtdPLEMAs Periphery of Large Existing Market AreasPSUs Public Sector UndertakingsRs RupeesSAI Skoda Auto India Private LtdSIAM Society of Indian Automobile ManufacturersSKD Semi Knocked DownSMC Suzuki Motor CorporationSMPIL Standard Motors Products of India LtdSPS Skoda Production SystemTELCO Tata Engineering and Locomotive Company LtdTUA Trade Union ActUNIDO United Nations Industrial Development OrganizationUTE Unità Tecnologica ElementareVAT Value Added TaxVRS Voluntary Retirement SchemeVW Volkswagen AGWTO World Trade Organization

Part 1Theoretical Foundations

When complex organizational systems developed in one social con-text (in this case Japan) are transferred to a different setting (theUnited States), they change, and the resulting system is neither acopy of the original model nor a replica of existing local patterns butsomething different.

(Eleanor Westney in Liker et al. (1999), Remade inAmerica: Transplanting and Transforming Japanese

Management Systems, p. 385. By permission ofOxford University Press.)

1Introduction

Background

Multinational enterprises (MNEs) setting up production sites abroad facethe ongoing challenge of how to configure their subsidiaries’ productionsystems. This organizational challenge involves the questions: WhetherMNEs should define and transfer whole production templates or onlyapply a limited range of policies? What kinds of adaptations are pos-sible and required to match the transferred templates with local or hostcontext conditions? And which templates and practices may not betransferable at all but either have to be drawn from or customized tothe local or host contexts? Based on these organizational challenges forMNEs, this study tries to understand how and why subsidiary productionsystems differ with regard to their contextual origin or constitution, thatis, their hybridization profile.

While answering such questions are important for any international-izing firm, they are even more salient if provided for firms setting upproduction sites in large and newly emerging economies. By providing acomprehensive understanding about the conditions of India’s businesscontext for foreign direct investment (FDI) with a particular focus on theautomobile industry this work serves such a purpose.

Research gaps and contributions

The aim of this study is to make a major theoretical and empiricalcontribution to hybridization research in organization studies and inter-national business. Hybridization research refers here to different bodiesof literature that are concerned with questions of transfer and adaptationof organizational forms and practices (including production models orsystems) in MNEs or in cross-national settings.

3

4 Hybridization of MNE Subsidiaries

The study’s theoretical contribution

While there is no organizational hybridization theory as such, there area number of studies from different research traditions that have eithercontributed to or adopted a hybridization perspective (e.g. Abo et al.,1994; Boyer, 1998; Brannen, 1999). Many of these contributions havefocused on MNEs because it is particularly challenging to understandthe contextual constitution of organizations that are embedded in dif-ferent national contexts. In this study, three main bodies of researchare identified that have made seminal contributions to the questionhow we can capture hybridization outcomes and why these outcomesoccur when organizational forms and practices are transferred acrossborders and units in MNEs. These bodies include: the Japanization ortransplant literature (e.g. Turnbull, 1986; Ackroyd et al., 1988; Elger andSmith, 1994; Oliver and Wilkinson, 1988; Florida and Kenney, 1991; Piland McDuffie, 1999), Institutionalist approaches (e.g. Rosenzweig andSingh, 1991; Westney, 1993; Kostova, 1999; Kostova and Roth, 2002;Whitley, 2001; Lane, 2000; Morgan, 2001; Sharpe, 1997; Lorenz, 2000;Saka, 2003) and contributions from the field of International Business(e.g. Bartlett and Ghoshal, 1998; Prahalad and Doz, 1987; Birkinshawand Hood, 1998; Beechler et al., 1998; Gupta and Govindarajan, 2000;Chini, 2004). However, this work shows that all three bodies of litera-ture remain unsatisfactory for our understanding of hybridization inMNEs, if they are left unconnected. Specifically, the discussion of thedifferent approaches illustrates: (1) that hardly any body of literaturesystematically addresses the impact of both strategic and institutionalcontextual difference on production system hybridization; and (2) thatmost studies on production system hybridization fail to thoroughly the-orize and empirically research how strategic choices at the corporate andsubsidiary level influence hybridization outcomes in MNEs.

Addressing these gaps, this work makes two main theoretical contri-butions to the emerging body of hybridization research in OrganizationStudies and International Business. The first contribution is to addressthe question how the complex contextual embeddedness of sub-sidiaries impact transfers and adaptations and thereby production systemhybridization. In contrast to much of earlier hybridization research (seeChapter 2), it is particularly stressed that production systems emerge outof both specific strategic and institutional contexts. It is proposed thatstrategic and institutional differences constitute two distinct sources ofcontextual distance that impact production system hybridization. Thesecond contribution is to explore the association between production

Theoretical Foundations 5

system hybridization and different strategic choices at the corporate andsubsidiary level. In contrast to the neglect of this relationship in much ofearlier hybridization research (see Chapter 2), it is proposed that genericproduct strategies of MNEs and entry modes of subsidiaries have a stronginfluence on hybridization outcomes.

The study’s empirical contribution

Extant hybridization research, particularly Japanization research, hasmade important contributions to understanding the conditions of thetransferability of production systems. However, the literature has largelyneglected non-Japanese transfer origins as well as non-Western trans-fer destinations. This study addresses the empirical bias by focusingon the constitution of subsidiary production systems in India, involv-ing not only Japanese companies, but also a German, an Italian anda Czech/German MNE. Moreover, although researchers from Organ-ization, Management and International Business studies have paidincreasing attention to Asian business contexts, most notably to the‘Asian Tigers’ and China, India, one of the most important emergingeconomies in Asia, has been largely neglected. By focusing on India,the study provides insight into one of the most important emergingmarkets and business environments of the 21st century. Finally, withits focus on the emerging automobile industry in India, this study alsomakes a contribution to understanding the processes of international-ization in the automobile industry, one of the world’s most importantand international industries.

Research objective

The research objective of this study is to explore how and why thehybridization profiles of four automobile-subsidiary production systemsin India differ.

The how-question in this work involves identifying the hybridizationprofiles of the four subsidiaries’ production system. The term ‘hybrid’,which means in its Latin root ‘of two origins’, refers in this context tothe emergence of organizational forms that are constituted by differentcontextual origins. In this research context a hybridization profile essen-tially describes how the different dimensions, defined to constitute thecore of a production system, reflect different contextual origins. Drawingon and extending seminal contributions of hybridization research (e.g.Boyer, 1998) the different contextual origins of a production system can


be captured by four ideal typical (hybridization) outcomes, comprising:imitation, localization, hybridization and customization/novelty. Thus,a hybridization profiles describes in this study the contextual origin oforganizational configurations along a number of predefined organiza-tional dimensions. It is important to note, that the approach in this workdiffers from much of the earlier work in this field in that it does not pre-define a specific production system or model to be transferred and askingin a second step what is implemented and what is not (e.g. Abo et al.,1994). Instead, it takes a more open approach by defining core dimen-sions of a production system and by identifying then what contextualorigin the respective dimensions reflect. Such an approach is based onthe assumption that transfers in MNEs understood as ‘transnationals’(Bartlett and Ghoshal, 1998) may have many sources, drivers, and maybe, rather than being based on clearly intended and comprehensivelydefined transfer templates, based on transfer restraint, selective transferintentions or even inarticulate, fuzzy transfer efforts.

The why-question asks why similar or different hybridization profileshave come about in the production set up of the four automobile-subsidiaries in India. Drawing on and refining earlier research (Westney,1993; Beechler, 1998; Brannen, 1999), hybridization outcomes in MNEsare seen to be constituted by the interaction of three varying factors com-prising different: transfer scenarios, contextual misfit/recontextualizationpressures and recontextualization modes (see Chapter 3).

The transfer scenario involves the question, whether or not an MNEtransfers a template or poses demands vis-à-vis a local production sys-tem. There are three ideal typical starting points for transfer scenarios:A foreign/parent template transfer, a host/local template use or, nei-ther a foreign/parent template transfer nor a local/host template use.Based on the different transfer scenarios there are different kinds of fitsor misfits these starting scenarios can face. For example, a foreign/parentcontext template can (mis)fit the local/host context just as a local/hostcontext template may (mis)fit the foreign/parent context. Misfits ofwhatever kind tend to induce pressures for adaptation, that is, recontex-tualization pressures. The final factor involves the question how misfitinduced recontextualization pressures are resolved. It is argued that twoprinciple recontextualization modes exist that can be simultaneously atwork. The first mode involves the adaptation of foreign/parent context(templates, demands or conditions) to the local/host context. The secondmode involves the opposite, the adaptation of the local/host context to


the foreign/parent context (templates, demands or conditions). Depend-ing on the interaction of these three variables we can expect differenthybridization outcomes.

It is argued in this study that the variance on these three constituentfactors of production system hybridization can only be properly under-stood, if we consider: (1) the role of both strategic and institutionaldistance, (2) the impact of strategic choices at the corporate and sub-sidiary level, and (3) the possible interplay of strategic choices andcontextual distance.

The structure of the study

This study is organized as follows: In the first part of the book, comprisingChapters 1–3, develop the theoretical foundations of the study. Follow-ing the introductory chapter, Chapter 2 comprises the literature reviewand discussion. While Chapter 2 serves to identify research gaps withregard to subsidiary production system hybridization, it simultaneouslyprovides building blocks for the analytical framework in Chapter 3. InChapter 3, the analytical framework and the research methodology arepresented. In this chapter the unit of analysis and different hybridizationoutcomes are defined. Moreover, propositions are developed, delineatingthe expected association between hybridization outcomes and institu-tional/strategic distance as well as between hybridization outcomes andstrategic choices. Following the presentation of the analytical frameworkthe study’s research design is presented at the end of the chapter.

The book’s empirical part starts with Chapter 4. The chapter pro-vides an introduction to institutional and strategic context conditions inIndia that are particularly relevant for production system hybridization.The chapter focuses particularly on the conditions for the automo-bile industry in the Indian business context. Presenting and analyzingthe hybridization profiles of four automobile subsidiaries in India,Chapters 5–8 present the main empirical part of the study. Specifically,Chapter 5 covers Maruti-Suzuki India Limited, Chapter 6 Fiat India Lim-ited, Chapter 7 Mercedes-Benz India Limited and Chapter 8 Skoda IndiaLimited. Finally, Chapter 9 comprises a discussion and conclusion of theempirical study, including a critical reflection of the study as well as abrief outlook for further research.

2Transfer and Hybridization in MNEs

Most studies that have made contributions to the questions of hybridiza-tion within the context of cross-border transfers in MNEs fall into atleast one of the following three larger bodies of literature, namely:Japanization or Transplant, Institutionalist and International Businessliterature. While not all contributions can be exclusively classified as oneor the other, most contributions can be subsumed under either of thesebodies of literature (particularly their sub-streams) based on their maintheoretical and empirical orientation. The following literature reviewintroduces the Japanization, Institutionalist and International Businessliterature and their sub-steams and discusses their specific contributionto the question how- and why hybridization of organizational formsand practices – including production systems – occurs in MNEs and theirsubsidiaries. The chapter closes with a comparison of the strengths andweaknesses of the different bodies of literature. It is shown that no oneapproach makes an effort to relate systematically the hybridization ofsubsidiary production systems to the impact of both the strategic andinstitutional distance and to strategic choices at both the corporate andthe subsidiary level.

Japanization or Transplant perspectives

Hybridization perspectives have strong roots in the Japanization researchof the 1980s and 1990s. Triggered by a stark rise in Japanese FDI to the USand UK, combined with the influential work of management gurus anda perceived superiority of Japanese business practices an immense bodyof literature evolved around the transferability of Japanese productionsystems and practices. Westney argues that Transplant research – as apart of the wider Japanization research – not only emerged as a subfield

8


in MNE-research but was ‘arguably the most widely studied aspect ofthe organization of multinational enterprise in the 1980s and 1990s’(Westney, 2001, p. 640).

Commonly, two major strands have been identified in the Japaniza-tion literature: the Labour Process and the Lean Production perspective(Saka, 2003; see Stewart, 1998 for a similar mapping of the debate). Thisdistinction is particularly helpful with regard to mapping early contribu-tions. For the two streams not only vary in focus – ‘managerial-user vslabour control’ (Saka, 2003) – but also offer strikingly different answers tothe questions whether the cross-national transfer of Japanese productionsystems is possible and whether contextual differences play a constrain-ing or modifying role for such transfers. Interestingly, the two bodiesof the Japanization debate not only originate mainly from the US andthe UK – reflecting Japanese FDI patterns in the 1980s and early 1990s –but they also reflect different research traditions on the two sides of theAtlantic.

The Lean Production perspective

The North American side of the Japanization literature is firmly embed-ded in the Lean Production debate (Saka, 2003). Contributions locatedwithin this perspective are overall optimistic about the possibilities ofsuccessful Japanese production system transfer (Krafcik, 1986; Adler,1993). They also tend to emphasize the progressive nature of Japaneseproduction systems for the employment relations (e.g. Adler and Cole,1993). With the managerial-user in mind, the Lean Production per-spective’s main level of analysis is the firm. Although, the perspectivesubstantially develops over time, its original proposition is the universalapplicability and competitive superiority of Japanese production sys-tems. The most prominent representations of this view are Womacket al.’s (1990) work and in a more elaborate expression the work byFlorida and Kenney’s (1991a, 1991b; Kenney and Florida, 1993; seealso Pil and MacDuffie, 1999). Based on both survey and case studyresearch, these authors investigate to what extent predefined ideals ofthe Japanese production systems can be transferred to the United States.Excepting the work of Abo et al. (1994) (see discussion below), thereis initially little elaboration and conceptualization of outcomes otherthan successful transfer or imitation of production systems. Althoughearly contributions in this body of literature admit that adaptations areunavoidable, these are rated as ‘transfer-with-secondary-adaptations’ oras ‘functional equivalents’, which are not compromising the transferof the core of the production system or its performance (Kenney and


Florida, 1993; see also Oliver and Wilkinson, 1988; Mishina, 1998; Adleret al., 1998; Pil and MacDuffie, 1999). Nevertheless, despite overall opti-mism about transfer success, these studies already indicate that transferis not equally successful across all dimensions of a production systemand varies by transfer content. Typically, adaptations are found in thecompanies’ industrial relations and in specific aspects of human resourcemanagement. For example, aspects such as wage determination andlabour relations are adapted to fit the US context (e.g. Adler et al., 1998;Pil and MacDuffie, 1999).

Notwithstanding that adaptations to local or host contextual con-ditions are found, especially early contributions stress that contextualdifferences do not impede transfers in a meaningful way (Florida andKenney, 1991b, p. 193). Japanese production systems are hailed asculture-free and independent of specific contextual conditions. In areaswhere contextual misfit and production system adaptation cannot beignored entirely, the ability of resource- and powerful firms to select,change and/or to create the required internal and external context isemphasized (Florida and Kenney, 1991a). To be fair, while early contri-butions downplay transfer outcomes other than straight imitation andcontextual differences as causes for transfer difficulties or restraint, morerecent contributions in this stream take a different view. Scholars in thisbody of literature have come to embrace the notion of ‘hybridization’or of similar concepts such as ‘third culture’, ‘transformation’ or ‘recon-textualization’ to capture transfer outcomes in a more differentiated andcomplex way (e.g. Wilms et al., 1994; Liker et al., 1999; Adler et al., 1998;Adler, 1999; Babson, 1998; Brannen et al., 1999). Also, with respect tothe question why transfer outcomes differ, there is a growing attentionto how contextual differences and the context-boundedness of certainpractices impact transfer propensities and adaptation pressures. In thiscontext a number of contributions even identify institutional or soci-etal difference as important factors influencing transfer and adaptationdynamics (e.g. Adler et al., 1998; Babson, 1998; Adler, 1999; Brannenet al., 1999; Liker et al., 1999; Pil and MacDuffie, 1999).

The main reasoning is that as some practices (or dimensions of a pro-duction system) are more embedded in institutional environments thanothers. As institutional environments differ from country to country, theease of transfer varies with the kind of practice (e.g. level of tacitness) andthe level of institutional difference. Notwithstanding the increasing con-cern with institutional contexts and their impact on the transferability inthis body of research, the conceptualization of institutional frameworkremains overall ad hoc and under theorized (c.f. Elger and Smith, 2006).


In contrast to the weak concern with institutional context, scholarsfrom the Lean Production wing have stressed for some time the impactof task environmental and business contextual difference on transferpropensity and adaptation. For example, Abdullah and Keenoy (1995)show, in the case of Japanese electronics firms in Malaysia how lowlabour costs and low profit margins in the host context lead to transferrestraints on the part of the Japanese parent (see also Dedousis, 1995).In a similar vein, Kenney and Florida (1995) find substantial differencein transfer propensity depending on the sector or industry. AlthoughKenney and Florida (1995) do not develop a theoretical framework thatsystematically relates strategic choices to transfer propensity, adaptationrequirements, different adaptation modes and hybridization outcomes,their findings suggest a close connection between transfer propensity andstrategic factors, such as time of market entry and establishment modes.They also find associations between the nature of the production process(labour intensive task environment or not), the international divisionof labour in the MNE and the transfer propensity (Kenney and Florida,1995; see also Abdullah and Keenoy, 1995; MacDuffie, 1995; Dedousis,1995; Itagaki, 1997; Adler, 1999; Liker et al., 1999; Wilkinson et al.,2001).

Seminal contribution:Abo and colleagues

The work of Abo et al. (1994, see also Itagaki, 1997; Kumon and Abo,2004) is discussed here in more detail because it belongs to the first contri-butions to conceptualize and empirically research different hybridizationoutcomes within the context of cross-border transfers of production sys-tems in MNEs. While Abo et al. (1994) share the conviction that Japaneseproduction systems are ‘best practices’ and that anything but their fullapplication is a trade off, they concede that some adaptation may berequired as local contexts differ. It is a situation that they also define asthe ‘Application–Adaptation Dilemma’ for Japanese firms.

In a study of 34 Japanese auto assembly, auto parts, consumer elec-tronics and semiconductor firms in North America, Abo and colleaguesinvestigate how the outcomes of production system transfer differ. Theydistinguish four types of outcomes, including: outright application,revised application, active adaptation and passive adaptation. ‘Out-right application’ involves that a predefined element or elements ofthe Japanese production system are applied without alternation. Whileoutright application is the ideal scenario, the authors concede that adap-tation may be a deliberate choice for certain elements to allow theapplication of other – potentially more important – elements. This is


what they call a ‘revised application’. ‘Active adaptation’ implies that afirm deliberately draws on a wide range of typical elements of the localproduction system, actively seeking their duplication. Finally, a ‘pas-sive adaptation’ means that an application has failed and that instead ofthe Japanese production system, the local production system is used orprevails.

In a further step, Abo and his colleagues (1994) determine the degreeof hybridization by the extent to which typical Japanese production sys-tem elements are found in Japanese owned production plants in theUnited States. Using an ‘application-adaptation-evaluation form’, thecore question is to what extent the American subsidiaries apply pre-defined elements of the Japanese production system. By placing theJapanese and American systems at opposite ends of a continuum, theauthors are able to determine the degree of application or adaptation.Based on this framework, Abo and colleagues identify in their survey dif-ferent hybridization patterns across industries, plants, and productionsystem elements. The authors show that the ideal Japanese produc-tion system, as initially defined, cannot be found in American plants.Their hybridization ratios show that transfer success is on average littlemore than 50 per cent. In other words, the authors find a dominanceof hybrid systems, reflecting neither the Japanese nor the Americanproduction system in purity. Yet, while Abo et al. (1994) admit that‘certain practices take on a new form, quite apart from anything thatalready exists in America or in Japan’ (Abo et al. 1994, p. 36), theydo not pay attention to novel outcomes with regard to specific produc-tion system elements. In their survey analysis, Abo et al. (1994) identifyhybridization profiles on an aggregate level by calculating to what extentthe Japanese or the American production system has been ‘applied’ or‘adapted’. This is essentially a dichotomous view of hybridization, basedon either Japanese/imitation or American/localization outcomes acrossthe elements of a production system.

While the work of Abo et al. (1994) presents an elaborate frameworkhow transfer outcomes may differ, there is only a weak and largely ex posttheorization as to why such differences occur (c.f. Adler, 1999). These expost theorizations include cultural as well as task environmental factors.Abo and colleagues reason, for example, that difficulties in applicationand requirements for adaptation are connected with the interrelated-ness of different production system elements and their embeddedness inthe Japanese culture and society. Moreover, as the Japanese productionsystems are strongly human centred, they require specific contextualconditions that are not readily available in historically and culturally


different environments (Abo et al., 1994). Finally, while Abo et al. (1994)refer to factors such as the nature of production process, operation sizeand operational characteristics to explain different application levelsacross industries, they leave the connection between strategic choices,transfer propensity and different hybridization outcomes largely unex-plored. It also remains unclear whether the Japanese production system’ssuperiority is seen as universal or as contextually founded. This also leadsto some ambivalence with regard to the question whether a full transferis always the best option.

The Labour Process strand

With strong roots in the Labour Process tradition (Braverman, 1974) theBritish side of the Japanization debate tends to be very skeptical aboutboth the prospects of widespread transfer of Japanese production systemsand its emancipatory value (e.g. Turnbull, 1986; Ackroyd et al., 1988;Dickens and Savage, 1988; McKenna, 1988; Marchington and Parker,1988; Briggs, 1988; Morris, 1988; Crowther and Garrahan, 1988; Brat-ton, 1990; Garrahan and Stewart, 1992; Delbridge et al., 1992; Sewell andWilkinson, 1992; Delbridge, 1995; Danford, 1997; Procter and Ackroyd,1998).1 As far as the level of analysis is concerned, the Labour Process lit-erature varies between the industry and the firm level. At the firm level,the question is not only whether Japanese MNEs succeed in transfer-ring their production systems but also whether British firms are able toemulate such production systems.

Turnbull (1986) is generally seen to have initiated the Japanizationdebate with regard to the question of the transferability of Japanese pro-duction systems to the UK. In a case study he asks whether British firmssuccessfully emulate Japanese management practices. While Turnbullidentifies industry-driven and government supported changes towards‘manufacturing “a la Japanese style” ’, he is very skeptical about thepossibility of transferring ‘ “high-trust” management techniques intoan essentially “low trust” environment’ and stresses ‘the problems of“grafting on” Japanese production methods without some wider socialor institutional parameters found in Japan’ (Turnbull, 1986, p. 204; seealso Ackroyd et al., 1988; Procter and Ackroyd, 1998; Stewart, 1998).

What does the Labour Process wing of the Japanization debate suggestwith regard to the question how and why the outcomes of produc-tion system transfer differ? Essentially transfer outcomes are capturedin this perspective as a dichotomy between, either successful transfer ofJapanese elements – which is generally held unlikely or very difficult –or a continuation of local patterns. While early contributions from the


Labour Process stream are little concerned with the emergence of hybridor novel organizational outcomes, research findings suggest that thedegree of Japanization varies across different dimensions of a produc-tion system due to the selective nature of transfer or practice adoption(e.g. Turnbull, 1986; Taylor et al., 1994; Procter and Ackroyd, 1998). Withregard to the question why transfer outcomes differ, the Labour Processrepresentatives stress the differences between home and host contexts.Production systems are seen to develop out of specific capitalist socialrelations. If such relations are different in the host country, transferbecomes very difficult, if not impossible. Scholars in the Labour Processwing tend to implicitly or explicitly stress society as well as region spe-cific expressions of the universal tensions in capital–labour relations (e.g.Elger and Smith, 1994). With a strong focus on social relations in generaland labour relations in particular, contributions in the British strand aresensitive to the institutional origins of transfer contents and differentkinds of local institutional barriers to transfer or conflicts related to it(e.g. Turnbull, 1986; Ackroyd et al., 1988; Dickens and Savage, 1988;Graham, 1988; Procter and Ackroyd, 1998; Morris et al., 1998). TheBritish Japanization debate also makes first steps towards hybridizationresearch by pointing to processes of conflict and institutional constraintswithin the context of Japanese production system transfers. What ismore, recent contributions in this research tradition have also movedbeyond dichotomous views of transfer outcomes and recognize or adoptthe notion of hybridization (Wilkinson and Ackers 1995; Mair, 1998;Scarbrough and Terry, 1998; Smith and Elger, 2000; Elger and Smith,2006). However, with the notable exceptions of Elger and Smith’s work(introduced below) few contributions move beyond the home- and host-context difference to explain different transfer outcomes. The impact ofstrategic factors on transfer outcomes at the corporate and subsidiarylevel generally remain under explored. While few systematic compari-sons exist, exploring the impact of strategic choices at the corporatelevel, some authors in this stream deal with the impact of subsidiary-levelstrategic choices. Some authors ask here whether Greenfield operationsfacilitate transfers and mediate institutional distance, coming to con-trasting findings, however (c.f. Oliver and Wilkinson, 1988; Garrahanand Stewart, 1992; Smith and Elger, 1998).

Seminal contribution: Elger and Smith

The work of Elger and Smith is discussed here because it is mostelaborately concerned with questions of transfer and transferability ofJapanese production systems within the Labour Process Perspective.


Although Elger and Smith are critical about the ease to transfer Japaneseproduction systems and their emancipatory value, they do not deny thattransfers may be successful to some extent (e.g. Smith and Elger, 2000).In fact, being critical about both an overestimation and an underestima-tion of institutional pressures, they see possibilities for hybrid outcomesto emerge from transfers. With regard to the question how transfer out-comes differ, they take a middle ground between seeing transfers asalways reverting to local patterns in the face of nationally specific insti-tutional systems and seeing transfers as remaining unaltered in the faceof foreign parent pressure and demand (Elger and Smith, 1994).

With regard to the contextual impact on transfer outcomes, Elgerand Smith (1994) argue against ‘needlessly dualistic’ positions betweencontext bound and context free positions. Instead they suggest thatorganizational forms and practices are ‘simultaneously the embodi-ment of general economic efficiencies, culturally specific institutionalsupports and dominant best practices of a powerful economy’ (Elgerand Smith, 1994, p. 31). Accordingly, the authors see the transfer oforganizational forms and practices and their adaptation constituted bydifferent contextual pressures. In more recent contributions, they furtherspecify these different factors or contextual effects and come to call them‘system imperatives’ of capitalism, ‘societal effects’ exerted by the insti-tutional environment of nation states and ‘dominance effects’ exertedby ‘specific hierarchies of economic, military/political and cultural dom-inance and subordination among national states’ (Smith and Elger, 2000,p. 227; see also Elger and Smith, 2005, 2006).

Based on this broader framework of contextual effects the authorsexplore empirically the transfer of Japanese systems and practices toJapanese subsidiaries in Britain. They argue that the transfer of organiza-tional practices primarily rests on three aspects, including: the capabilityof transfer, the propensity to transfer and the negotiated appropriate-ness. The ‘capability of transfer’ refers to those factors that conditionwhether a company can actually transfer. These are different human andfinancial capabilities of firms, depending on ‘standard contingencies ofsize, power resources, technology and international experience’ (Smithand Elger, 2000, pp. 229–230). The ‘propensity to transfer’ is related tothe question whether firms want to transfer their systems and practicesand is seen to depend on ‘strategic intentions of the MNC in build-ing home-standard or more differentiated manufacturing facilities andmethods of work organization in overseas subsidiaries’ (Smith and Elger,2000, p. 232). In this context, Elger and Smith also suggest that moreoften than not transfers are piecemeal, rather then comprehensive and


complete. Finally, the ‘negotiated appropriateness’ refers to the adapta-tion requirements transfers face, when they arrive in a new local context.Specifically those related to a particular workplace and locality. Inter-estingly, however, Smith and Elger see this adaptation process not asunidirectional. Instead, adaptation dynamics are found to be a ‘workingout of transfer or a “fit”’ (2000, p. 232), involving adaptation pressuresfrom both, the local/host and the foreign/parent context. In this pro-cess, the Japanese practices as well as the local context transform to someextent. In their empirical study on Japanese transplants in the UK, Smithand Elger find no evidence of a ‘full and coherent package of manage-ment techniques suggested by ideal type portrayals’ (2000, p. 236). Whilethey find in some respects implemented features of an ‘ideal’ productionsystem, the overall picture is one of diversity and variation.

Institutionalist perspectives

Introduction

Institutional perspectives form the second body of research that hasincreasingly become concerned with the transfer of organizational formsand practices in MNEs. In contrast to the Japanization literature dis-cussed, Institutional perspectives elaborately theorize the social con-stitution of organizations. Despite all kinds of differences, a commondenominator of these approaches is seeing organizational behaviouras socially embedded. Institutionalist approaches generally reject thenotion that organizations are rational actors operating in response to sin-gular and universal logics of economic efficiency (Saka, 2003). Althoughinstitutional approaches have only recently focused on questions oftransfers and adaptations in MNEs and rarely focus on the transfer ofentire production systems, they fill important gaps in hybridizationresearch in general and in the research of production system hybridiza-tion in particular. First, Institutionalist approaches – even those thatdo not consider cross-border transfers – provide elaborate concepts forinstitutional contexts and differences that potentially impact productionsystem hybridization. Secondly, they increasingly apply Institutionalistthought to MNEs and their subsidiaries, addressing the question howtheir contextual constitution and how the transferability of organiza-tional forms and practices are impacted by their operation in differentinstitutional contexts.

While Institutionalist approaches share at a general level a com-mon understanding of organizations as social contextually constituted,the approaches differ markedly in their understandings of institutions.


Moreover, different Institutional approaches have also provided – at leastinitially – markedly different answers with regard to the transferabilityquestion of organizational forms and practices. Based on these two majordifferences – concepts of institutions and the transferability question –two bodies of approaches can be distinguished. The first body ofapproaches is commonly described as the Varieties of Capitalism liter-ature (e.g. Whitley, 1992; Lane, 1994; Hall and Soskice, 2001). Thesecond body comprises approaches that build on New Institutionalistthought (e.g. Meyer and Rowan, 1977; Zucker, 1977; DiMaggio andPowell, 1983). Interestingly, both strands dominate again in the US andEurope respectively and are, therefore, also labeled American Institution-alism and European Institutionalism (Tempel and Walgenbach, 2003;Geppert et al., 2004).

Although Institutional perspectives with their strong focus on thesocial constitution of organizational forms suggest themselves foranalysing questions of organizational hybridization, early Institutionalcontributions were reluctant to do so. In fact, both the American andthe European Institutionalism neglected the conceptualization of hybridorganizational forms and practices. This initial neglect has basically tworeasons: first, a relatively modest concern with MNEs and their sub-sidiaries as special kinds of organizations facing a particular institutionalcontextual complexity, and second, different contextual frames of ref-erence, with organizational fields being the main frame of reference onthe American side and the nation on the European side. However, morerecently contributions from both research traditions started to focus onthe MNE and asked what happens when organizations face ‘institutionalduality’ (Kostova and Roth, 2002) or are ‘organized across institutionaldivides’ (Morgan, 2001a).

American Institutionalism

American Institutionalism or New Institutionalism is crucially definedby the seminal contributions of Meyer and Rowan (1977), DiMaggioand Powell (1983), Zucker (1991) and Scott (1995). One basic idea is thatprocesses of isomorphism in organizational fields lead to an increasinghomogenization of organizational structures, forms and even practices(DiMaggio and Powell, 1983). Regarding the question how transferoutcomes differ, early contributions in the American Institutionalismsuggest that the diffusion, i.e. transfer and imitation of organizationalforms and practices within structured organizational fields is not onlypossible but widespread. In this perspective there is only little room forconcepts about alternations of what is being transferred. With respect to


the question why such outcomes occur, the focus is on the unifying forcesof the field and field embeddedness of the organization. Essentially, theshared institutional context and pressures facing organizations in thesame field explain the diffusion of organizational forms and practicesacross organizations. In this context, the work of DiMaggio and Powell(1983) is most detailed in mapping these unifying institutional pres-sures, comprising of: coercive, mimetic and normative forces. (DiMaggioand Powell, 1983). The lacking consideration of hybrid or novel out-comes in the early American Institutionalism can probably be explainedby the neglect of MNEs that straddle by their very nature substantiallydifferent (national) institutional contexts or fields (see also Temple andWalgenbach, 2003). To be fair, even early approaches from AmericanInstitutionalism cast doubts over the question whether a neat diffusionand imitation of organizational forms can be expected under all circum-stances. They recognize that organizations may face different or evencontradictory institutional pressures, which may be resolved by decou-pling (Meyer and Rowan, 1977) or ceremonial adoption (DiMaggio andPowell, 1983) (c.f. Oliver, 1991). By the same token, DiMaggio (1988)admits that initial contributions from New Institutionalism did not payattention to results short of perfect diffusion or institutionalization.

More recently, New Institutional thought was taken up and appliedto the MNE (e.g. Westney, 1993; Rosenzweig and Singh, 1991; Kostova,1999; Kostova and Roth, 2002). In these contributions the main level ofanalysis shifts from the organizational field to the organization. In con-trast to earlier contributions, this work explicitly addresses the questions:(1) how the subsidiaries of MNEs are contextually constituted given theirembeddedness in different institutional contexts, conceptualized as ‘dualpressure’ (Rosenzweig and Singh, 1991) or ‘institutional duality’ (Kostovaand Roth, 2002); and (2) how ‘institutional distance’ (Kostova, 1999)between transfer origins and destinations impact the adoption of suchtransfers in MNEs. With regard to the question how- and why transferoutcomes may not reflect perfect imitation and full diffusion these con-tributions also come to more differentiated answers. However, with theexception of Westney’s work (to be presented below) most contributionsin this body of literature adopt a dualistic perspective to capture the con-textual constitution of subsidiaries or transfer outcomes. Specifically, it ismainly seen to vary between different degrees of parent/home companypatterns or local/host context patterns with little in-between.

Regarding the question why such patterns beyond simple diffusionand imitation occur, it is argued that MNEs and their subsidiaries facedifferent – oftentimes contradicting isomorphisms – that pull in different


directions. Which side prevails is then linked to set of local/host context-ual variables and organizational variables – including strategic choices atthe corporate and subsidiary level. The work by Rosenzweig and Singh(1991) and Kostova and Roth (2002) are exemplary of this body ofresearch (see also Rosenzweig and Nohria, 1994; Tempel et al., 2006;Björkman et al., 2007).

Kostova and Roth (2002) examine, for example, the adoption oforganizational practices by subsidiaries of MNEs under conditions of‘institutional duality’. They specify this condition as one where ‘eachforeign subsidiary is confronted with two distinct sets of isomorphicpressures and a need to maintain legitimacy within both the host coun-try and the MNC (Kostova and Roth, 2002, p. 216)’. Kostova and Roth(2002) investigate to which extent organizational practices mandated forimplementation by the parent are actually implemented and internal-ized by MNEs’ subsidiaries and their employees (c.f. Kostova, 1999). Theauthors differentiate implementation and internalization levels betweenhigh or low and come to identify in their empirical study four differ-ent patterns of adoption: ‘active’ (implementation: high/internalization:high), ‘minimal’ (implementation: low/internalization: low), ‘assent’(implementation: low/ internalization: high) and ‘ceremonial’ (imple-mentation: high, internalization: low). While this approach shows thatorganizational practices transferred can be adopted by subsidiaries todifferent degrees, it tells us again little about qualitative changes inwhat is transferred. Such a research design does not allow discoveringhybrid or novel organizational solutions because outcomes are againdichotomously pre-defined.

Concerning the question why different degrees of implementation andinternalization occur, Kostova and Roth (2002) reason that the success-ful practice adoption by subsidiaries is crucially related to two factors:(1) the ‘institutional profile’ of the host country and (2) the ‘relationalcontext’ in the MNE. The first aspect suggests that the transfer successdepends on the ‘favourability’ of the host countries’ regulatory as well asthe cognitive and normative institutional profile. The concept of ‘insti-tutional favourability’ builds on the concept of ‘institutional distance’,which Kostova (1999) developed earlier. Kostova (1999) defines ‘insti-tutional distance’ as ‘difference between the institutional profiles of thetwo countries – the home country of the practice and the country of therecipient organizational units’ (Kostova, 1999: 316).The second aspect,the ‘relational context’ refers to the relation between the subsidiary andthe parent. In this respect Kostova and Roth (2002) refer to organizationor firm level factors (c.f. Kostova, 1999) and hypothesize that the level


of dependence, trust, and the identification of the subsidiary with theparent organization crucially impacts the transfer success. In their empir-ical study of 104 subsidiary locations in ten countries, Kostova and Roth(2002) test their explanatory model and confirm that transfer success –practice implementation and internalization – varies across foreign sub-sidiaries depending on the institutional context in the host country andthe relational context in the MNE.

Seminal contribution:Westney

Westney (1987, 1993) is discussed here because her work deeply the-orizes different transfer outcomes and the contextual conditions thatgive rise to such outcomes. On the one hand, her work (Westney, 1993)goes beyond other New Institutionalism inspired work in that it stressesinnovations as likely transfer outcomes. On the other hand, particularlyWestney’s early work (1987) goes beyond much work on hybridizationin that it offers a comprehensive and systematic account of the differ-ent adaptation modes organization can engage in if a receiving contextdoes not fit the requirements of organizational forms and practices to betransferred. We shall look briefly at these two contributions respectively.

Westney (1993) suggests that Institutionalist thought and the idea thatMNEs straddle different organizational fields can make an importantcontribution to explain the emergence of innovations. She identifies tworeasons why innovations emerge. First, innovations emerge, ‘when anorganizational pattern institutionalized in one field is introduced intoanother’ (Westney, 1993, p. 64). This outcome occurs, when organiza-tional practices originating in one institutional context, are transferred toanother and modified to fit the isomorphic pulls of a new context. As wewill see below, there are unintended as well as intended factors that cancause transferred systems to change in a new context. Second, innova-tions emerge, ‘when conflicting isomorphic pulls produce new structuresor processes’ (Westney, 1993, p. 65). In this scenario, there is not nec-essarily a transfer effort. A new structure or process simply emergesbecause an organization responds to different institutional demands.While Westney (1993) underlines that not all changes of organizationalforms justify labeling them an innovation, pure imitations are the leastlikely outcomes to occur in processes of transfer.

Now, in an earlier historical analysis, Westney (1987) explores inmore detail why such innovations or departures occur within the con-text of system or model transfer. Specifically, in her work Imitationand Innovation: The Transfer of Western Organizational Patterns to MeijiJapan she asks what happened to Western organizational forms, when


they were transferred to the Japanese environment in Meiji Japan. Hermajor finding is that the transfer of organizational forms across societalcontexts always brings about departures from the original model, fordeliberate or unintended reasons.

Unintended departures result from ‘imperfect information’ about theoriginal model and ‘implicit alternative concepts’ of the actors in thereceiving context (Westney, 1987). Thus, even if a perfect imitation issought, lacking information and different local readings and interpret-ations cause changes in the implementation of the model. With respectto deliberate departures, Westney (1987) identifies three kinds, includ-ing: ‘selective emulation’, ‘adapting the patterns to different societalscales’ and ‘adapting the new organization to an environment that lackssome of the organizations that support it in the original setting’ (West-ney, 1987, p. 25). A first reason for deliberate model departure lies in its‘selective emulation’ due to possible conflicts with valued local patternsor a preference for only some aspects in the original model. Whicheverway, it means that the transferred model is adapted to the local context,as certain elements are deselected or eliminated. As a result the trans-ferred model undergoes change, when implemented in the new context.A second reason for model departure is rooted in different geographicand demographic scales of the receiving environment. In this respect,Westney (1987) essentially introduces contingency variables to explainmodel adaptation. However, the third and main reason for deliberatemodel departures is seen in different organizational environments inthe receiving context. Westney (1987) argues that organizational formsare embedded in specific ‘organization-sets’ in their home environment.If transferred, the new host environment may either lack or differ interms of organization-sets required. In the face of this environment misfitorganizations have four principle options. They include: ‘elimination’,‘internalization’, ‘functional equivalents’, and ‘organization creation’.In all four scenarios there is initially a different or lacking organiza-tional context standing in the way of a full replication of the originalorganizational model. The elimination solution is about doing withoutor not transferring a certain element because the outside organizationalcontext lacks the conditions needed for a transfer. As a result of elim-ination there is a departure from the original model. Internalization isabout replicating a model by internalizing parts of the organizationalcontext, which are in the original model placed in the organizationalenvironment. In this scenario, the original model is also changed giventhe adaptations required for the internalization of the lacking exter-nal context. The functional equivalent solution implies less change


to the original organizational model. Although the host context doesnot provide the exact organizational environment required, functionalequivalents are available in the host context. Finally, in the organization-creating solution, the external organizational context is again unfit fora replication of the original model. However, in this scenario an effortis made to create the needed context in the host environment. In thiscase, there is the least amount of departure from the original model.This implies, however, some change in the host organizational context.Westney’s approach essentially suggests different adaptation modes rang-ing from an adaptation of the transferred model – to fit the local/hostcontext – to an adaptation of the local/host context – to fit the trans-ferred model. However, as Westney’s (1987) historical analysis doesnot deal with model transfer in MNEs, she is not concerned with howstrategic choices at different levels impact transfer outcomes. However,the strength of her approach lies in conceptualizing transfer outcomesother than imitation or localization and above all contrasting modes ofadaptation under conditions of contextual misfit.

European Institutionalism

European Institutionalism tends to be equated with the Varieties of Cap-italism literature (Whitley, 1999; Hall and Soskice, 2001). However, notall European Institutionalists can be placed or like to be placed under thelabel of Varieties of Capitalism (e.g. Sorge, 2004). In contrast to AmericanInstitutionalism, European Institutionalism is more diverse. Tempel andWalgenbach (2003) state, for example, that European Institutionalistsdiffer widely in focus and terminology. Major approaches to be subsumedunder the broad label of European Institutionalism include the ‘societaleffect approach’ (e.g. Maurice et al., 1980; Sorge, 1991) the ‘nationalbusiness system’ approach (e.g. Whitley, 1992), the ‘industrial order’approach (Lane, 1994) and the ‘social systems of production’ approach(Hollingsworth and Boyer, 1997). However, despite all diversity, Euro-pean Institutionalists generally focus on the importance of nationalinstitutional settings and logics and posit these contexts as crucial forthe contextual constitution of organizations. In line with this focus,the main analytical level tends to be the nation. European Institution-alists also share defiance against propositions about global convergenceor statements denying the ongoing relevance of national institutionalsystems in how business is conducted (Tempel and Walgenbach, 2003).In fact, some European Institutionalists even argue that national distinct-iveness not only persists despite of globalization but that globalizationitself increases and generates it (e.g. Sorge, 2005).


Like American Institutionalist, European Institutionalists are initiallynot particularly concerned with organizational hybridization. EuropeanInstitutionalists neglect organizational hybridization because they focuson the national distinctiveness of institutional systems and their organ-izations (mainly in comparative studies). This implies little concern fororganizations straddling different institutional contexts, such as MNEs.Moreover, European Institutionalists are initially only little concernedwith cross-border transfers of organizational practices. Even where suchtransfers are considered, national institutional forces are seen as over-riding the foreignness of imported organizational practices (e.g. Sorge,1995a). In other words, these early approaches suggest that transfersmainly revert to local/host context solutions, due to the overridingpower of national institutional settings.

However, since the late 1990s European Institutionalists have started todiscover the MNE. They pay increasing attention to MNEs and ask: Howdo national institutional contexts shape the strategies and structuresof firms that are organized ‘across institutional and national divides’?(Morgan, 2001a: 1). Like their American counterparts, European Institu-tionalists focus on the question (1) how MNEs and their subsidiaries arecontextually constituted, given their embeddedness in different insti-tutional contexts, and (2) how different institutional contexts betweentransfer origins and destinations impact the transfers of organizationalforms and practices in MNEs. What is more, not only has it been realizedthat MNEs and their subsidiaries are impacted by institutional systemsin complex ways, but it has also been questioned whether national insti-tutional systems suffice to account for the contextual constitution ofMNEs (e.g. Théret, 1997; Maurice, 2000; Morgan, 2001c). Approachesin this body of research have either focused on MNEs as a whole orsubsidiaries as their main level of analysis. While at the MNE level thecontributions mainly ask how the entire MNE is constituted, given theirembeddedness in different institutional contexts, the subsidiary levelanalyses are more intimately concerned with the question how practicetransfers across borders are impacted by institutional differences.

Regarding the former there is a substantial disagreement whetherhybrid solutions can be expected to emerge at the level of the MNE (e.g.Lane, 2001; Morgan, 2001a,b,c; Whitley, 2001). Whitley, for example,holds the development of hybrid MNEs unlikely due to the pervasivepower of the MNEs home countries’ business systems. This contrastswith Morgan (2001a,b; see also Morgan and Whitley, 2003) and Lane(2001) who see much more scope for MNEs to develop into hybrids orinto entities detached from any one particular business system. They see


cross-national transfers and interaction across sites as potential driversfor the emergence of organizational forms that reflect either differentinstitutional contexts or even constitute a context or institutional levelin its own right. It should also be noted that strategic choices at the cor-porate level are considered to some extent in these contributions? Thesechoices, however, are either seen to be determined by home-countryinstitutional effects (Whitley, 2003) or not systematically conceptualizedand empirically tested (Lane 2001; Morgan 2001a,b).

Regarding the subsidiary level studies, there is little disagreementabout the possible emergence of hybrid organizational forms. In thisstream transfer outcomes typically vary between different levels of imple-mentation. Although transfer outcomes are captured in different ways,a common strength of these subsidiary level approaches is their finegrained description of how these hybrid forms look like. Contributionstypically examine on the micro-level how actors and their interactions(including conflicts) constitute the transfer outcomes and how differenttransfer outcomes, in turn, can be explained by the actor’s different insti-tutional embeddedness (e.g. Sharpe, 1997; Lorenz, 2000; Ferner et al.,2001; Saka, 2003; Becker-Ritterspach, 2005).

Over all, with the exception of Boyer’s contribution (see discussionbelow), European Institutionalists are weak in defining and typifyingsystematically a full range of different hybridization outcomes. Whatis more, few studies (a notable exception of Boyer) look at the trans-fer of entire production systems. Concerning the question why differenttransfer or hybridization outcomes occur, European Institutionalist focuson the condition that MNEs are embedded in different institutionalenvironments and that these institutional environments strongly dif-fer from one another (e.g. in strength, coherence, etc.). As practices andorganizational forms grow out of specific institutional contexts and asinstitutional context differ substantially from one another, transfer out-comes are bound to differ. However, it is noteworthy that the approachesvary with regard to the level at which the relevant institutional contextis located. Clearly, the national level has become but one level beinglooked at. Increasingly supra-national and regional contexts come intothe focus. Also the level of the organization or firm and the nature ofthe transfer content itself receive growing attention (e.g. Sharpe, 1997;Lorenz, 2000; Saka, 2003; Edwards et al., 2005; Ferner et al., 2005).Nevertheless, different institutional contexts remain the core focus toexplain why organizational forms and practices change when transferredin MNEs. In contrast, European Institutionalist pay little attention to thequestion how different task environments or supply and demand market


conditions in different markets impact transfer propensities, adaptationrequirements and thereby hybridization outcomes. With the notableexception of a few, mostly recent contributions (Colling and Clark, 2002;Quintanilla and Ferner, 2003; Edwards and Kuruvilla, 2005; Almondet al., 2005),2 the embeddedness of the subsidiary in the organizationalcontext of the MNE and the impact of strategic choices at the MNE or sub-sidiary level are not addressed systematically and empirically researchedby European Institutionalists.

Seminal contribution: Boyer

Boyer’s hybridization approach (1998) is selected here because it is prob-ably one of the most systematic and comprehensive approaches withregard to capturing the how and explaining the why of production sys-tem hybridization. Boyer’s approach takes its starting point in a critiqueof ‘One-Best-Way’ claims of Lean-Production models. Although Boyeradmits that certain production models (e.g. Fordist, Sloanist, Toyotist)achieved epochal dominance, he underlines that different productionmodels have always coexisted in any given period of time. This coexist-ence has been and will remain possible because models of production arenot universally superior but contextually optimized. In this view, a con-cept of global model-diffusion is misguided because transferring a modelfrom one institutional context to another requires adaptations, callinginto question its universal applicability.

Boyer focuses on different transfer outcomes when MNEs transfertheir production systems or rather productive models across borders.His approach not only allows for contextually mixed organizationalforms – hybrids – but for a whole range of outcomes including: imi-tation and different modes of hybridization (see Table 2.1). He also

Table 2.1 Boyer’s four main types of hybridization

Nature of process Imitation The search for a Novelty (N)/Breadth of process functional innovation

equivalent (FE)

Partial: some Imitation 1 Hybridization 1 Hybridization 3components Partial imitation Partial FE Partial N

Complete: all Imitation 2 Hybridization 2 Hybridization 4components Complete imitation Complete FE Complete N

Source: Boyer, R., ‘Hybridization and Models of Production, Geography, History and Theory’(1998) fig. 2.6, p. 35. (By permission of Oxford University Press).


considers the possibility of complete transfer failure. By developing ataxonomy along the dimensions ‘nature of process’ and ‘breadth ofprocess’ Boyer refines the concept of hybridization. In a first step, hedistinguishes ‘straightforward imitation’ from hybridization and furtherdistinguishes hybridization depending on whether it rests on functionalequivalents or the emergence of novelty. ‘Functional equivalents’ referto the replacement of specific practices of a model with host contextpractices, while the general principle of the model remains untouched.‘Novelty’ or ‘innovation’, refer to the situation when a transplant comesup with principles and practices that neither show resemblance to hostcontext practices nor to the principles and practices of the original pro-duction model (Boyer, 1998). Boyer, finally, distinguishes hybridizationon yet another dimension which is the ‘breadth’ of the hybridizationprocess. This indicates that imitations, functional equivalents as well asnovelties can comprise of all, or only some of the components, of a givenproduction model.

In a second step, Boyer links the different hybridization outcomesto two core variables. He argues that different transfer outcomes arethe result of the compatibility or incompatibility between the ‘require-ments of a model of production’ of a firm and the ‘constraints andopportunities of the local institutions’ of the host space (Boyer, 1998,p. 34). Boyer indicates that the factors which influence the likelihood ofparticular outcomes are, on the one hand, related to the firm’s produc-tion model, i.e. how clearly defined and complimentary its principlesand practices/routines are (i.e. dependence of transfer components onone another and context) and, on other hand, related to the institu-tions of the host space, i.e. how strong, coherent, and homogeneousinstitutional configurations are. By correlating the variable institutionalcontext conditions with the variable production model, Boyer constructsa framework of likely trajectories of hybridization (see Table 2.2).

It is important to note that Boyer understands hybridization as pro-cess of permanent adaptation and learning. Specifically, a ‘process ofhybridization follows, at first a static order to get the factory up andrunning, and then [a] dynamic order to maintain and improve its initialperformance and to respond to economic and social changes peculiar toa new space’ (Boyer, 1998, p. 38).

Boyer’s approach is particularly helpful for this research contextbecause it offers a comprehensive and systematic framework to captureproduction system hybridization. However, the framework suffers froma substantial weakness. We can criticize Boyer’s approach, albeit on alower-level, on the same grounds he criticizes the Lean Production

27

Table 2.2 Nature and likelihood of hybridization in different industrial models and national institutions

National institutions of Weak and heterogeneous Rather strong, compatible Strongly coherent andhost space with some diversity homogeneousFirm’s model of production

Precisely defined principlesand routines

Transplantation possiblewith some minimalcongruence

Uncertainty because of thediscrepancy between theprofit strategy and nationalinstitutions

Conflict between the profitstrategy and the nationalinstitutions of the hostcountry

Clear principles, but someflexibility of routines

Partial hybridization is likely(same principles but differentroutines)

Hybridization as a functionalequivalent is possible owingto some degree of freedom inthe host institutions

Pressure towards hybridizationas innovation: restructuring ofthe objectives and routines ofthe firm induced by theinstitutional environment

Neither principles, norroutines are stronglyimplemented

Likely incoherence andnon-viable productive model

A new trajectory is possible inresponse to the institutionsof the host country

Similarity of industrial modelto that already implementedby firms of the host country

Source: Boyer, R., ‘Hybridization and Models of Production, Geography, History and Theory’ (1998) fig 2.8, p. 38. (By permission of OxfordUniversity Press).


approaches. For Boyer’s work rest on the assumption, that automobileMNEs have something like a defined a ‘One-Best-Productive Model’ ortemplate which they always seek to transfer. While it cannot be deniedthat different MNEs follow different generic product strategies, it isdoubtful if all automobile MNEs come to develop a specific productivemodel and seek its transfer to every institutional and strategic con-text in which they operate. Such an assumption disregards that MNEs,related to their divers strategic and institutional embeddedness, andrelated their different brands, strategic choices and international div-ision of labour, may not have a transfer intent in the first place (see alsoPries, 2003).

International Business perspectives

The International Business (IB) perspective has like no other perspec-tive furthered our understanding of MNEs, why they come into being,and how they are organizationally configured. While the explanation ofwhy MNEs come into existence was strongly associated with economicparadigms (e.g. Hymer, 1976; Dunning, 2000), the study of organ-izational design and their relations to strategic contexts tented to bedeveloped in corporate strategy and business policy literature (Ghoshaland Westney, 1993).

The latter body of research has also come to be known as the Environ-ment Structure Strategy Paradigm. This section will focus exclusively onthis literature because it systematically relates the organizational con-figuration of MNEs to strategy and strategic contextual conditions. Atthe heart of the perspectives lies the assumption that there has to be‘a good fit between strategy and environmental demands, and betweenorganizational structure/processes and strategy’ (Harzing, 1999, p. 31).From relatively early on, this body of literature recognizes that MNEs andtheir subunits need to organizationally respond to internal and externalcontextual complexity (Westney and Zaheer, 2001). Thus, with regardto the contextual constitution of MNEs and their subsidiaries or differ-ent transfer outcomes this body of research considers mainly internal(mainly task environmental aspects) and external contingencies (mainlymarket related aspects).

In the following paragraph a selective review of a variety of perspectivesfrom IB is presented. Moving from the corporate to a subsidiary level ofanalysis, the main perspectives discussed here include: the Integration–Responsiveness framework, the related MNE Process Strand, the StrategicRole and the Knowledge Flow strand.


Integration–Responsiveness framework

The Integration–Responsiveness framework can be seen as the mother ofthe Environment Structure Strategy Paradigm in the IB literature. Theframework is introduced by Prahalad (1975) and subsequently takenup by a number of scholars. It rests on the contingency theory as pre-sented by Lawrence and Lorsch (1967), that is, on the idea that firms facetwo fundamental environmental forces, i.e. pressures for differentiationand pressures for integration. Translated to the MNE, these pressuresare labeled by Bartlett and Ghoshal (1998) ‘forces for global integration’and ‘forces for national differentiation’ and by Prahalad and Doz (1987)‘pressure for global integration’ and ‘pressure for local responsiveness’.

Based on the integration-responsiveness framework (high/low globalintegration and high/low responsiveness) Prahalad and Doz (1987) dis-tinguish multidomestic (low/high), international (medium/medium),global (high/low) and transnational (high/high) industries, strategiesand structures. While the level of global integration represents the needfor central or global coordination, the level of local responsivenessexpresses the need for local approaches. However, the Integration–Responsiveness framework is not only applied at the level of industriesor firms. Bartlett (1985) show that, even within the same company,some functions and tasks are more subject to global integration whileothers are more subject to local responsiveness. With regard to the ques-tion how and why MNEs are differently contextually constituted or howand why transfer outcomes differ, this body of research suggests, simi-lar to the New Institutionalist contributions, dichotomous outcomes.Specifically, MNEs, subsidiaries and even different tasks with an MNEare likely to reflect either more local patterns or more global patterns.How a global pattern is origin-wise constituted remains open, however.Nevertheless, what kind of pattern prevails, is basically dependent on therelative importance of the different environmental pressures for differentIndustries, MNEs, subsidiaries and tasks or functions.

Different internationalization strategies in theMNE Strategy Structure stream

Different authors in the IB literature come to relatively similar descrip-tions of what alternative internationalization strategies firms can choose(see Harzing, 1999 for a good overview). Bartlett and Ghoshal’s (1998)work can be viewed as typical for this body of literature. The mainlevel of analysis is the MNE as a whole. Building on the Integration–Responsiveness framework, Bartlett and Ghoshal (1998) posit that MNEs


Table 2.3 Distinct environmental forces and their sources

Forces for globalintegration

Forces for localdifferentiation

Forces for worldwidediffusion

• Unified world marketplace

• Convergence ofconsumer preferences

• Market liberalization• Economies of scale• Reduced transportation

and communicationcost

• Nationally differentiatedmarket structures

• Difference in consumerpreferences

• Host government policies• Liability of geographic

distance for transportand coordination

• Flexible productiontechnology

• Increasing parityamong players

• Rising R&D costs• Shortening product

life-cycles• A shifts from

freestanding productsto integrated systems

• Global standards andspecifications

Source: Compiled and adapted from Bartlett and Ghoshal (1998).

need to respond to three distinct environmental forces to differentdegrees: ‘forces for global integration’, ‘forces for local differentiation’and ‘forces for worldwide diffusion of knowledge’ (see Table 2.3).

These environmental forces translate into three distinct and at timescontradictory strategic needs for global efficiency, local responsivenessand worldwide diffusion of innovations. Based on MNEs responses tothese different strategic needs, Bartlett and Ghoshal (1998) distinguishfour distinct internationalization strategies including: the multinational,the global, the international and the transnational solution. While themultinational, the international and the global MNEs develop strategiesthat focus respectively on national responsiveness, global integrationand transfer of knowledge; the transnational solution is able to respondto all three strategic needs at the same time. Although Bartlett andGhoshal (1998) do not directly address the question how and why MNEsor subsidiaries are differently contextually constituted, we can inferfrom their work that depending on the relative strength of differentenvironmental forces and the corresponding strategies, MNEs and theirsubsidiaries reflect either more local patterns or more global patterns.In the case of MNEs following a transnational strategy the contextualconstitution transfer outcomes may be more complex, however, as thecompany responds simultaneously to different environmental forces. Asdifferent subsidiaries have different assets and capabilities, they assumedifferent strategic roles and receive and distribute knowledge to differ-ent degrees. Therefore, some subsidiaries and functions will be tightlycentralized and globally integrated reflecting global patterns. Others,


in turn, remain decentralized reflecting local context solutions. In thisscenario different subsidiaries and different functions within subsidiariescan be very differently contextually constituted. Dichotomies betweenlocal vs global/parent, dependent vs independent give way to a universeof national or even transnational contextual influences (e.g. home, hostand third countries context influences flowing together) and a wholespectrum of relations, ranging from dependence to interdependence(Bartlett and Ghoshal, 1998; see also Perlmutter’s concept of geocentricMNE). In fact, in the transnational the possibilities of contextual con-stitutions become so complex that the focus has to shift to subsidiaries’particular roles.

Different strategic roles of subsidiaries

To understand MNEs as transnational types or differentiated networksimplies that subsidiaries take on different strategic roles. The StrategicRole stream in the IB literature, sets out to understand such differencesin subsidiary roles (e.g. White and Poynter, 1984; Bartlett and Ghoshal,1986; Ghoshal and Nohria, 1989; Jarillo and Martinez, 1990; Birkinshawand Morrison, 1996; Taggart, 1997; Beechler et al., 1998) and their evo-lution (e.g. Birkinshaw and Hood, 1998; Chang and Rosenzweig, 1998;Delany, 1998; Peters, 1999; see Birkinshaw, 2001 for an overview). Par-ticularly in the latter contributions, the subsidiary is increasingly seenas a unit that is ‘not just an instrument of the parent, but has certaindegrees of freedom in shaping its own destiny’ (Birkinshaw, 2001, p. 383).Accordingly, the subsidiary is the main unit of analysis. Regarding sub-sidiary role definitions, many typologies are based on at least two of thefollowing three aspects: the nature of the subsidiary’s local/host context,the nature of the subsidiary’s wider corporate context and the natureof the subsidiary’s resources and capabilities (e.g. Ghoshal and Nohria,1989; Jarillo and Martinez, 1990; Dörrenbaecher and Gammelgaard,2006).

Birkinshaw and Hood (1998) and Birkinshaw (2000) probably mostextensively explore subsidiary roles and their evolution. They adopt anetwork conceptualization of the MNE and model the subsidiary ‘as asemiautonomous entity, capable of making its own decisions but con-strained in its action by the demands of head-office managers and bythe opportunities in the local environment’ (1998, p. 780). A corner-stone of their concept is seeing subsidiary roles as based on two dynamicaspects, comprising their stocks of resources/capabilities and their char-ter. The charter is seen to be the visible manifestation of a subsidiary’srole and defined ‘in terms of the markets served, products manufactured,


technologies held, functional areas covered or any combination thereof’(Birkinshaw, 2000, p. 86).

The Charter is typically a shared understanding between the sub-sidiary and the HQ regarding the subsidiary’s responsibilities.

(Birkinshaw, 2000, p. 86)

The relationship between the charters and resources/capabilities is aproblematic one. Equilibrium between the two aspects is the exception,rather than the rule. More often than not, there will be mismatchesbetween capabilities/resources and charters. Birkinshaw and Hood (1998)see the development of capabilities/resources and charters, in otherwords, the development of subsidiary roles, as driven by three context-ual factors. These include: parent company factors, subsidiary factors,and host country factors. Parent company factors comprise the natureof the competitive internal resource allocation, the decentralization ofdecision making, and the ethnocentrism of parent management. Theyalso refer to this factor as ‘head-office assignment’ which essentially refersto the task or charter assigned to subsidiaries. Subsidiary factors includethe track record of the subsidiary, the credibility of subsidiary manage-ment, the entrepreneurial orientation of subsidiary employees, and thecontestability of subsidiary’s existing charter. This dimension refers toabilities of and initiatives taken by the subsidiary to extend the char-ter. Such initiatives can be the development new capabilities/resourcesor ceasing new market opportunities. Host country factors, as the thirdaspect, include the strategic importance of the country, the relative costof factor inputs and the dynamism of local environment. These factorsare also summarized as ‘local environment determinism’ and refer tolocal market conditions (including customers, competitors, suppliers aswell as government agencies) posing opportunities and constrains forthe subsidiary’s role development.

Now coming back to the importance of this stream for subsidiaryhybridization, one can easily imagine that the contextual constitution ofa subsidiary is impacted by role defining factors at the parent company,subsidiary and host context level. For example, the resources and cap-abilities held by the subsidiary may play an important role for the transferpropensity or adaptation requirement. By the same token, the divisionof labour in an MNE and the task assigned by the parent may play animportant role whether or not subsidiaries are similar enough to trans-fer production system across units. Similarly, differences in the strategicconditions of host context may make transfers difficult and may call


for adaptations. Thus, although this body of literature does not explic-itly deal with the question how and why the hybridization profiles ofsubsidiaries differ (with the notable exception of Beechler et al. (1998)to be discussed below), strategic role defining factors can be assumed toinfluence transfer and adaptation requirements. Without being able toexplore this idea further at this point, the basic rationale is that if we wishto understand how subsidiaries are contextually constituted, we need toconsider their different strategic roles in MNEs. For it can be assumedthat the strategic distance between subsidiaries in terms of strategic rolesand role defining contexts crucially impact transfer propensities andadaptation requirements.

Knowledge flows in the transnational corporation

The last body of approaches from IB literature reviewed is the KnowledgeFlow strand. In contrast to the other IB strands, this body of researchcomes closest to dealing directly with the question how and why trans-fer outcomes differ in subsidiaries. Starting from the assumption thatthe creation, diffusion and adoption of innovations is the single mostimportant strategic challenge to MNEs (e.g. Bartlett and Ghoshal, 1998),this body of research focuses on the enabling and constraining condi-tions of knowledge flows in MNEs (e.g. Gupta and Govindarajan 2000).The main level of analysis in this body of literature is the subsidiary, whichis embedded in an MNE conceptualized as a ‘differentiated network’ (Dozand Prahalad, 1991; Nohria and Ghoshal, 1997).

Now, with regard to the question how transfer outcomes differ, theknowledge flow studies typically measure knowledge flows or successfulknowledge adoption in terms of patent citations (Almeida and Phene,2004; Singh, 2004; Yamin and Otto, 2004), product introductions (Tsai,2001) or alternatively by the presence of predefined kinds of knowledge(Gupta and Govindarajan, 2000; Hansen, 2002; Schulz, 2003). The maininterest is the successful diffusion, adoption or application of pre-definedknowledge in subsidiaries. In contrast, there is hardly any concernfor potential transformations or alternations resulting from knowledgeflows. Over all, there is little concern for hybrid organizational out-comes as the transfer outcome perspectives are largely dichotomous, i.e.between successful and failed transfer.

Regarding the question why transfer outcomes differ, the KnowledgeFlow literature focuses mainly on how complex organizational charac-teristics of MNEs, the characteristics of the knowledge transferred, andthe knowledge-related characteristics of sending and receiving subunits,impact knowledge flows in MNEs. Specifically, frequently cited factors


include: (1) The characteristics of the sender unit (Szulanski, 1996; Fossand Pedersen, 2002; Gupta and Govindarajan, 2000); (2) the charac-teristics of the receiving unit (Szulanski, 1996; Foss and Pedersen, 2002;Gupta and Govindarajan, 2000; Minbaeva et al., 2002; Tsai, 2001); (3) thecharacteristics of intra-organizational or relations context in the MNE(Szulanski, 1996; Almeida and Phene, 2004; Björkman et al., 2004; Fossand Pedersen 2002; Gupta and Govindarajan, 2000; Hansen, 1999, 2002;Hansen and Lovas, 2004; Teigland et al., 2001; Tsai, 2001); (4) the charac-teristics of the transferred knowledge (Szulanski, 1996; Foss and Pedersen2002; Hakanson and Nobel, 2000; Hansen, 1999, 2002; Kotabe et al.,2003; Schulz, 2003); and (5) the characteristics of a unit’s business andtechnological environment as well as external/local network relations(Almeida and Phene, 2004; Forsgren et al., 1999; Foss and Pedersen,2002; Frost, 2001; Mudambi, 2002; Pearce and Papanastassiou, 1999;Kotabe et al., 2003; Yamin and Otto, 2004).

While the Knowledge Flow literature mainly focuses on the impactof organizational factors on knowledge processes, it also considers hostcontext factors to some extent. However, like in the Subsidiary Role lit-erature, these are largely confined to strategic context conditions (e.g.technological richness). In contrast, there is only scant attention to thequestion how institutional contexts3 in home, host, third countries orbeyond impact knowledge flows and their outcomes.

Seminal contributions: Beechler, Bird andTaylor

Beechler, Bird and Taylor’s (1998) work ‘Organizational Learning inJapanese MNCs: Four Affiliate Archetypes’ is discussed here because itcan be grouped into the IB literature – with its focus on different affili-ation types – but stands out in that it explicitly focuses on hybridizationand its causes. Beechler et al. (1998) build on the notion that subsidiariesface dual contextual pressures from the parent and the local/host con-text. Their main interest is the ability of MNEs to learn in and from theiroverseas affiliates. Their basic argument is that:

As organizations expand overseas, they must, by necessity, establishnew systems for managing that operation. These events present anoccasion for organizational learning.

(Beechler et al., 1998, p. 333)

Beechler et al. (1998) link such learning opportunities to different affiliatetypes or models. However, while Beechler et al. (1998) are mainly inter-ested in the learning link, their work has important implications for the


question how and why these different affiliate types – or concretely theirmanagement systems – are differently contextually constituted. Thus,given that this study is interested in how and why different hybridiza-tion profiles in subsidiaries occur, the following review focuses on thoseaspects only.

Concerning the question how transfer outcomes or better the con-textual constitution of subsidiaries can differ, Beechler et al. (1998)distinguish four types of affiliates. These include: the exportive, theclosed hybrid, the adaptive and the open hybrid. The authors arguethat the exportive model or affiliate essentially mirrors a parent template(the foreign parent context) and that the adaptive model mirrors a localtemplate (i.e. the local/host context). In contrast, the closed and openhybrids involve major adaptations. While the closed hybrid is likely toreflect the parent context, the open hybrid is most likely to reflect a mix(local as well as parent organizational) of different contexts.

Why do these different outcomes occur? Beechler et al.’s (1998) workimplies that different transfer scenarios, different misfit scenarios, anddifferent adaptation modes explain the different outcomes. First, theauthors suggest that foreign (Japanese) affiliates either draw on a localor a parent template. Secondly, parent templates can be more or lessfitting with the local environment. And thirdly, misfits can be over-come by either adapting the template or by selecting or buffering thetemplate from the local context. Based on these different situations andoptions, Beechler et al. (1998) construct different MNE affiliate types (seeTable 2.4).

The exportive model describes a successful transfer of a parent tem-plate to a permissive local context where no adaptations are required.

Table 2.4 A comparison of four learning cycle models

Exportive Closed hybrid Adaptive Open hybrid

Enactment Parent template Parent template Local template Customizedtemporarytemplate

Selection Minor Major Minor Majoradjustments adjustments adjustments adjustments

Retention Verification of Identification of Local success Cautionsfit; fine-tuning success consistent success

with self-image

Source: Beechler et al. in Birkinshaw and Hood, Multinational Corporate Evolution andSubsidiary Development (1998), table 13.1, p. 355.


The closed hybrid model describes the transfer of a parent template thatdoes not fit the host context. However, instead of changing the tem-plate the template is shielded from the host context. The authors callthis buffering and give the example of a careful workforce selection. Theadaptive model, in contrast, is not based on a parent template transfer.Instead, the subsidiary set-up is either based on a local template (withminor adjustments to parent requirements) or customized to fit the localenvironment. The open hybrid is, finally, based on either a parent or alocal template. Difficulties or misfits between the subsidiary set-up andthe local context are the starting point in this scenario. As problems ofmisfit are potentially attributed to both the existing set-up or the tem-plate used and the local context, adaptations may involve the adaptationof the local context as well as adaptations of the existing template of thesite. It involves ‘[u]sing a customised template, modified from the parentand local models, and open to change once they encounter difficulties’(Beechler et al., 1998, p. 352). In this scenario, customized templatesemerge that may differ from typical local templates and parent templates.

The model of Beechler et al. (1998) is interesting because it offers afull range of hybridization outcomes and relates these outcomes sys-tematically to different transfer scenarios, contextual (mis)fits, anddifferent recontextualization modes. We draw on this conceptualiza-tion in a refined version in the analytical framework below. However,while Beechler et al. (1998) consider strategic or firm factors impactingthe transfer propensity or template selection, the contribution is veryvague in terms of explicating the cause and nature of contextual misfits.Here the authors only loosely refer to ‘local environment’, ‘culture’ or‘local needs’.

Approaches compared

The discussion above has shown that each body of literature has differentcontributions to make to the question how and why transfer outcomesor the contextual constitution of subsidiary production systems dif-fer. Before constructing the analytical framework, we briefly present asummary and comparison of the respective approaches’ strengths andweaknesses.

The Japanization stream

The Lean Production perspective initially ignores the possibility of trans-fer outcomes other than successful transfer and imitation. Conversely,the Labour Process perspective is initially pessimistic about transfer


success and stresses the continuation of local patterns. However, evenearly contributions from both strands admit that transfer success or fail-ure varies by different dimensions of production systems. More recentlyboth strands adopt or embrace notions of hybrid or mixed outcomes asa result of transfer processes. With regard to the question why differ-ent transfer outcomes occur, there are more marked differences betweenthe two bodies of literature. While the Lean Production strand initiallyplays down that contextual differences impact transfer propensities andoutcomes, the Labour Process strand emphasizes all along that societaldifferences form barriers to transfer. Lean Production contributions, incontrast, only slowly and selectively refer to the relevance of institutionalcontexts for transfer outcomes. While adaptations to certain institutionalconditions are not denied, their relevance as transfer constraints tends tobe applied in an ad hoc fashion. Institutional conditions rarely form anintegral part of an overall explanatory framework. In short, there is nocoherent or elaborate concept for institutional contexts in this stream.This has led some to suggest that Lean Production perspectives take on auniversalistic approach that ‘ignores the contextualities of the diffusionprocess’ (Saka, 2003, p. 37). However, this is not entirely true, particularlynot with regard to more recent studies. The Lean Production strand paysincreasing attention to the impact of those contextual differences thatare related to sectoral or firm specific task environments and strategicchoices. Excepting the work of Smith and Elger (2000), this attention islargely absent in the Labour Process strand. Overall, there is little con-cern with the question how different task environments and strategicchoices impact hybridization outcomes. Moreover, the Labour Processstrand does not pay much attention to the question whether and howfirms can shape their environment, which is emphasized in Lean Produc-tion contributions. The latter see internationalizing firms not merely asreactive to new environments but rather as strategic actors able to select,change and create their environments.

Let us finally look at some common strength and weaknesses of bothstrands. The Japanization literature has not least been discussed herebecause it focuses on the hybridization of whole production systems.This is of particular relevance for this research context. Both strandsincreasingly highlight that firms may differ with regard to their transferpropensity depending on different kinds of contextual conditions. How-ever, both strands of the Japanization literature – probably somewhatmore the Labour Process strand – share the weakness that they fail tolook more closely how transfers, adaptations, and hybrid outcomes areshaped by particular conditions of the subsidiary embeddedness in the


MNE and more generally by MNEs as special kinds of organizations. Bothstrands draw only little on the Environment Strategy Structure paradigmof the IB literature or on elaborate institutional concepts from Institu-tionalist approaches. The disregard for the IB literature implies that muchof this work suggests that transfers are based on one transfer source (par-ent company), one transfer template (parent company) and one transferdriver (parent company), rather than seeing subsidiaries embedded incorporate networks, where transfer sources, templates and drivers can bediverse and dispersed.

Institutionalist approaches

Institutionalist approaches are initially little concerned with hybridorganizational constitutions or hybrid outcomes as a result of transfersin MNEs. This neglect changes, however, over time. American Institu-tionalist increasingly look at different degrees of organizational practicestransfer or adoption and are concerned with the question to what extentthe organizational elements of subsidiaries reflect the foreign parent orlocal/host context. However, while American Institutionalist come toadmit that simple diffusion and imitation is unlikely if organizationalpractices are transferred from one institutional context to another, therestill is little effort to identify new or hybrid outcomes. Much of the workoffers hardly more than dichotomies typologies for transfer outcomes.

European Institutionalists are also critical about propositions of an easytransfer of organizational forms across borders. While it is difficult tomake generalizing statements about this diverse body of literature, it isfair to say, that most proponents of this strand either acknowledge thepossibility of the emergence of hybrid forms or describe such outcomesin detailed case studies. However, although European Institutionalistsstart to capture hybrid solutions, there is overall little effort to typifythem systematically and comprehensively.

Although European and American Institutionalist differ markedly intheir definitions of institutions, both approaches show that institutionalcontexts and differences between them have a strong impact on trans-fer outcomes and thereby on the contextual constitution of subsidiaries.However, there are some important differences between the approaches.European Institutionalist are strong in understanding the interplay of dif-ferent institutional levels – ranging from the actors’ level, the regionallevel, the national level to the supranational or transnational level –on transfer success. Such a multi-level analysis finds only little atten-tion in the work of American Institutionalist. American Institutionalists,for their part, emphasize other levels of institutional influence which


have not found much attention in the work of European Institutionalists.The strength is here the focus on the dual embeddedness of subsidiariesin a parent institutional context and a local/host institutional con-text. This focus reflects American Institutionalism’s proximity to the IB’sIntegration-Responsiveness framework. By the same token, AmericanInstitutionalism tends to refer more to the IB literature and generallyadopts a stronger focus on the relevance of MNEs’ internal organ-izational context for transfer outcomes. This also implies that AmericanInstitutionalism develops a more complex understandings how strate-gic choices and relational contexts in MNEs impact transfer outcomes.While some European Institutionalists suggest the relevance of strate-gic choices for the contextual constitution of MNEs, the approaches aregenerally weak in systematically addressing relationships between strate-gic choices and relational conditions in MNEs, on the one hand, andtransfers in MNEs and the contextual constitution of subsidiaries, onthe other. All in all, there remains little attention to the enormous bodyof IB literature which suggests that different roles of subsidiaries in MNEsimpact transfer propensities and outcomes.

Thus, neither the European nor the American Institutionalismexplores systematically how different task environments or roles ofsubsidiaries, as a result of transnational strategies and the global div-isions of labour, impact hybridization profiles. In both Institutionaliststrands, there is also little systematic reasoning how different transferpropensities/scenarios and different adaptation modes affect hybridiza-tion outcomes in production systems. This neglect is probably related tothe fact that Institutionalist are generally not concerned with the trans-fer of entire production systems and show little concern for the abilityof firms to shape their environments.

International Business

Compared to the other bodies of literature presented, the InternationalBusiness perspectives is least concerned with identifying differenthybridization outcomes as a result of cross-contextual transfer. However,while the Integration–Responsiveness framework, the Strategy–Structurestrand as well as the Subsidiary Role strand do not address transfer pro-cesses and outcomes in any detail, these approaches suggest differentoutcomes with regard to the contextual constitution of subsidiaries.These outcomes can be seen to vary between global/parent and local/hostcountry solutions. Specifically, the Integration–Responsiveness frame-work can be read to suggest that subsidiaries contextual constitutiondiffers between global and local across its different functions and tasks.


The Strategy-Structure strand, in turn, suggests that the overall con-textual constitution of subsidiaries can vary between parent/global orhost/local context. While, the Subsidiary Role and particularly theKnowledge Flow strand suggest themselves to go beyond dichotomousoutcome perspectives, there are again few if any fine-grained descrip-tions of hybrid (or even novel) transfer outcomes or forms of contextualconstitutions.

The potential strength of the IB literature for this research contextis that it allows conceptualizing strong affiliations between differentbusiness contexts, strategies, task environmental conditions, on theone hand, and the contextual constitution/hybridization profile ofsubsidiaries, on the other. The Integration–Responsiveness frameworksensitizes us for the condition that transfer attempts and hybridizationprofiles of subsidiaries depend on nature of the business environment,function or even task within a function. The MNE Strategy–Structurestrand suggests that transfer outcomes and hybridization profiles dependon the internationalization strategy of MNEs. What is more, the conceptof MNEs as ‘transnationals’ or ‘differentiated networks’ suggests thattransfers flow in many directions and that subsidiaries receive (send)transfers from (to) many poles. Moreover, the Subsidiary Role strandsuggests that different organizational roles and the increasing divisionof labour in MNEs render it difficult to develop and transfer the sametemplate to many sites. For the approach implies that what is transferredto a subsidiary is strongly dependent on the subsidiary’s local task andbusiness environment as well as its local resource and capability endow-ment. In contrast to the other strands in the IB literature, the KnowledgeFlow strand looks closest at conditions that impact transfer processes andoutcomes in MNEs. Regarding these conditions, the focus is mainly onthe organizational characteristics and the nature of the knowledge trans-ferred. Curiously, this strand of literature not only neglects the impactof different institutional or cultural environments but also fails to focuson the effect of different internationalization strategies on transfer out-comes. The main reason for this neglect lies in the assumption that mostMNEs have become ‘differentiated networks’ following a ‘transnationalstrategy’. To summarize: The IB literature suggests that contextual con-stitution of MNEs and its subsidiaries is related to external and internalcontingencies of the MNE. Overall, the strength of the IB literature restswith its elaborate inward focus on MNEs, which comes at the costs of notcomprehensively theorizing environment relations. We learn little abouthow environmental pressures are translated into strategies and strategies

41

Table 2.5 Strengths and weaknesses compared across different approaches

Approach How Why

Dichotomous vs Complex Contextual distance Strategic choice

Institutional distance Strategic distance Corporate orsubsidiary level

JapanizationLean Production From dichotomous to Weakly considered Somewhat considered Somewhat considered

increasingly complex

Labour Process From dichotomous to Somewhat considered Weakly considered Weakly consideredincreasingly complex

InstitutionalistAmerican Largely dichotomous Strongly considered Weakly considered Somewhat consideredInstitutionalism

European Largely complex descriptive Strongly considered Weakly considered Somewhat consideredInstitutionalism

International BusinessIntegration– Not explicitly considered but Weakly considered Strongly considered Somewhat consideredResponsiveness suggests dichotomous outcomes

Strategy Structure Not explicitly considered but Weakly considered Strongly considered Strongly consideredallows for complex outcomes

Subsidiary Role Not explicitly considered but Weakly considered Strongly considered Strongly consideredallows for complex outcomes

Knowledge Flow Mainly dichotomous outcomes Weakly considered Strongly considered Strongly considered


into structures or processes. For the most part, the focus is on internalcontingencies involving a fairly mechanistic approach to the relationsbetween different organizational characteristics. While different mar-ket conditions, task environmental conditions, strategies and strategicroles lie at the centre of why MNEs and their subsidiaries are differentlycontextually constituted, there is practically no attention to their institu-tional constitution.4 Finally, IB literature is generally not concerned withproduction systems, their hybridization profiles and how such profilesare related to different generic product strategies and entry modes. Thereis also no systematic attention to possible transfer misfits and differentadaptation modes when and where such misfit occurs.

Conclusion

The foregoing discussion of different approaches shows (see Table 2.5)that no single body of literature discussed, systematically addresses theimpact of both strategic and institutional contextual difference on pro-duction system hybridization. More importantly, while the importanceof strategic choices is not entirely ignored, there is hardly any workthat thoroughly theorizes and empirically researches the question howforeign/parent strategic choices on the corporate and subsidiary levelinteract with transfer scenarios, contextual (mis)fits/recontextualizationpressures and recontextualization modes to influence hybridizationoutcomes/profiles of production systems in MNEs.

3Subsidiary Hybridization –Conceptual andMethodological Tools

Introduction

The unit of analysis of this research project is the production systemsof four automobile subsidiaries in India. The core goal is to identify,compare and explain the hybridization profiles of their productionsystems. Instead of identifying the hybridization profiles by asking ifpredefined aspects of a production template or model (e.g. the Japanese)were successfully applied or adapted (e.g. Abo et al., 1994), this projectturns the identification of hybridization profiles upside down by ask-ing about the contextual origins of the organizational configuration onfunctionally predefined dimensions of a production system. In such anapproach transfers and adaptations are still relevant for the identifica-tion of the profile. However, this approach allows seeing hybridizationprofiles also as a result of more or less deliberate non-transfer. If, forexample, a certain dimension of a production system is not targetedby transfer, it may either be locally constituted or neither locally norforeign constituted. This perspective stresses the possibility that firmsdo not always undertake the transfer of clearly defined productiontemplates. Instead, they may be very selective with regard to whatthey transfer, depending on particular strategic choices and strategicand institutional contexts of their subsidiaries. The advantage of thisapproach is that instead of defining some abstract transfer model inadvance that may or may not exist, a more open approach is taken.This involves defining functionally the core dimensions of a productionsystem and identifying what contextual origin the different dimensionsreflect.

43


Production systems and hybridization outcomes defined

Dimensions of a production system

Defining a production system is no easy task as the question ariseshow comprehensively or detailed it should be defined. Trist stresses thatresearching a production system as a functioning whole always calls fora consideration of both the social and the technical components of asystem (Trist, 1975). In the early works of the socio-technical schoolthe term ‘primary work systems’ takes the centre stage. A primary worksystem is understood as an operative subsystem of an organization. Itcentres on a functional task that assures system reproduction troughinput-output transformations. Most importantly, a primary work systemconsists of a technical and a social subsystem and the relation betweenthe two is a major field of inquiry (Trist, 1981). By the same token, ‘workorganizations’ are not just social systems but social and technical systems‘where the substantive factors – the people and the equipment’ interact(Trist, 1981, p. 10). Moreover, the use of the system term is a deliber-ate choice to stress the various interdependencies inside the system aswell as between the system and its environment (Trist, 1981). The lattermainly concerns input and output relations between the system and itsenvironment. In its original focus the socio-technical system approachhas only organizational subsystems – primary work systems – in mind.Subsequently, however, the idea of socio-technical systems is broad-ened and applied to organizations as a whole (Emery, 1959; c.f. Sydow,1985).

As Sorge (1993) has adopted more recently such a broader under-standing of a ‘socio-technical work systems’ and redefined it in acomprehensive manner, we draw in the following definition on his work.A production system is defined in this study as a system that manufacturesa specific product or a range of products, which constitutes its primarytask (e.g. parts, components or finished products such as automobilesas in this research case). The production system comprises four maincomponents: an organization structure, a process organization, a tech-nical configuration and a human resource profile (c.f. Sorge, 1993). Theorganization structure indicates how comprehensive systems are differ-entiated by function, geographic location, products and markets intosubsystems. The process organization indicates how inputs of variouskind move through the system and are transformed into outputs. Theprocess organization is constituted by the interplay between a produc-tion system’s technical configuration (physical infrastructure of plant,factory layout, aggregates, machines, tools, levels of mechanization,


automation and flexibility, temporal-spatial organization of materialflows) and human resource profile (skill levels, qualification, attitudes).These together define the work organization.

Moreover, in line with Sorge (1993), two crucial relational aspects arelooked at that closely interpenetrate and partly constitute a productionsystem. These are: work and labour relations and inter-organizationalrelations (mainly supplier relations). Work and labour relations appearimportant to include as part of the production system because construct-ive work and labour relations are seen as crucial for the functioning ofmodern production systems, particularly for the implementation of highworkforce involvement practices. The level of inter-organizational rela-tions looked at in this work are pragmatically derived. Given the researchfocus, the analysis is restricted to those relations that revolve around theprimary task, that is, the core material inputs to the production process.Therefore, the concentration lies on major aspects of supplier relationsof the automobile manufacturing sites. It involves both relations thatmay be under one corporate legal structure and relations that are con-stituted by legally distinct entities. The centre of attention is, therefore,on the character of internal and external supplier relations. Such a com-prehensive consideration of supplier relations is particularly justified inthe view that the success of automobile production systems is increas-ingly attributed to the organization of the entire supply chain (Taylorand Brunt, 2001). It should also be noted that the reshaping of the div-ision of labour between final assemblers and suppliers, to the extentof integrating suppliers on site for final assembly, additionally blursthe line between an ‘external’ supplier and the core production systemitself (if defined by spatial boundaries) (c.f. Camuffo, 2002) (Figure 3.1summarizes the constitutive dimensions of a production system).

Different hybridization outcomes

Asking how the contextual constitution of subsidiary production sys-tems differs is about identifying different contextual origins in theirconfiguration. The literature review above offers different concepts, howwe can capture a subsidiary’s contextual constitution. Approaches fromIB are utterly weak in typifying or describing to what extent organiza-tional forms and practices reflect different contextual origins. For themost part, such typifications are dichotomous and vary between globaland local outcomes with little explicit consideration about their ori-gin. The, IB literature offers practically no conceptualization to capturehybrid organizational forms. The same holds true for American Insti-tutionalism, with the exception of Westney’s (1993) work. European


Organization structure:

Functional differentiation

Hierarchical differentiation

Process organization:

Technical configuration

Human Resource profile

Organizational relations:

Work and labour relations

Inter-organizational relations

Figure 3.1 Dimensions of a production system

Institutionalism in contrast, details specific hybrid outcomes but fails,with exception of Boyer (1998), to develop a systematic typologyto account for different kinds of contextual constitution. While theJapanization literature, most notably the work of Abo et al. (1994), startedto develop such typifications, it is probably Boyer (1998) who devel-oped the most systematic and comprehensive classification to capture

Table 3.1 Different hybridization outcomes

Contextual origin Local/host

Yes No

Foreign/parent Yes Hybridization ImitationNo Localization Customization/novelty

the different contextual origins of production systems. We will, there-fore, draw on Boyer’s framework with some minor adaptation. In linewith Boyer (1998), we can imagine four ideal–typical outcomes howsubsidiary production systems and/or their dimensions can be contex-tually constituted (see Table 3.1). These ideal types include: imitation,hybridization, customizations/novelties and localization. Specifically, asubsidiary or the different dimensions of its production system can:resemble a foreign/parent context organizational-template (imitation);resemble a local/host context organizational-template (localization);


resemble both, a foreign/parent context organizational-template anda local/host context organizational-template (hybridization); resembleneither a foreign/parent context organizational-template nor a local/hostcontext organizational-template (novelty/customization).

It should be noted that the category foreign/parent can include for-eign context patterns that do not originate from any site of the parentcompany. By the same token, the category local/host can include localpatterns that are peculiar to a local site, but not typical for the hostcontext.

Strategic and institutional distance, strategic choices andhybridization outcomes

Transfer, (mis)fit and recontextualization

Drawing on Beechler et al. (1998) and Westney’s (1987) work we arguethat an understanding of different hybridization outcomes rests first ofall on the dynamic relation between three crucial factors. These include:The kind of transfer scenario, the kind of (mis)fit/recontextualizationpressure and the mode of recontextualization.

To explain the different hybridization outcomes it is crucial to under-stand that there are different starting points. Three ideal typical transferscenarios are thinkable. The first principle starting point is the transferof a foreign/parent template. A second principle starting point is theuse of a local/host template (e.g. from a local Joint Venture partner). Thethird principle starting point is defined by the absence of both, a foreign/parent template transfer and a local/host template use. Such an absenceof a defined foreign/parent and local/host template does not mean, how-ever, that the local production system does not have to respond to theforeign/parent and/or local/host contextual requirements. Such con-textual requirements involve demands and condition the productionsystem to be built has to respond to. Often such demands and condi-tions may just involve pressures to achieve a certain result (e.g. localcontent rates) rather than defining a coherent organizational pattern orstructure to achieve such a result. A template, in contrast, is understoodhere as a coherent organizational pattern that either exists or is definedas an ideal to configure some or all dimensions of a production system.

The different transfer scenarios can face different kinds of fits or misfitswhich influence the hybridization outcome. In the first transfer scenario,the foreign/parent template may either fit or misfit the local/host con-text. Depending on the misfit, the transferred template will be subject to


Demands/conditions from foreign/parent or local/host context

Foreign/parent context template transfer or local/host-context template use

Fit/Misfit

Fit/Misfit

Fit/Misfit

MNE

Host country

Home/3rd country

MNE

MNE

Home/3rd country

Home/3rd country

Host country

Host country

Figure 3.2 Different kinds of (mis)fits

pressures for recontextualization. Conversely, in the second transfer sce-nario, the local/host template can fit or misfit the foreign/parent context.Again, depending on the misfit, the local/host template will be subjectto pressures for recontextualization. In the third transfer (or rather non-transfer) scenario, there is neither a foreign/parent template transfer nora local/host template use. However, even in this scenario, we can pic-ture fits and misfit (see Figure 3.2) between the local/host context andthe foreign/parent contextual requirements. In this scenario, the localproduction system to be built faces (more or less contradictory) contextu-alization pressures from the foreign/parent and/or the local/host contextin the form of demands and conditions that need to be accommodated.

The final step in understanding different hybridization out-comes involves asking how different misfits and corresponding


(re)contextualization pressures are resolved. While different recontex-tualization modes are available depending on whether contexts ortemplates are adapted, they share the principle of adaptation. Drawingon Westney (1987) adaptation is seen to rest on three mechanisms ofadaptation, including: selection/de-selection, change and creation.

So, let us return to different transfer scenarios, (mis)fits and their reso-lution. If the foreign/parent template fits the local/host context well,there is basically no recontextualization pressure. Therefore, we canexpect a smooth transfer and imitation as the outcome. However, ifthere is a misfit and a corresponding recontextualization pressure, threemodes of recontextualization are imaginable. The first mode of recon-textualization involves overcoming the foreign/parent template’s misfitby mainly adapting the local/host context to the foreign/parent tem-plate. This involves only little or no adaptation of the foreign/parenttemplate to the local/host context. Depending on the extent to which thelocal/host context is adapted, we can imagine outcomes ranging fromhybridization to imitation. The second mode involves an adaptation ofthe foreign/parent template to the local/host context. In this scenariothere is only little or no adaptation of the local/host context to theforeign/parent template. Under this condition we can imagine outcomesranging from localization to hybridization, depending on how compre-hensive the foreign/parent template is adapted to the local/host context.The third form involves both an adaptation of the foreign/parent tem-plate as well as of the local/host context with hybridization as the mostlikely outcome.

Starting from the second transfer scenario a similar range of modesof recontextualization are thinkable. On the one hand, there may bea good fit between the local/host template and the foreign/parent con-text. If there is such a fit, the local/host template is not likely to facemuch recontextualization pressure and we will probably see localiza-tion as the outcome. Things are different, on the other hand, if thereis a misfit and a recontextualization pressure. The first mode of recon-textualization involves an adaptation of the local/host template to theforeign/parent context, with little or no adaptation of the foreign/parentcontext to the local/host template. Here we can imagine results rangingfrom imitation to hybridization, depending on how comprehensive thelocal/host template is adapted to the foreign/parent context. The secondmode involves an adaptation of foreign/parent context to the local/hosttemplate. In this case there is little or no adaptation of the local/host tem-plate to the foreign/parent context. Accordingly, we can imagine resultsranging from localization to hybridization, depending on how much the


foreign/parent context is adapted. The third form of recontextualizationis again a combination of the first two, with hybridization as the mostlikely outcome.

Finally, we can imagine a third (non-)transfer scenario. In this scen-ario, neither a foreign/parent nor a local/host template is used. Theremay, however, be different contextual requirements to be met in thesite set up. To the extent that foreign/parent context requirements fitlocal/host context requirements and vice versa, no recontextualizationof either is required. The local production systems may be simply set upto meet the different contextual requirements. Nevertheless, it is not easyto determine ex ante, if these organizational solutions come to resemble atypical foreign/parent template (close to imitation), a local/host template(close localization), both or none. Some aspects may be created in linewith foreign/parent context in the absence of contradictory local/hostcontext, which can – but does not have to – mean that they resembleimitated solutions. However, they may as well just be customized tomeet foreign/parent context demands and conditions not reflecting anyparticular foreign/parent template or pattern. In turn, some aspects maybe created in line with local/host context in the absence of a contradict-ory foreign/parent context, which can – but does not have to – meanthat they resemble local/host templates. They may as well be customizedto local/host context demands and conditions not necessarily reflectingtypical local/host templates.

Things become even more unpredictable under the scenario whereforeign/parent context requirements misfit or contradict local/host con-text requirements. Again, two principle modes of recontextualization,including their combination, are possible in the site set up. On the onehand, the site’s set up may mainly respond to the foreign/parent con-text. At the same time, the contradictory local/host context is adaptedto meet the foreign/parent context in the set up (with little or no adap-tation of foreign/parent context to the local/host context). On the otherhand, the site set up may mainly respond to the local/host context. Inthis scenario, a contradictory foreign/parent context is adapted to thelocal/host context (with little or no adaptation of the local/host contextto the foreign/parent context). Again in a third scenario the site set upmay reflect both processes. Now, while we are more likely to see possiblevariations in organizational set-ups between imitation and hybridizationin the first case, we are probably more likely to see outcomes betweenlocalization and hybridization in the second. In the third scenario, inturn, we are probably most likely to see outcomes between hybridizationand customization/novelty.


It is important to note that customized or novel solutions are possi-ble whenever a production system responds to contextual requirementsthat do not specify organizational templates to achieve them. A responseto foreign/parent or local/host context’s demands and conditions mayoften involve organizational solutions that resemble templates of therespective contexts. However, there is also always the possibility thatsuch a response takes on a customized or novel form. While customiza-tions or novelties can, therefore, occur in almost any transfer scenario,they are most likely to occur when organizational set-ups respond tocontradictory contextual requirements that define organizational goalsrather than organizational designs or patterns (see Figure 3.3 for asummary).

Two kinds of contextual distance

To take the analytical framework presented above a step further, we needto ask about the grounds for different (mis)fits as well as transfer scen-arios and recontextualization mode choices. We argue that contextualdistance plays a key role in this regard and propose that two kindsof contextual distance are relevant: institutional or strategic distance.Whether the institutional or strategic distance is more relevant for certaindimensions of a production system is left open to exploration.

Institutional contexts

The Labour Process wing of the Japanization debate and Institutionalistapproaches have largely looked at the transferability of organizationalforms and practices from one institutional context to another. The majorfocus has been on the role of national institutional contexts. The basicreasoning is that firms or their organizational forms and practices areembedded and grow out of distinct institutional contexts. As such,their functioning is inextricably linked to a specific institutional con-text (Kostova, 1999). In other words, organizations and their elementsare institutionally constituted. While European Institutionalists havefocused for the most part on institutional systems at the national level,more recent studies in this research tradition have extended the focus.In these studies the relevance of institutional conditions at the organ-izational level has also been recognized. Now, when foreign/parenttemplates are transferred to a different local/host institutional context,chances are that misfits emerge between what the transferred templatesinstitutionally require and what the local/host context of the subsidiaryinstitutionally offers or demands. This is mainly because production sys-tem templates rely, albeit to different degrees, on specific institutional


Transfer Scenario Fit/Misfit Recontextualization Mode Outcome

Foreign/parenttemplate

Fit

Misfit

No Recontextualization

Local/host contextadaptation

Foreign/parent templateadaptation

Foreign/parent template andlocal/host context adaptation

Hybridization toLocalization(Customization)

Imitation

Imitation to Hybridization

Hybridization

Local/host template

Fit

Misfit


Local/host templateadaptation

Foreign/parent contextadaptation

Foreign/parent contextand local/host templateadaptation

Localization toHybridization

Localization

Hybridization to Imitation(Customization)

Hybridization

No template, butdifferent contextualdemands

Fit

Misfit


Local/host context adaptation

Foreign/parent contextadaptation

Foreign/parent and local/hostcontext adaptation

Hybridization to Localizationor Customization

Hybridization,Imitation, Localization orCustomization

Hybridization to Imitationor Customization

Hybridization orCustomization

Figure 3.3 Different transfer scenarios, misfits, recontextualization modes andoutcomes

conditions, which may or may not be available in a local/host con-text of a subsidiary. Put differently, the misfit depends on the degree towhich transfer templates depend on specific institutional contexts andthe degree to which the receiving context provides such institutionalconditions and favourable demands.


What is more, the institutional distance may not only induce the misfitand potential recontextualization pressure after a transfer took place, butmay impact the transfer scenario in the first place. If, for example, insti-tutional conditions in the local/host contexts are very distant but ratedadvantageous, the foreign parent may refrain from template transfer anddraw on a local/host template. Similarly, if institutional conditions in thelocal/host contexts are very distant but rated not very conducive withregards to the institutional requirements of a foreign/parent template,the foreign parent may also refrain from its transfer. Thus, institutionaldistance is likely to impact the transfer scenario. An institutional dis-tance is likely to cause transfer restraints and induce recontextualizationpressures on transferred templates. In summary, it is proposed:

Transfer scenarios and misfits vary because there can be more or lessof an institutional distance between the origins and destinations of atransfer template.

It should be added that the institutional distance is not only relevantfor the fit/misfit between a foreign/parent template and local/host con-text conditions and demands. There may as well be an institutionaldistance between a local/host template and foreign/parent demands andconditions, causing misfits and recontextualization pressures.

Finally, it is assumed that the recontextualization mode, the questionwhether an institutional distance induced misfit leads to an adaptationof the transfer template or to an adaptation of the local/host context,is linked to the interplay between the willingness and ability of a for-eign/parent to invest resources such an adaptation requires and thenature and resilience of the receiving (local/host) institutional contextconstraining or enabling the adaptation.

Definitions

Institutional distance is defined here as the difference between aforeign parent’s local/home or local/3rd country site institutionalcontext and the local/host country institutional context of the sub-sidiary under investigation. An institutional misfit is defined hereas the mismatch/incompatibility between what a transferred templateinstitutionally requires or is designed for, and what the local/hostcontext institutionally offers or demands; or alternatively as themismatch/incompatibility between what a local/host template institu-tionally requires or is designed for and what the foreign/parent con-text institutionally offers or demands. Or in more simple terms, aninstitutional misfit is defined here as the mismatch/incompatibility


between foreign/parent templates or demands and the local/host insti-tutional context of a subsidiary or alternatively as the mismatch betweenlocal/host templates or demands and the institutional context of the for-eign/parent. Drawing on Sorge (2004), institutions are understood hereas habitual regularities. At the level of a country or the societal levelsuch habitual regularities find expression in differentiated yet ‘recip-rocally interdependent’ institutional domains (Sorge, 2004). Firms andorganizations are institutional domains themselves and are in an interde-pendent relationship with other institutional domains such as educationsystems, industrial relation systems. The relevant institutional contextfor an organization in this approach is pragmatically derived, depend-ing on ‘reciprocal interdependencies’ between the focal organization andother institutional domains. Such a pragmatic approach is also appliedin this research context. Adopting and adapting earlier Societal Effectresearch in the manufacturing sector (Maurice et al., 1980), it is sug-gested that family structures, social stratification, education systems,industrial as well as supplier relations systems form core institutionaldomains that are in an interdependent relationship with a productionssystem’s configuration.

Strategic contexts

The IB literature and also the Lean Production stream of the Japanizationliterature has been utterly weak in theorizing the institutional embedded-ness of production system templates as well as the fact that institutionaldistance influences transfer scenarios, misfits and recontextualizationpressures. There has also been little systematic attention to differentrecontextualization modes. In areas where institutional contextual mis-fits could not be entirely denied, it has been suggested that MNEs canadapt – select, change and create – contexts to their liking. This gen-erally implies that the only mode of recontextualization considered isthe adaptation of local/host institutional contexts to the foreign/parenttemplate. Put simply, transfer contents do not have to be changed inthe face of institutional contextual distance and misfit. Global or localsolutions seem to be decided on purely rational strategic grounds withlittle concern for institutional mismatches upon arrival.

However, while there seems to be some underlying convictionabout the global transferability, if strategically required, the IB literatureand the Lean Production body of the Japanization literature suggeststhat there are strategic contextual misfits that affect transfer scenar-ios and misfits/recontextualization pressures. These impacts on transferscenarios and needs for recontextualization mainly derive from different


strategic roles, one could also say from the different strategic contexts ofsubsidiaries in MNEs.

Adopting the IB literature’s differentiated network perspective of theMNE, in which subsidiaries are seen to take on different and evolv-ing roles (Birkinshaw, 2000) has three important implications for ourunderstanding of transfer scenarios and recontextualization dynamicsin subsidiaries. First, the differentiated-network perspective allows usto envision many more transfer origins than have commonly beenconsidered in Japanization and Institutionalist approaches. In such a per-spective, the parent is but one transfer source: other subsidiaries and evenother organizations, as part of local or international networks, come intothe picture here. Secondly, by adopting a subsidiary perspective, we cansee subsidiaries not only as instruments of the corporate parent, but asactors in their own right, more or less resourceful and capable, needy andgreedy for transfers. This also allows considering local transfer initiativesas much as changing transfer propensities and pressures for recontex-tualization as subsidiaries and their environments evolve over time.Thirdly, and probably most importantly, seeing subsidiaries with Birkin-shaw (2000) as differentiated by their role, understood as differencesin resource/capability endowments and differences in charters, suggestsdifferent transfer scenarios and misfits/recontextualization pressures onstrategic grounds. If a foreign/parent template is transferred from onesubsidiary to another, chances are that a strategic misfit emerges betweenwhat the transferred production system template is strategic contextu-ally optimized for – with regard to task profile (including the requiredcapabilities and resources to master the task profile) and supply/demandmarket conditions – and what the receiving subsidiary’s strategic con-text offers or demands. This is the case because production systems rely,albeit to different degrees, on specific strategic contexts, which may ormay not be present in the receiving local/host context. We can, therefore,imagine different degrees of strategic contextual misfit between what aforeign/parent production system template is strategicsally optimized forand the strategic context of a subsidiary. For example, the more distantthe task profile and market conditions (e.g. quality, quantity and priceof input and output factors) of a subsidiary from other operations inthe MNE, the less likely a transfer of a foreign/parent template with-out a misfit and a recontextualization pressure. Now, it is important tonote that the strategic distance may not only cause a misfit, a recon-textualization pressure on what has been already transferred, but mayinfluence the transfer scenario itself. If, for example, strategic condi-tions in the local/local contexts are very distant but rated advantageous


(e.g. low labour costs) the foreign parent may refrain from template trans-fers and draw on a local/host template or a locally customized solutioninstead. Similarly, if strategic conditions in the local/host contexts arevery distant but rated not conducive, with regard to the strategic contex-tual requirements of a foreign/parent template, the foreign parent mayrefrain entirely from its transfer.

Thus, the strategic distance is likely to impact the transfer propensityand induce recontextualization pressures on transferred templates. Paral-lel to the reasoning on the institutional dimension, we can imagine thattransfer templates can be more or less dependent on the strategic con-text of subsidiaries, defined by task profiles, capabilities/resources andsupply/demand market conditions. In summary, it is proposed:

Transfer scenarios and misfits vary because there can be more or lessof a strategic distance between potential origins and destinations of atransfers template.

It should be added, that the strategic distance is not only relevant for the(mis)fits between the foreign/parent template and the local/host strategiccontext. There may as well be a strategic distance between the local/hosttemplate and the foreign/parent strategic context causing a misfit and arecontextualization pressure.

Finally, the question whether a strategic distance leads to an adap-tation of the transfer template or to an adaptation of the local/hostcontext is linked to the interplay between the willingness and abilityof a foreign/parent to invest resources such an adaptation requires andthe nature and resilience of the local/host strategic context constrainingor enabling the adaptation.

Definitions

Strategic distance is defined here as the difference between a foreignparent’s local/home or local/3rd country site strategic context and thelocal/host country strategic context of the subsidiary under investiga-tion. A strategic misfit is defined here as the mismatch/incompatibilitybetween what a transferred template strategically requires or is designedfor, and what the local/host context strategically offers or demands; oralternatively as the mismatch/incompatibility between what a local/hosttemplate strategically requires or is designed for and what the for-eign/parent context strategically offers or demands. Or more simply, astrategic misfit is defined here as the mismatch/incompatibility betweenforeign/parent templates or demands and the local/host strategic contextof a subsidiary; or alternatively as the mismatch between local/host


MNE

Strategic context

Institutional context

Institutional or strategic demands from parent or local/host context

Template transfer/use

Local/subsidiary context

Home/3rd country site context

Host country

Home/3rd country

Figure 3.4 The fourfold embeddedness of subsidiary production systems

templates or demands with strategic context of the foreign/parent. Draw-ing loosely on Birkenshaw (2000), strategic contexts are defined as thetask profiles of firms – constituted by markets served, quality and quan-tity of products manufactured, as well as functional areas covered – andtheir supply and demand market conditions: quality, quantity and priceof supplies/inputs and quality, quantity and price demands for outputs.Clearly, task profiles of firms and market conditions mutually constituteeach other. However, in the case of foreign subsidiaries, the local task pro-file and the host market conditions can be decoupled from one anotheras the local site can serve global markets (see Figure 3.4 summarizing coreideas of the analytical framework).

Strategic choices: global product strategy and entry mode

The final step in this analytical framework is to link the triad of transferscenario, institutional and strategic (mis)fit/recontextualization pres-sure, recontextualization mode and consequently the hybridizationprofiles of production systems to strategic choices at the corporate andthe subsidiary level. A core argument of this study is that this complexhas been only weakly explored so far. It is asserted that specific strategicchoices – the generic strategy of the MNE as well as entry modes – stronglyinteract with transfer scenarios, institutional and strategic (mis)fits andmodes of recontextualization. Furthermore, since we are dealing here


Table 3.2 Porter’s generic strategies

Strategic strength Low cost UniquenessStrategic scope

Wide range of market Cost leadership strategy Differentiation strategysegments

(Hybridization outcome) (Between Localization, (Localization,Hybridization, Hybridization &Customization & Imitation) Customization)

Narrow range of Cost focus strategy Differentiation focusmarket segments strategy

(Hybridization outcome) (Imitation) (Between Localization,Hybridization,Customization &Imitation)

Source: Adapted from Porter (1980).

with production systems, it is assumed that global product strategies willbe of particular relevance. While leaving the specific patterns of inter-action open to empirical exploration, a number of potential interactionsthat may impact hybridization outcomes are proposed.

Corporate level: generic strategies

Porter (1980) distinguishes three or rather four generic strategies: Thecost leadership, the differentiation, the cost focus, and the differenti-ation focus strategy. These strategies rest on a demand side dimension– the choice between a broad or a narrow market scope – and a supplyside dimension – the strength or core competency of the firm – mainlyvarying between product uniqueness and low cost (see Table 3.2).

With regard to the relationship between generic strategies and transferscenarios, contextual misfits and recontextualization modes, the fol-lowing associations can be asserted. Firms whose competitive strategymainly rest on low costs and who have a narrow range of market seg-ments, have the highest propensity to develop similar production sites asthey internationalize. When the product portfolio does not vary muchand cost control takes on a prime importance, there is a high incentiveto develop standard templates for global operations. This is particularlythe case when entry barriers to different markets disallow an export-led internationalization or servicing all markets from global/centralhubs. In other words, firms with cost focus strategies are very likely todefine and transfer templates. The moderate strategic distance betweensites (based on narrow market scope implying similar task profiles and


market environments across sites) allows these firms to develop/definestandard templates. At the same time, they also have strong incentives tocontrol cost by applying standard templates in different locations. Whatis more, since contextual distance is moderate or low, these firms will faceless recontextualization pressure when they engage in template transfer.Finally, as cost control through standard template application forms acentral part of their competitive strategy, they will have a preference foran adaptation of the local/host context to the foreign/parent template,rather than the other way round. Thus, compared to MNEs with otherproduct strategies:

MNEs with a cost focus strategy are more likely to develop/define andtransfer a foreign/parent template, less likely to face a high strategic-distance-related recontextualization pressure, more determined toadapt a local/host context to the foreign/parent template and tofeature higher degrees of imitation as an outcome.

This is very much in contrast to what we can expect when firms with adifferentiation strategy internationalize. These firms’ competitive advan-tage rests on a wide range of market segments and product uniqueness.Since their sites are likely to be strategically distant from each other –based on more differentiated task profiles and market conditions – andsince cost advantage plays less an important role for their competi-tive strength, they will also have a lower propensity to define/developand transfer standard templates. However, when foreign/parent transfersoccur or demands are voiced, there is a high chance of strategic misfitand recontextualization pressure because the sites tend to be strategicallydistant. At the same time, these MNEs may be more flexible and willingto adapt their templates or demands to the local/host context becausecatering to diverse demands in a unique way is a crucial element of theircompetitive advantage. Thus, compared to MNEs with other productstrategies:

MNEs with a differentiation strategy are less likely to develop/defineand transfer a foreign/parent template, more likely to face a highstrategic-distance-related recontextualization pressure if they transfer,more flexible to adapt their templates or demands to the local/hostcontext and to feature as a result higher degrees of local, hybrid andcustomized solutions as outcomes.

Finally, firms with cost leadership strategy or a differentiation focusstrategy are likely to be between the poles of high and low imitation.


Table 3.3 Entry mode combinations

Equity mode Wholly owned Joint ventureEstablishment mode

Greenfield Wholly owned Greenfield Greenfield JVBrownfield Acquisition Brownfield JV

Subsidiary level: entry modes

The second aspect of strategic choice that has received remarkably littleattention is the influence of entry modes – defined as the combinationof establishment (Greenfield site vs Brownfield site) and equity modes(wholly owned vs JV) (Pan and Tse, 2000; Harzing, 2002) – on transferscenarios, institutional/strategic misfits and recontextualization modes(see Table 3.3 for different entry mode combinations).

There is evidence to suggest that Greenfield sites either reduce ormediate institutional distance which reduces, in turn, institutional mis-fit and recontextualization pressure (e.g. Sharpe, 1997; Saka, 2003).We argue that the establishment mode impacts all components con-stituting hybridization outcomes including: transfer scenarios, mis-fits/recontextualization pressures and recontextualization modes. Incontrast to Brownfield sites, Greenfield sites lack an existing productionsystem. Their local (meaning on site) institutional contexts and strategiccontexts (task profile and corresponding resources and capabilities) haveto be created afresh. This implies that they are in need of some configura-tion which increases the likelihood of a template transfer. Moreover, theirlow level of institutionalization implies a lower contextual distance com-pared to Brownfield sites, which poses less constraints for the transfer ofa foreign/parent template or the realization of foreign/ parent demands.By the same token, Greenfield sites are likely to show lower levels of mis-fit and recontextualization pressures when transfer occurs. Again, lowerlevels of local institutionalization and preexisting local strategic context(task profile and corresponding resources and capabilities) imply thatthere is less of an exiting context that can be incompatible with what isbeing transferred. Finally, even if some misfit occurs, it is comparativelyeasier to adapt the local context to foreign/parent demands and tem-plates because there is a lower level of institutionalization and strategicset up. It is therefore proposed:

In contrast to Brownfield sites, Greenfield sites are expected to havea higher propensity for a foreign/parent template transfer, to have


lower levels of misfit when transfer occurs, find it easier to adapt alocal context to foreign/parent templates or demands and feature, asa result, higher degrees of imitation.

Conversely, Brownfield sites may require or seek less foreign/parent tem-plate transfer because of an existing local production system. And evenif there is no intention to draw on or use the local institutional/strategiccontexts of an existing template (e.g. because of institutional or strategicmisfit with foreign/parent templates or demands), these very same exist-ing conditions make a transfer of foreign/parent templates more difficultand misfit related recontextualization pressures more likely. Finally, anexisting local/host template makes an adaptation of the local context toforeign/parent demands and templates more difficult than in Greenfieldsites. It is therefore proposed:

In contrast to Greenfield sites, Brownfield sites are less likely to see atransfer of a foreign/parent template, will face higher levels of misfitwhen transfer takes place, will find it more difficult to adapt a localcontext to the foreign/parent template and will feature higher degreesof localization as an outcome.

However, the establishment mode is but one crucial aspect of entrymode choice to affect the hybridization outcomes. We propose that equitymodes are a second crucial aspect impacting all components constitutinghybridization outcomes. The core assumption is that the equity modehas a substantial influence on whose management controls the com-pany and whose management decides: What is or can be transferred ordemanded? What is rated as a misfit and requires recontextualization?And to what extent the foreign/parent templates/demands or local/hosttemplates/demands have to be adapted, rejected or responded to?

Now, in the case of a wholly owned subsidiary the situation appearsto be rather clear. As the foreign parent is in full control, we can expecta high propensity of foreign/parent template transfer and/or demands.At the same time, given the high foreign/parent transfer and demandpropensity, there is also more scope for misfit and recontextualiza-tion pressure. However, where misfits and recontextualization pressuresoccur, parent companies enjoying full ownership will find it easier toput through their templates and demands without facing the inter-vening power of a local partner. In addition, they will also be morewilling to invest resources. As a consequence, adaptation of the local con-text to foreign/parent demands and templates may be a more prevalentrecontextualization mode than in Joint Ventures (JVs).


In JVs, certainly depending on whether there is a minority or major-ity equity of the foreign partner, the situation is slightly different.Here shared ownership increases the number of template sources anddemands (local partner vs foreign partner) that can potentially playinto the configuration of a production system. Shared ownership canimply divided responsibilities and the simultaneous impact of differentdemands and templates. This situation probably increases the chanceof hybrid and/or customized/novel outcomes because templates anddemands from markedly different contexts may be integrated or followedat the same time.

In JVs the equity share of the parties involved is assumed to play animportant role. For the equity share may be decisive for the questionwhose management controls the site. For example, if the foreign parenttakes a minority position, the foreign/parent may be less likely to transfertemplates because of fears of knowledge loss or a lacking permission todo so. In this scenario the chance of misfit and recontextualization pres-sure is also assumed less because there is less foreign/parent influence orpresence that can potentially cause a misfit and induce a recontextual-ization pressure. Moreover, even if a foreign/parent transfer takes placeand a misfit occurs, the adaptation of foreign/parent demands and tem-plates to the local/host context is more likely because the local parentis in control giving preference to local/host solutions. As a result, JVsin which the foreign parent takes a minority position will have a highpropensity to feature outcomes between hybridization and localization.It is therefore proposed:

The higher the local parent equity, the higher the chance that thesite uses local/host templates and responds to local/host contextdemands, the lower the chance of misfits/recontextualization pres-sures, the higher the likelihood that foreign/parent templates anddemands are adapted to the local context in the case of misfit andas a consequence, the more likely localization as an outcome.

The opposite is asserted when the foreign parent holds the majority inthe JV. If the foreign parent takes a majority position, the foreign par-ent may be more likely to transfer templates or pose demands because itcontrols the site. At the same time, the chance of misfit and recontextual-ization pressure is higher because there is more foreign/parent influenceor presence that can potentially cause a misfit and induce recontextu-alization pressure. When misfit occurs, the adaptation of the local/hostcontext to foreign/parent demands and templates is more likely becausethe foreign/parent is in power and will give preference to foreign/parent


solutions. As a result, JVs where the foreign parent takes a majority posi-tion will have a higher propensity to feature outcomes between hybridand imitated solutions. Thus:

The higher the foreign parent equity, the more likely are we tosee the transfer of foreign/parent templates and/or the influenceof foreign/parent demands, the higher the chance of misfit andrecontextualization pressure, but also the more likely an adaptationof the local context to foreign/parent templates and demands as thedominant recontextualization mode and as a consequence a higherthe likelihood of imitation as an outcome.

Referring to entry modes as a whole, we can expect – based on the fore-going reasoning – wholly owned Greenfield sites to feature the highestdegree of imitation and Brownfield minority JVs the highest degree oflocalization.

Research design and methodology

A qualitative comparative case study with a strongexplorative element

In the view of the research objective a qualitative comparative casestudy with a strong exploratory element is adopted in this study. Under-standing how hybridization outcomes differ and why such outcomeshave come about is essentially about understanding qualitative changesin an organizational phenomenon in relation to its complex context-ual embeddedness. Such a research focus requires qualitative methodsthat are defined by Marschan-Piekkari and Welch (2004) as ‘proceduresfor “coming to terms with the meaning not the frequency” of a phe-nomenon by studying it in its social context’ (Marschan-Piekkari andWelch, 2004, p. 6).

Case studies are suggested to be particularly suited in IB research whencross-border or cross-cultural issues are involved (Ghauri, 2004). More-over, Yin suggest that ‘case studies are the preferred strategy when “how”or “why” questions are being posed, when the investigator has little con-trol over events, and when the focus is on a contemporary phenomenonwithin some real life context’ (Yin, 2003, p. 1). Both conditions applywhen we are asking how and why hybridization profiles of produc-tion systems in MNEs differ. In addition, case studies employed in thisresearch context should ideally adopt a multiple-case design (Yin, 2003).Pauwels and Matthyssens (2004, p.129) argue that the ‘only argumentto switch from single to multiple case study research (at the risk of


loosing depth) is to create more theory-driven variance and divergencein the data, not to create more of the same’. Based on this reasoning, amultiple-case design suggests itself when we are exploring associationsbetween variations in strategic choices and hybridization profiles (Yin,2003, Pauwels and Matthyssens, 2004).

In multiple case studies, the case selection follows what Yin (2003) callsa ‘replication-logic’ or others the logic of ‘theoretical sampling’ (Glaserand Strauss, 1967; Eisenhardt, 1989; Pauwels and Matthyssens, 2004).The basic rational is that ‘each case must be carefully selected so thatit either (a) predicts similar results (a literal replication) or (b) predictscontrasting results but for predictable reasons (a theoretical replication)’(Yin, 2003: 47). Similarly, Eisenhardt (1989, p. 537) reasons that incase study research the ‘cases may be chosen to replicate previous casesor extend emergent theory, or they may be chosen to fill theoreticalcategories and provide examples of polar types’. In line with these sug-gestions and given the analytical framework presented, this research willbe based on ‘theoretical sampling’ involving the selection of four ‘cat-egorial types’ that differ systematically with regard to major variationcausing factors theorized. More specifically, while the first research goal,the question whether both strategic and institutional distance impacthybridization outcomes could be investigated in a single case study (i.e.mainly through variation across different production system dimensionswithin a single case), the second research goal of this project, involvingthe question how different strategic choices impact hybridization out-comes, relies on ‘theoretical replication’ through a multiple case study.Although the selection of cases is driven by broad theoretical propos-itions, the study’s analytical framework is formulated in an open andtentative way (Eisenhardt, 1989).

Case selection: four automobile subsidiaries in India

The comparative study involves four cases for two reasons. On the onehand, four cases allow a relatively complete variation of the major vari-ance causing factors posited in this study (i.e. variation in generic strategyand entry mode). On the other hand, given the comprehensiveness of aproduction system as defined in this work and given the time-intensityof qualitative case studies as well as the limited financial resources of theproject, four cases were considered the maximum that could be handled.

The emergence of hybrid organizational forms and practices canprincipally occur in any kind of organization and production system.However, it can be expected to be particularly prevalent and observablein those organizations or production models that are embedded or at the


interface of markedly different strategic and institutional contexts. It is,therefore, the MNE that is in the focus of this study. At the same time,this work chooses the subsidiary as the main level of analysis because it isexpected that different contextual pressures are more tangible and theirempirical investigation more manageable at subsidiary level, comparedto the corporate level.

Production models of automobile subsidiaries in India are selected asthe unit of analysis for three reasons. First, apart from the fact that theresearch of production system hybridization is justified in its own right,given its crucial importance for the internationalization of production inMNEs, production systems as defined here are multi-dimensional con-structs whose different dimensions may be more or less impacted bydifferent kinds of context. Thus, unlike a research that focuses solelyon the transfer and hybridization of specific practices – such as humanresource management (HRM) practices – a focus on whole productionsystems provides us with more within case variation that renders it eas-ier to observe whether and how different organizational dimensions areimpacted by different contexts. Second, the focus is here on automobileproduction because extant research shows that sectoral difference hasa strong impact on hybridization outcomes (e.g. Florida and Kenney,1995; Kenney, 1999; Abo et al., 1994; Smith and Elger, 2000). To ruleout such a sectoral impact and to reduce research complexity, the studyis confined to the automobile industry. Moreover, a focus on the auto-mobile industry allows a selective comparison of the findings of thisstudy to those of others. After all, most of the hybridization researchon production systems has been conducted in the automobile industry.Third, past research has shown that host country variation has a strongimpact on outcomes of transfers in MNEs (e.g. Kostova and Roth, 2002).Therefore, to reduce contextual complexity, subsidiaries were chosen,which not only operate in the same industry but also in the same hostcountry. Finally, the choice of India as the focal host context is moti-vated by the theoretical sampling logic of this study and informed bythe state of hybridization research. On the one hand, the Indian con-text offered a range of cases where both parent generic strategies as wellas entry modes differed systematically in line with broad propositionsposited in this study. Additionally, the within host context variationfor the different cases was relatively low due to a modest variation ofentry times. On the other hand, India was chosen because hybridizationresearch has not paid much attention to emerging market contexts, letalone to India, which tends to be in the shadow of China or East Asia ingeneral.


Introducing the four cases

The four cases selected for this research project include the subsidiariesMaruti-Suzuki India (MSI), Fiat India (FI), Mercedes-Benz India (MBI),Skoda Auto India (SAI). Although a thorough introduction of the fourcases will follow in the individual case discussions in Chapter 6, a briefintroduction of the cases is made here to render the sampling-logic ofthis project more comprehensible.

The roots of Maruti Suzuki India date back to 1970 and 1971 whenSanjay Gandhi, the son of Prime Minister Indira Gandhi, establishestwo companies (Maruti Technical Services Private Limited and MarutiLimited) for the development and production of a ‘people’s car’. How-ever, it is not until 1983, when Suzuki enters the company that thecompany produces its first cars. As no meaningful production infras-tructure and labour force exist, the establishment of the site is basicallya Greenfield project largely driven by Suzuki’s entry in the early 1980s.In terms of equity mode, Suzuki is initially only involved as a minorityJV partner. In 1992, when the Suzuki Motor Company (SMC) acquires a50 per cent share in the JV, Maruti seizes to be a public sector company.In 2002, SMC finally acquires a majority in the JV. While SMC’s overallstrategy is between cost leadership and cost focus, its emerging marketstrategy rests more on cost focus.

Fiat enters the Indian market in 1996 in the format of a majority JVwith Premier Automobiles Ltd (PAL). Although the company initiallyplans to set up a wholly owned Greenfield operation, market condi-tions force the company to freeze its plans. Instead, Fiat engages in aJV with the former technical-collaboration partner PAL and takes overits ‘Brownfield’ site. Practically from the beginning, Fiat has a majority(51 per cent) in the JV with PAL and raises its stake continuously. Withthe shift in equity the Indo-Italian JV, India Auto Ltd (IAL), is renamed toFiat India Private Ltd (FI). In 2006, Tata Motors and Fiat establish in Ran-jangaon, near Pune, a new 50:50 per cent JV to manufacture passengercars, engines and transmissions for the Indian and overseas market. Fiat’sgeneric strategy can be described as combining a differentiation and costleadership strategy. However, as far as Fiat’s generic strategy for emergingmarkets is concerned, it is more appropriate to label it cost focus.

Mercedes-Benz India (in the meantime called DaimlerChrysler India)is founded in 1994 as an Indo-German JV between Daimler-Benz andthe Indian truck producer Tata Engineering and Locomotive CompanyLimited (TELCO). From the start, the German partner holds a majorityin the JV and continuously increases its equity in the operation. Theestablishment mode of MBI is basically a Greenfield format. Although


some employees are delegated from TELCO, the labour force is for themost part young and newly recruited. The production facilities are alsonewly installed in a new factory hall. Mercedes-Benz’s overall genericstrategy can be best categorized as differentiation. However, in emergingmarkets the strategy rests more on differentiation focus.

Skoda Auto India Private Ltd (SAI) is founded in 2000 as a whollyowned Greenfield site. The generic strategy of Skoda’s parent Volkswa-gen AG (VW) can be best described as combining a differentiation andcost leadership strategy. VW’s emerging market strategy with Skoda restsmore on cost leadership, however. Table 3.4 outlines the major differ-ence between the cases with regard to their strategic choices. Figure 3.5shows the equity development of the four cases between 1982 and 2005.

Data collection method

The study’s data collection rests on the triangulation method (Miles andHuberman, 1994). The study makes use of multiple sources of data andcollection methods including: observation, documentation and guidedopen-ended interviews (Eisenhardt, 1989; Patton, 1990; Yin, 2003). Themain benefit of triangulation and integration of multiple data sourcesis an increased internal validity of the study (Pauwels and Matthyssens,2004). In this study triangulation is of paramount importance becausethere is an imbalance with regard to different types of data available forthe respective cases. For example, while there is a high saturation withregard to interview data, there is only a moderate amount of external(press/media) documentation in the MBI case. This is just the other wayround in the case of MSI, where the interview saturation-level is moderateand the availability of external documentation is very high. Thus, thecombination of these different sources of data not only helps to cross-check the validity of findings but is also a prerequisite to establish a soundcomparison across different dimensions under conditions of financialresource and information/data access constraints.

Data collected

The data collection method of this work rests on three pillars. The firstpillar comprises the collection of documents available within and out-side the companies. Data collection for this kind of data lasted practicallythroughout the whole period of the research project starting in February2002 and ending in December 2005. This implies that data collectionoverlapped with data analysis, which is a key element and advantageof case study research (Eisenhardt, 1989). The second pillar involvesobservations made during factory and site visits and the third pillar

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Table 3.4 Selection criteria and variance of cases based on theoretical sampling

MSI FI MBI SAI

Strategic choices at corporate levelGeneric strategy SMC is between cost Fiat combines cost MB features VW combines

focus & cost leadership leadership & differentiation differentiation differentiation & cost leadership

SMC’s emerging market Fiat’s emerging market MB’s emerging VW’s emerging marketstrategy rests more on strategy rests more on cost market strategy strategy with Skoda restscost focus focus (world car project) rests more on more on cost leadership

differentiation focus

Strategic choices at subsidiary levelEstabl. mode Greenfield Brownfield Greenfield Greenfield

Equity mode Joint Venture Joint Venture > wholly Joint Venture > Wholly ownedowned wholly owned

(From minority to (From majority JV (From majority JV (Wholly owned from the outset)majority JV) to wholly owned) to wholly owned)


19821984

19861988

19901992

19941996

19982000

20022004

0.00

20.00

40.00

60.00

80.00

100.00

120.00

(%)

Maruti-Suzuki India Mercedes-Benz India Fiat India

Skoda Auto India

Source: Compiled from company information.Figure 3.5 Foreign ownership development of MSI, FI, MBI and SAI

consists of guided/semi-structured interviews. The factory visits andcompany interviews were mainly conducted during the research stayin India between 15 September 2002 and 29 February 2003. Only in thecase of MBI there was an earlier research stay in India between 6 Julyand 27 July 1998 during which a total of 24 interviews were conducted.During the second and main research stay for this comparative studya total of 38 interviews were completed in the four subsidiaries as wellas with different organizational and institutional representatives/expertsoutside these firms. Over all, the interviews served two broad goals. Inter-views in the automobile subsidiaries were conducted to establish a solidunderstanding about their production system hybridization profiles andthe contextual conditions that brought these about. Interviews with out-side agencies were conducted to acquire a more solid understanding ofthe strategic and institutional context in India as well as to establish anexternal perspective on the companies. Table 3.5 gives an overview ofthe data collected, ordered by research case, by data-collection activity,and by date. Table 3.6 gives an overview about the interviews conductedwith representatives of company external agencies and experts.

It should be added that the geographical spread of the four sites, initialaccess difficulties and financial constraints regarding trips to and stays

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Table 3.5 Summary of research activities at different research sites

Activity case Research period Document collection Factory visits Interviews

MSI Mainly between February 2002 Company website, company Tour of production site in 6 interviews conductedand February 2003 documents and reports, IPO Gurgaon, the State of between 13.12.2002–

red herring prospectus, Haryana on 18.01.2003 22.01.2003academic books and articles,newspaper and websitearticles, press interviews

FI Mainly between February 2002 Company website, company Tour of production site in 4 interviews conductedand February 2003 documents and reports, Kurla/Mumbai, the State on 07.01.2003

academic books and articles, of Maharashtra onnewspaper and website 07.01.2003articles, press interviews

MBI Mainly between February 2002 Company website, company Tour of production site in 10 interviews conductedand February 2003 documents and reports, Pimpri/Pune, the State of between 10.11.02–

academic books and articles, Maharashtra on 12.11.2002 18.11.02 (24 interviewsnewspaper and website conducted during firstarticles, press interviews research stay between

15.07.1998–29.07.1998)

SAI Mainly between February 2002 Company website, company Tour of production site in 3 interviews conductedand February 2003 documents and reports, Walju Industrial Estate/ on 25.01.2003

academic books and articles, Aurangabad, the State ofnewspaper and website Maharashtra on 25.01.2003articles, press interviews

Total 23

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Table 3.6 Summary of data collection regarding India’s institutional and strategiccontext

Expert interviews Interview date Number of Factory visit whereinterviews applicable

General Motors India Gurgaon, 1 –Vice President 27.01.2003Corporate Affairs

Technical Vocational New Delhi, 1 –Educational and 25.10.2002Training Consultant

Free Journalist – New Delhi, 1 –Motoring columnist 25.10.2002

Eicher Motors Limited Indore, 3 Tour of productionChief Strategic Planning, 03.01.2003 site in Pithampur/General Manager Indore, in the StateManufacturing and of Madhya PradeshDirector Supply Chain on 03.01.2003

Gesellschaft für technische New Delhi, 3 –Zusammenarbeit (GTZ) – 28.10.2002Indo-German Tool RoomProgramme

Automotive Component New Delhi, 1 –Manufacturers Association 06.11.2002(ACMA) of India –Executive Director

Society of Indian New Delhi, 1 –Automobile Manufacturers 29.11.2002(SIAM) – Assistant Director

Indo-German Chamber of Mumbai, 1 –Commerce (IGCC) – 09.01.2003Director General

Friedrich Ebert Stiftung – New Delhi, 1 –Expert on Industrial 12.12.2002Relations in India

Business Standard Mumbai, 1 –Motoring – Assistant 09.01.2003Editor – Features

Engineering und Design New Delhi, 1 –AG (EDAG) – Managing 10.09.2002Director

Total 15


at the different site locations did not allow prolonged research stays insome of the locations. Therefore, the number of interviews remainedbelow the level originally targeted. Although case study protocols werecarefully developed (c.f. Yin, 2003) including a detailed scheduling forthe different kinds of research activities at different research sites, realitieson the ground made a frequent rescheduling necessary. Nevertheless, thecase study protocol served to systematically guide the research processand to track the achieved research goals.

Interview guide and interviewees

The main goal of the company interviews and the document collectionwas gathering information on the how and why the local subsidiaries’production systems differed with regard to their hybridization profiles.In addition, expert interviews that were conducted with representa-tives of institutions or organizations followed a different format. In thisrespect, interview guides were specifically tailored to the host institu-tional or strategic context to be inquired, i.e. host country conditionsfocusing on the educational system, the industrial relations system andthe automotive industry in India.

As far as the selection of interviewees was concerned, there was only alimited influence on the part of the researcher. However, the interview-request to companies involved asking for interviewees who were ideally:in a top to middle management position, preferably in a productionor human resource management function; interviewees who knew wellother sites of the foreign parent company or had even stayed there for aprolonged period; and interviewees who worked at the local subsidiaryfor an extended period of time. The reasoning behind this ideal inter-viewee profile was: that the interviewees needed to have a functionalcompetence to answer production system and human resource relatedquestions; that they needed to have a sufficient overview to answer ques-tions concerning the whole production system; that the intervieweesfeatured a comparative competence to answer questions about differ-ences between the local site and other corporate sites; and that theyshould have some historical knowledge about the local site to be able toanswer questions about developments and changes over time. Table 3.7presents an overview of the functional and hierarchical positions coveredby the interviewees in the respective subsidiaries.

Data analysis

The data analysis of this project mainly follows Eisenhardt’s (1989) sug-gestion of starting with a within-case analysis and then moving on to a


Table 3.7 Interviewees’ function and position across firms

Function/Position/Interview date Code

MSI

Assistant General Manager Production on 13.12.02 MSI 1Assistant Manager Marketing on 18.01.03 MSI 2Assistant Manager Production on 18.01.2003 MSI 3Former Manager R&D on 20.01.03 MSI 4General Manager HRM on 20.01.2003 MSI 5Assistant General Manager Maruti Supplier on 21.01.2003 MSI 6

FI

Senior Advisor to the Managing Director on 07.01.2003 FI 1Italian Head of Production on 07.01.2003 FI 2Manager Production on 07.01.2003 FI 3Manager Organization and Development on 07.01.2003 FI 4

MBI

German Vice President and Head of Production on 18.11.2002 MBI 1Head of Human Resources on 12.11.2002 MBI 2German General Manager Production on 18.11.2002 MBI 3General Manager Human Resources on 13.11.2002 MBI 4General Manager Materials on 13.11.2002 MBI 5General Manager Quality on 14.11.02 MBI 6Divisional Manager Human Resources on 12.11.2002 MBI 7Divisional Manager Planning on 14.11.02 MBI 8Divisional Manager Production on 14.11.02 MBI 9German Meister on 10.11.2002 MBI 10

SAI

Czech General Manager Technical/Quality on 25.01.2003 SAI 1Head of Production on 25.01.2003 SAI 2Production Worker on 25.01.2003 SAI 3

cross-case analysis. Moreover, the study follows Miles and Huberman’s(1994) suggestions concerning the main components of qualitative dataanalysis, based on the overlapping and intertwined activities of: datareduction, data display, conclusion drawing and verification. Follow-ing the ‘pattern matching logic’ (Yin, 2003; Pauwels and Matthyssens,2004), the final analytical step of this study involved investigating andexploring whether or not the similarities and differences found acrossthe cases could be attributed to predicted associations posited in thetheoretical framework. This process was supported by extensive effortsof data display as suggested by Miles and Huberman (1994) (see alsowithin-case and cross-case comparing tables). In addition to detecting


matches/contradictions based on comparisons between theory and data,an effort was made to specify associations that were deliberately notexplicated in the theoretical framework.

Validity of research

Pauwels and Matthyssens’ (2004) suggest that the quality of qualitativeresearch and its validation cannot be assured by output control but hasto be built into the research design and process. They stress that a care-ful crafting of the research design, matching the research method, thedata collection method, the sampling strategy and the data analysis withthe research goal, are most important building blocs to assure researchvalidity. This was done in this study, as we outlined in this chapter.

While case study research cannot provide ‘statistical generalization’, itcan provide ‘analytical generalization’ (Pauwels and Matthyssens, 2004).Analytical generalization involves ‘to generalize a particular set of resultsto some broader theory’ (Yin, 2003, p. 37). In the research context of thisstudy, theories about subsidiary hybridization are the domain to whichthe results can be generalized.

Part IIEmpirical Results

4India’s Business Context and theAutomotive Sector

This chapter provides an introduction to India’s institutional and stra-tegic context conditions that proved particularly relevant for under-standing the production system hybridization. It should be noted, thatthe institutional patterns discussed here, describe tendencies at a rathergeneral level.

India’s institutional context

Hierarchy and demarcation in family, education, social stratificationand beyond

Family

Traditionally the Indian family is an extended or joint family in whichup to four generations live under one roof. The decision-making powerrests mainly with the father of the family who involves the eldest son. Itis also the eldest son to whom responsibility is conferred after the father’sdeath. The typical Hindu-family is patriarchal and hierarchical (Kakar,1997), with the family bonding fundamentally based on the father-sonand brother-brother relationship (Schmitt, 1984; Tayeb, 1988). While itis true that the Indian family is shifting towards a nuclear family – forexample not living in a one household any more – it is also true that trad-itional family ties remain functional. If, for instance, a younger brotherpasses away, the eldest son still takes the responsibility for the familyleft behind. Regarding the upbringing of children, with all due caution,it may be stated that discipline, subordination, and deference towardsthe father, the elders or other authorities are among the cornerstones ofsocialization (Kanungo, 1994). Tayeb (1988) underlines the high degreeof economic and emotional dependence of children on their family until

77


late in life. Decisions related to educational, professional choices andeven choices of marriage partner are largely taken by parents.

The socialization goals and structures of families also interpenetrateinto schools and ultimately into the work context. The authoritarian rela-tionships in the family extend to authoritarian teacher-pupil relationsin schools, with teaching methods resting on compliance and passivereproduction of knowledge (Schmitt, 1984). Kanungo (1994) and Sinhaand Sinha (1994) show that patriarchal and hierarchical structures arealso reproduced in the work context. Like the father in the family, thesuperior is consulted on all major issues. There is little scope for argu-ment and open confrontation with superiors is disapproved of (Sinha,1990a; Virmani, 2000). “‘Check with the boss” is the crux of the majorityof decision making which naturally shifts the locus of control into thehighest position in the organization’ (Sinha and Sinha, 1994, p. 167). Theauthors also state that clear superior-subordinate work roles are generallypreferred over equality-based ones in the Indian work context (Sinha,1980; Sinha and Sinha, 1994; Sinha, 1999). Sinha (1990b) also raisesdoubts about the ability to implement team work in the Indian contextand suggest that the ‘only kind of teams which can function effectivelyis the vertical ones where the status differential is readily accepted andvertical solidarity develops’ (Sinha, 1990b: 482).

Kanugo (1995) sees authoritarian and patriarchal institutional pat-terns as the root cause for work-dispositions marked by strong feelingsof dependency, a tendency towards conformity and blind obedience.The overall implication of the socialization patterns cited is a generaldifficulty to implement equality based work concepts in the Indianwork context. At the same time, hierarchical and patriarchic relationsplace a great emphasis on certain authority figures which renders itdifficult to achieve ‘taking of responsibility’ at the lower levels in theorganization. As a result it is difficult to implement concepts suchas management-by-objectives (MBO) or delegation in general. Thosework relations that have been described as effective in the Indian con-text, such as ‘nuturant task leadership’ (Sinha, 1980; Sinha, 1999), arebased on strong personal relations where personal affection between thesuperior and subordinate takes on an important role for the task achieve-ment. To be fair, India is undergoing tremendous change. In the urbancentres traditional patterns of socialization described are seeing a trans-formation and an increasing heterogeneity (Saraswathi and Pai, 1997;Becker-Ritterspach, 2000). On the other hand, the patterns still formbasic tendencies and certainly hold true for the generation of employeesresearched in this case study.

Empirical Results 79

Higher technical education

The Indian higher education system is compartmentalized with dif-ferent educational paths posing alternatives rather than building onone another (Heitmann, 1995). The technical education and voca-tional training in India broadly rest on a ‘three tier system’ (Palit, 1998;Thete, 1999). At the lowest level we find trade-courses for skilled workersand craftsmen, which are either taught at Industrial Training Insti-tutes (ITI) or Higher Secondary Schools. At the middle level we findtechnical training programmes of Polytechnics that produce technicianengineers or so called diploma engineers. The highest level is constitutedby ‘first degree and post-graduate courses in engineering and technology’(Thete, 1999: 25). These courses are imparted at Engineering Colleges orthe highly prestigious Indian Institutes of Technology (IIT) which areproducing graduate engineer degrees.

It is important to understand that the structural conditions of the threetier system and the financial endowment (Schmitt, 1984; Heitmann,1995) required for education, practically rule out vertical mobility acrossthe three levels. Moreover, the educational content, in terms of theshare of practical experience and theoretical training, varies starkly withthe three levels. Two interviews with representatives of a development-project for vocational training (interview Indo-German Tool RoomProject, 2002; Heitmann, 1995) explained that while ITI graduates havesome degree of practical training and conclude their education with anapprenticeship, diploma engineers and even more so graduate engineershave hardly any practical hands-on training as a part of their education.There is a striking resemblance between the Indian technical education –which was founded to a large extent during British colonialism (Thete,1999) – and the British system in this respect. For India, like in the Britishsystem (Sorge, 1995b), it holds true that educational programmes withstrong links between academic knowledge and practical experience areassociated with lower prestige. Similar to Britain, the link is strongerin polytechnics than at universities, and stronger at regular engineer-ing colleges than at the prestigious IITs. Like their British counterparts(Sorge, 1995b), Indian graduates from the prestigious institutions havelittle practical experience. As a result, diploma engineers and engineeringgraduates feature a managerial work-identity that clearly does not havea physical involvement in the manufacturing process within its ambit.In India, different educational paths create a strong professional dis-tance. The overall effect of such demarcations is that different employeecategories tend to distance themselves from one another, creatingcommunication and interaction boundaries in the organizations.


Social stratification

The professional distance between different employee categories gen-erated by India’s educational system is complemented or rather ina ‘reciprocal interdependence’ (Sorge, 2004) with a social distanceproduced by traditional caste-related principles of social-stratification.Bouglé (1997) identifies three constituting elements of the Indian castesystem. These are ‘repulsion, hierarchy and hereditary specialization’(Bouglé, 1997: 65). Like Bouglé, Dumont sees these principles as consti-tutive but argues that they can be reduced to the one core principle ofthe opposition of the pure and the impure (Dumont, 1997). For:

This opposition underlies hierarchy, which is the superiority of thepure to the impure, underlies separation because the pure and impuremust be kept separate, and underlies the division of labour becausethe pure and impure occupations must likewise be kept separate.

(Dumont, 1997, p.477)

Interestingly, the structuring principles of the caste-system are ‘repro-duced non-identically’ (Sorge, 2004) in India’s modern industrial work-context in two core respects. Firstly, the principle of ‘hereditary spe-cialization’ is socially functional in that there is a strong correlationbetween certain caste-backgrounds, educational-choices and professions(Dupont, 1992; Bronger, 1996; Panini, 1996; Sharma, 1997). Secondly,and more significantly, the principle of the ‘opposition of the pureand impure’ remains strong. It finds expression in a marked social dis-tance between different employee categories (c.f. D’Costa, 2003) andin a strong preference of mental over physical work (Gosalia, 1992;Ramaswamy, 1996; Panini, 1996). The ‘reciprocal interdependence’between the education system and traditional stratification principlesof the caste-system constitute strong socio-professional demarcationsbetween different employee-categories as well as a low prestige for phys-ical work in general. The low prestige for physical work finds differentexpressions. Ramaswamy states, for example that ‘[b]land labels suchas ‘operators’, ‘technician’ and ‘craftsman’ are increasingly the meanor minimum expectation, especially in high technology industry wherethe more conventional ‘worker’ is itself an opprobrium’ (Ramaswamy,1996, p. 35).

Industry is replete with evidence of the search for designations, espe-cially expressive ones which stress rank and progression from physical


to mental work, and the creation of new layers of the hierarchy toaccommodate new designations.

(Ramaswamy, 1996, p. 36)

Generally, manual activities provide much lower prestige comparedto clerical work no matter how simple it may be (Ramaswamy, 1996;interview Indo-German Chamber of Commerce, 2003). Needless to saythat cleaning activities are amongst those with the lowest prestige. Per-ceived as ‘polluting’, cleaning activities on the shopfloor are still largelyreserved for lower castes.

Social stratification and organizational hierarchy

Indian companies, particularly Public Sector Undertakings (PSUs), fea-ture extensive hierarchies. The proliferation of hierarchical levels andcorresponding designations in PSUs can be partly explained by pub-lic sector policies that leveled differences in pay between workers andmanagerial levels (c.f. Okada, 1998). As compensation based differen-tiation proved difficult to realize, PSUs offered status differentiationby promoting particularly managerial employees to ever higher desig-nations. However, it is not only the PSUs that feature an extensivedifferentiation of hierarchical levels and designations. Apart from theeducational segmentation, India’s social stratification and family pat-terns play a crucial role in explaining the extensive organizationalhierarchies.

India’s contemporary social stratification can hardly be captured byreferring only to the caste-system. Instead, ascriptive and meritocraticstatus-criteria exist side by side. Particularly in the urban and industri-alized regions, with the emergence of new modern professions, trad-itional caste-related professions have partly lost their meaning. Whilemeritocratic status-criteria are becoming increasingly important, it isalso true that ascriptive (i.e. Jati and Varna) and meritocratic status-criteria (income, educational degree, and designation held) are notreadily separable (Bronger, 1996; Sharma, 1997). After all, the socialstatus of an individual or rather of the whole Joint-Family is cruciallydefined by a combination of class- and caste-specific attributes. There isa coexistence of modernism and traditionalism where formal educationaldegree, profession and designations held in a company, combine withtraditional caste-backgrounds. The most shining examples of this coex-istence are weekly marriage market advertisements. Under the category


‘Brides Wanted for Brahmin’ we can read in the Hindustan Times, forexample:

Wanted: Really Beautiful Professional girl below 25 yrs for Delhi basedStatus Gaur Brahmin boy B.E., MBA, 30/174/ 12 Lakhs [income] p.a..Manager in Top MNC. Reply with Horoscope & Photo to.

(Hindustan Times, 2002)

Professional advancement in an organization and the status of thefamily are intimately connected. Tayeb (1988) stresses that professionalsuccess of an individual, translates into a success of the whole family.As hierarchical designations are one of the most visible signs of suc-cess, there is a permanent family-induced pressure for advancement inthe organizational status hierarchies (Ramaswamy, 1996). Although, jobcontents often do not even change, companies have increasingly givenin to demands for ever better designations to avoid loosing their bestemployees (Ramaswamy, 1996).

The overall result of this development is that many Indian organiza-tions have seen a tremendous inflation of hierarchical designations andreporting/responsibility levels (Bhadury, 2000). In India, ‘[t]he typicalorganizational chart would show structures which are neither flat andmodern, nor even traditionally pyramidal, but shaped like a barrel, withbulging midriff and (counting out the chief executive) a flat top not verymuch smaller than the bottom’ (Ramaswamy, 1996: 39). Ramaswamy(1996) underlines that job-rigidity and poor labour-utilization in theIndian work context is strongly related to the steep hierarchical differ-entiation in organizations. Table 4.1 summarizes associations betweeninstitutional conditions and behavioural dispositions in the Indian workcontext.

Industrial relations in India

The Industrial Relations System in India has been commonly describedby three characteristics: First, a state domination of the industrial rela-tionship, including a strong affiliation between unions and politicalparties; second, a legislative framework that creates employment inflex-ibility, particularly with regard to recruiting, deploying, disciplining,and dismissing labour; and third, a legacy of highly confrontational andadversarial employer-union and employment relations.

The basic legal framework

Different scholars have pointed out that the prominent position ofthe state in India’s Industrial relations is rooted in India’s labour laws,


Table 4.1 Institutional foundations of work dispositions in the Indian workcontext

Institutional foundations Expectations & behavioural dispositions

Compartmentalized vocational training Indian employees (IE) perceive& technical education enforced by high vertical professional and socialcaste-system related principles of distance between white and bluesocial-stratification collar occupations close to the

shopfloor

Practical and theoretical training IE have generally a low appreciationcontent varies strongly with different for physical/manual workeducational programmes

Polytechnics trained supervisors, Supervisor levels dislike physicalforming the first level of management, involvement on the shopfloor,generally lack practical know how feel distant from workers and play

a weak roles as practical trainersof worker

Industrial Training Institute trained Workers find it hard to acceptworkers generally have superior practical supervisors as practical trainers &manufacturing know how compared to to form a close ties with themsupervisors or other managerial levels

Patriarchal/hierarchal-orientated IE find it hard to take individualrelationships in family, school and responsibility and tend to associatebeyond based on socialization patterns taking of responsibility & decision-serving to create deferential and making with specific social/collectivist personalities organizational authority roles

or figures.

Strong socio-religious and Demand for ever higher, status-givingprofessional hierarchies organizational designations

which were largely drafted before independence. Interestingly, theystrongly reflect the British colonial effort to keep labour conflict downand production up, during the Second World War (e.g. Gupta andSett, 2000; Ramaswamy, 2000). According to Gupta and Sett (2000)and Ramaswamy (2000) three laws have played a pivotal role in shap-ing Indian industrial relations as a distinct system (Ramaswamy, 2000).These are the Trade Union Act (TUA), 1926, The Industrial EmploymentStanding Orders Act (IEA), 1946, and the Industrial Disputes Act (IDA),1947.

The TUA creates the legal foundation for unions to exist. It ‘conferson unions the basic minimum legality which protects them from civiland criminal liability arising out of industrial disputes and enables to


function as lawful associations’ (Ramaswamy, 2000: 113). Under the lawany seven workers can form a union. For companies this means thateven outsiders, non-company members, could form a union and posedemands on behalf of company employees. For some external unionleaders this has even been a lucrative business, as one of my intervieweesstressed (MBI 2). However, as Gupta and Sett (2000, p. 145) point outa ‘[m]ere registration of a union under the TUA does not entitle it torecognition by the employer as a legitimate representative of his workers,or to the bargaining relationship that would arise from such recognition’.Thus, one crucial reason for the prominent position of the state in Indianindustrial relations is related to the condition that the TUA includes noprovision that recognizes trade unions as collective bargaining agents.This condition is further strengthened by the IDA.

Under the IDA, the government enjoys full discretionary powerwhether or not, when and how to intervene in an industrial dis-pute actual or threatened. It may or may not decide to conciliate, itmay refuse to send a dispute for adjudication or it may decide not toimplement the award of a Labour Court or Industrial Tribunal. Whileit may prohibit strikes or lock-outs, or it may refuse permission fora lay-off, retrenchment or closure, no court can take cognizance ofan offence under the IDA, by way of an illegal strike/lock-out/lay-off/retrenchment/closure, unless the government formally notifiessuch an action as illegal and makes a complaint to the court.

(Gupta and Sett, 2000, p. 145)

The IDA cements the vital role of the government in Indian indus-trial relations and forms the basis for the strong political involvement inIndian unions. Ramaswamy (2000) even suggests that the system createsa ‘fertile ground for political meddling’ and underlines that ‘[t]he historyof industrial disputes is replete with instances of the abuse of politicalpower and the subversion of conciliation to promote political interest’(Ramaswamy, 2000, p. 121).

However, the IDA has not only been problematic for unions and theirrecognition. For employers, the IDA and its subsequent amendments(in 1976) imply substantial employment and labour market inflexibili-ties. After all, lay-offs, retrenchments or closures are under the ultimateguard of political leaders as they require government permission. More-over, the system implies that small unions whether or not they have aconstituency in companies, can push through their demands as long asthey have political patronage (Gupta and Sett, 2000; Ramaswamy, 2000).


The last piece of legislation that crucially impacts Indian industrialrelations is the Industrial Employment (Standing Orders) Act (IEA). TheIEA ‘requires every establishment employing a hundred or more workersto have a set of certified standing orders defining conditions of employ-ment such as hours of work, attendance, proper conduct, punishment formisconduct, and means available for redressal against unfair treatment’(Ramaswamy, 2000, p. 114). The law’s basic purpose is to guarantee aminimum protection of the workforce, where no union is established.

The basic union structure and levels of collective bargaining

The legal framework and India’s struggle for independence impliedthat there has been traditionally a strong nexus between political par-ties/movements and unions (Mamkoottam, 2000). In 2003, there areabout five central trade union federations that are more or less affiliatedwith a political party. These include as the most important ones: TheAll India Trade Union Congress (AITUC), the Bharatiya Majdor Sangh(BMS), the Indian National Trade Union Congress (INTUC), the Centreof Indian Trade Unions (CITU) and the Hind Majdoor Sabha (HMS).

According to Bhattacherjee (2001), India’s planned economy andgrowing public sector after independence ‘provided a terrain for largescale unionization’ and ‘quite naturally led to the formation of public sec-tor unionism’ (Bhattacherjee, 2001, p. 248). Over all, the strong connect-edness between political parties and the proliferation of unions betweenthe 1960s and 1970s implied that: (1) political party or movement rivalrywas carried all the way down into rivalling unions in companies, (2)political movements or politicians instrumentalized labour conflict fortheir personal or partisan interest, but also that (3) local labour disputesled to a wider politization by calling in politicians and political parties(Mamkoottam, 2000). However, from the 1980s onward and acceler-ated by India’s liberalization in the 1990s, India’s union landscape sees ashift. Already in the 19080s, failed industrial action and disillusionmentwith politically affiliated unions (Sinha, 2002; Budhwar, 2003) lead to a‘rise and proliferation of “independent” unions operating in the majorindustrial centres and competing with the traditional party affiliatedunions’ (Bhattacherjee, 2001, p. 254). On average this development de-radicalizes industrial action and leads to less labour conflict, particularlyin private sector companies. Moreover, leftist unions loose increasinglysupport which is rooted in their opposition to decentralized bargaining(Bhattacherjee, 2001). It is also suggested that the increased attractive-ness of unaffiliated unions is related to their greater success in achievingwage increases (Bhattacherjee, 2001). All in all, these developments lead


to a growing diversity in labour-management/union-employer relationsbetween industries, states, and regions (Ratnam, 2001; Bhattacherjee,2001). Presently, different bargaining levels and union structures co-existin the Indian economy.

In the private corporate sector, plant-level bargaining takes placewith enterprise based unions that may or may not be affiliated withpolitical parties. In the public sector enterprises, centralized unionfederation that are affiliated with to political parties bargain withthe states (as employer) at the industry- and/or national-level. Cen-tral state government employees in the service sector (transportation,postal services, banking and insurance, police and firefighters, etc.)have their (typically) politically-affiliated unions bargaining at thenational and/or regional levels.

(Bhattacherjee, 2001, p. 247)

Although politically affiliated unions have lost power, they still playa role depending on region, sector, and industry. And even if a com-pany union has no political affiliation such a possibility always loomsas a potential threat for employers and has created willingness on theirpart to foster good relationships with internal unions. While unaffili-ated company unions have claimed industrial relations in private sectorenterprises in general and in MNEs in particular, an unaffiliated companyunion is still no guarantee for absent union militancy or industrial peace.Although union power and membership has steadily declined since thelate 1970s (Gupta and Sett, 2000; Sinha, 2002; Budhwar, 2003), Indialoses in the late 1990s still more days annually to strikes and lock-outsthan any other country (Bhattacherjee, 2001)

Company industrial relations

Company industrial relations in pre-liberalized India have been fre-quently described as adversarial in a great number of ways. At its worst,different company unions would fight each other, employer-unionrelations would be highly confrontational, and so would be labour-management relations. Even relations between different employee cate-gories would be antagonistic. Lack of labour commitment, discipline aswell as a culture of militant trade unionism, traditionally characterizedcore challenges to managing the Indian workforce (Bhadury, 2000; seealso Venkataramani, 1990).

Industrial conflicts, once they broke out, could be long-lasting, fre-quently involving go-slows, strikes, hunger-strikes, political agitation


and even physical threat and violence. The employers’ side would mostcommonly react to such industrial action with lock-outs (Gupta andSett, 2000). The state conciliation machinery, in turn, which has aprominent role for settling labour disputes, could not be counted on,as it reacted arbitrarily with regard to referring disputes for adjudication(Gupta and Sett, 2000). Furthermore, judicial processes would be slowand long-lasting with court cases pending over years.

However, while this antagonistic mode of company industrial rela-tions has still not perished entirely from the Indian industrial relationslandscape, new companies, and especially MNEs, are increasingly ableto establish an alternative scenario. This scenario generally implies thepresence of just one unaffiliated company union and involves cordialand cooperative employee relations.

Even the much bemoaned employment inflexibility, has become lessof a problem in the wake of the Indian government’s initiation ofthe new economic policy in 1991 (Gupta and Sett, 2000). In fact,India’s post-liberalization governments resort themselves to public sec-tor retrenchment through so-called ‘golden handshakes’ or VoluntaryRetirement Schemes (VRS). In doing so, a government sanctioned modefor retrenchment is set that is widely adopted by private sector firms(c.f. Gupta and Sett, 2000). In addition, employment flexibility increasesthrough all kinds of new contractual provisions, involving ‘bans onrecruitment, job transfer to non-bargainable categories, introduction ofparallel production, mergers, suspension of industrial action for a periodof five years, concession bargaining’ (Bhattacherjee, 2001: 259). A casein point is Hyundai Motor India, seeking to avoid labour inflexibilityand unionization by employing major parts of its labour as ‘trainees’(Lansbury et al., 2006).

India’s strategic context in the automobile sector

India’s economic reforms

In 1991 the Congress-led government launches a comprehensive reformprogramme that marks a transition of the Indian economy. Prior to thisturning point, India follows a mixed economic model that is marked byprotectionism and state-led economic development. While investmentin key sectors – such as heavy, basic and capital goods industries – isreserved for the public sector, the private sector is allowed to invest insome consumer goods industries that are defined by the five year plans.However, even in industries where the private sector is allotted a role,


no full market competition unfolds. Instead, a comprehensive licensing-system, strict investment control and protectionism shield many con-sumer industries from domestic and international competition. Despitesome successes, India’s economic model becomes unsustainable by theearly 1990s (Krueger and Chinoy, 2002).

Following a severe balance of payment crisis in the early 1990s, theIndian Government launches stabilizing measures and initiates a neweconomic policy. First stabilizing measures include the reduction of thefiscal deficit and the devaluation of the Indian rupee. While the sta-bilization measures aim at short term alleviation of the economic crisis,the reform programme addresses structural problems in the Indian econ-omy with a more long term approach. Internally, the reforms focus onshifting the economy from a state-led to a market-led growth regime(D’Costa, 2005). This implies the massive de-regulation of private sectorcontrols and a step-wise privatization of public sectors and their enter-prises. Externally, the reforms aim at opening up the Indian economy byliberalizing the trade and foreign direct investment regime (Krueger andChinoy, 2002).

The emergence of a FDI regime in the Indian automobile industry

India’s trade and FDI regime for the automobile industry can be broadlydivided into four phases. These include: the licence-phase, from the1950s until the mid-1980s; the phase of deregulation, from the mid-1980s until the early 1990s; the phase of emerging liberalization, fromthe early 1990s until the early 2000s and the phase of full liberalizationfrom 2000 onward (cf. Becker-Ritterspach, 2008).

The first, the licence-phase, is characterized by stringent restrictionson investments and imports in the industry. Technology imports requiregovernment permission and investments in the sector are subject to gov-ernment licences. Even capacity enhancement of existing operationsrequires permission (WTO, 1998; Degnbol-Martinussen, 2001). In the1970s, additional legislation is put in place that substantially restrictstrade and FDI. In 1974 the Foreign Exchange Regulation Act (FERA) is putinto force, restricting foreign equity in Indian companies to a maximumof 40 per cent (Degnbol-Martinussen, 2001).

The phase of deregulation starts with Rajiv Gandhi in 1985. In thisphase 32 industries are freed from the requirement of obtaining a licencefor new investments. On a case-to-case basis the Indian Governmentinvites a few foreign companies to collaborate with local players inthe automobile industry. At the same time, the Indian Governmentintroduces the system of ‘broad-banding’ (Rieger, 1989; Mohnot, 2001).Although the new system is applied to a range of industries from 1983


onward, it isn’t until 1985 that it is also applies to the automobileindustry. The ‘broad-banding’ system essentially allows automobile andautomotive parts manufacturers with an existing licence to producea different product range with their existing facilities (Rieger, 1989).The deregulation phase also sees a range of other developments suchas a loosening up of the Monopolies and Restrictive Trade PracticeAct (MRTP) and reductions on import duties (Mohnot, 2001). Clearly,Suzuki’s involvement in government-owned Maruti and the company’srequirements for component imports in the beginning are a crucial rea-son for first liberalizations of the trade regime. At the same time, FDI isstill required to follow a ‘Phased Manufacturing Programmes’ obligingcompanies to achieve a local content of 95 per cent.

The third phase begins with the launch of India’s new economic policyin 1991. As the increase in market driven productivity, product qualityand demand satisfaction becomes high on the political agenda, FDI is forthe first time actively invited on a larger scale by the Indian government.The main goal is to create a competitive industrial base in India by grad-ually lifting investment-, production- and sales-restrictions. With theabolishment of the licensing system for the automobile industry in 1993and the possibility of foreign equity of 51 per cent and above, India seesthe entry of major international players in the 1990s (see table 4.3). Yet,a host of restrictions on FDI remain in place until the late 1990s. In theearly 2000s, most of these remaining restrictions are lifted, marking thephase of full liberalization for the Indian automobile industry. Table 4.2summarizes India’s emerging FDI regime in the automobile industry.

Demand market conditions in India’s automobile industry

With the launch of the new economic policy in 1991, the Indian govern-ment not only reforms the trade and investment regime but also reformsthe financial sector and introduces a range of fiscal and monetaryreforms. Apart from an overall stimulation of economic growth, thesereforms also have a direct impact on automobile demand. In this respect,the steady reduction of the excise duty on automobiles has played aparticularly important role to stimulate automobile demand.

As a result of economic reform and growth, the Indian automobilemarket sees a sea change in qualitative and quantitative terms. The mar-ket develops from a sellers market, involving only a few domestic players,protected from internal and external competition, into a highly competi-tive buyers market, involving the presence of almost all global players inthe automobile industry.

In the early 1980s, India’s annual automobile production is around40.000 vehicles (Mohanty et al., 1994; Becker-Ritterspach, 2008). At that


Table 4.2 Development of India’s FDI regime in the automobile industry

Time frame Policy measures

1947–1984 • Cars considered luxury products subject to governmentProtectionism price controlsand state-led • Introduction of comprehensive licensing system in 1951,economic restricting market entry and capacity expansiondevelopment • GM and Ford leave India, following introduction of

‘Phased Manufacturing Programme’ (involving stiff localcontent requirements) in the early 1950s

• Imposition of stringent import and foreign exchangecontrols

• 1970 Monopolies and Restrictive Trade Practice Act (MRTP)regulates activities of large business houses, includingautomobile industry

• 1973 Foreign Exchange Regulation Act (FERA) introducesheavy restrictions on FDI in India (40% equity restrictionfor foreign investors)

• Quantitative restrictions on imports in place• Tariff structure designed to restrict the market

1985–1992 • Foreign direct investment in the auto industry is limitedFirst to a few selected Japanese players (Suzuki for passenger cars,deregulation Honda for two wheelers, Mazda and Mitsubishi for lightmeasures commercial vehicles)introduced • 40% equity restriction for foreign investors still in place

• Local market liberalization through introduction of‘broad-banding’ system in 1985

• Licence requirements and qualitative restrictions onimports stay in place

• Import tariffs are lowered

1993–2000 • 1993 abolishment of licensing system for passenger carShift towards manufacturersinternal and • FDI up to 51% (fast track approval) and more allowedexternal market • Reformulation of ‘Phased Manufacturing Programme’liberalization • Pre-entry security for investment decisions becomes

obsolete• Several international players enter the market• FDI still subject to a host of restrictions involving the

signing of Memorandum of Understanding, stipulating:minimum investment levels, foreign exchange neutrality,export requirements and localization/local contentschedule (50% in 3rd and 70% in 5th year)

• Import tariffs further reduced• Reduction of excise duty for passenger cars


Table 4.2 (Continued)

Time frame Policy measures

Since 2000 • 100% FDI through automatic route is introducedNew • Further reduction of import tariffsliberalization • Removal of quantitative resections on importspush • Abolishment of Memorandum of Understanding including

local content requirements and dropping of minimum levelsfor investment

• New range of international automobile companies enter orare about to enter the Indian market, including Renault,BMW, VW and Audi

• Further reduction of excise duty

Source: Compiled from Mohnot (2001), Becker-Ritterspach and Becker-Ritterspach (2008),ACMA, (2006), Ministry of Heavy Industries and Public Enterprises Government of India(2006).

point in time, there are only three players – Premier Automobiles Limited(PAL), Hindustan Motors Limited (HML), and Standard Motors Productsof India Limited (SMPIL) – producing passenger cars for the Indian auto-mobile market (Mohanty et al., 1994; Becker-Ritterspach, 2008). Thisscenery changes dramatically with Suzuki’s market entry in the 1980s andthe entry of new players in the wake of the 1990s market liberalization.Table 4.3 provides an overview of the major players entering the Indianautomobile market after the country’s deregulation and liberalization.

For Indian consumers these developments imply a shift from beingable to choose among two to three models that are marked by outdatedtechnology to being able to choose from an ever growing range of state-of-the-art car models.

By the 2000s, the Indian automobile market has developed into adifferentiated automobile market. Based on vehicle length and price,India’s automobile market is commonly segmented as follows: A1/Amini segment (up to 3400 mm; <a5000), A2/B compact segment(3401–4000 mm; a5000–8000), A3/C mid-size segment (4001–4500 mm;a8000–13000), A4/D executive segment (4501–4700 mm; a13,000–22,000), A5/E premium segment (4701–5000 mm; a22,000+), and A6/E+luxury segment (more than 5000 mm) (ACMA, 2006). Figures 4.1, 4.2and 4.3 show the development of the market share in the passenger carsector by manufacturer before and after liberalization (see also Figure 4.4showing the growing importance of passenger car production in relationto commercial vehicle production).

92Table 4.3 Major players in the Indian automobile industry

OEM (foundation date) Partner (production site) Share of the Car or MUV models Production (2006–2007),foreign partner in units

BMW India (2007) (Chennai, Tamil Nadu) 100% BMW 3 and 5 series (Goal: 1700 p.a.)

Daewoo (1994) Formerly DCM (Surajpur, 74% → 91% → Matiz, Cielo, Nexia Production stoppedUttar Pradesh,) 100% → 0%

Fiat India Pvt. Ltd Premier Automobiles 51% → 76% → 93% → Uno, Siena, Palio, Production shifted(1996/97) (PAL) (Mumbai, 95% → (0%) Petra, Adventure (see below)

Maharashtra)

Fiat India Tata Motors (Pune, 50% Palio, Grande Punto, 1715Automobiles Maharashtra) Linea and TATA carsPrivate Ltd (2007)

Ford India Pvt. Ltd Mahindra & Mahindra 50% → 85% → 90% → Ford Ikon, Mondeo, 39423(1995/2005) (Chennai, Tamil Nadu) 100% Endeavour, Fusion,

Fiesta

General Motors Hindustan Motors 50% → 85% → 100% Opel Corsa & Sail, 36879India Pvt. Ltd (1994) (Halol, Gujarat & Chevrolet Optra,

Talegaon, Maharashtra) Tavera, Spark, Aveo,Captiva

Hindustan Motors (Uttarpara, West Bengal; Ambassador 13481 (includingLtd (1942) Chennai, Tamil Nadu; Mitsubishi models

Hosur, Karnataka; below)Vadodara, Gujarat; Indore,Madhya Pradesh)

Mitsubishi Hindustan Motors 10% Lancer, Pajero &(Chennai, Tamil Nadu) Montero

Honda Siel Cars SIEL Limited (Noida, 90% Honda City, Civic, 59152India Ltd (1995) Uttar Pradesh) Accord, CR-V

Hyundai Motor (Chennai, Tamil Nadu) 100% Santro, Getz, Accent, 314604India Ltd (1996) Elantra, Verna, Sonata,

93

Mahindra & Mahindra (Mumbai, Nashik, Armada, Bolero, Scorpio, 91216Ltd (1945) Igatpuri, Maharashtra; MaXX, Savari, Mahindra

Zaheerabad, Andhra Major, MM550,Pradesh) Commander

Mahindra Renault Pvt (Nashik, Maharashtra) 49% Logan 614Ltd (2005)

Maruti-Suzuki India Government of India 1982: 26% 1989: 40% Maruti 800, Zen, Alto, 666935Ltd (formerly Maruti (Gurgaon & Mansear 1992: 50% 2002: 54,2% Swift, Omni, Versa,Udyog Ltd) (1981) Haryana) WagonR, Baleno,

Esteem, Grand Vitara,Gypsy, SX 4

Mercedes-Benz India Tata Motors (Pune, 51% → 76% → 86% → 100% C-class, E-class, S-class 2053(1994) Maharashtra)

Peugeot (1995–97) Premier Automobiles 50% → 33,96% → 0% Peugeot 309 Production stopped(PAL)

Premier Automobilies Formerly Peugeot and Padmini Production stopped(1944) Fiat (Mumbai,

Maharashtra)

Skoda Auto India Pvt. (Aurangabad, 100% Octavia, Superb, Laura, 12748Ltd (2000) Maharashtra) Fabia & Audi models

Tata Motors Ltd. (Pune, Maharashtra) Indica, Indigo, Marina 245556(Telco) (1945) (Nano) & Sumo, Safari,

Spacio

Toyota Kirloskar Kirloskar Group 70% → 88,86% Corolla & Innova 50210Cars India Ltd (1997) (Bangalore, Karnataka)

Volkswagen (2006) (Pune, Maharashtra) 100% Goal is production of –Passat, Jetta, Tuareg

Source: Adopted from Becker-Ritterspach (2008) and SIAM (2008).

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Maruti63%

PremierAutomobiles

23%

HindustanMotors14%

Source: Compiled from Mohnot (2001), p. 61; D’Costa 2005, p. 86.Figure 4.1 Market share in the passenger car sector by manufacturer in India,1990–91

Andere1.7%

Maruti54.1%

Hyundai16.9%

Tata Motors Ltd.12.3%

Ford6.4%

Fiat3.9%

HindustanMotors2.7%

Honda Siel2.0%

Source: Compiled from Centre for Industrial & Economic Research (2002), p. 9.Figure 4.2 Market share in the passenger car sector by manufacturer in India,1999–2000


Toyota1.33%

Maruti50.87%

Hyundai17.30%

Tata Motors Ltd.17.66%

Ford3.03%

Fiat0.66%

HindustanMotors1.78%

HondaSiel

4.35%DaimlerChrysler0.22%

General Motors1.91%

Skoda0.89%

Source: Compiled from SIAM (2006), p. 107.Figure 4.3 Market share in the passenger car sector by manufacturer in India,2004–2005

While India’s pre-liberalization production capacities are not able tosatisfy market demand, India’s post-liberalization production capacitiessoon surpass actual market demand. In 2003, the Indian automobileindustry is suffering from a severe production overcapacity. Althoughmarket demand grows steadily (see Figure 4.5), it remains below expect-ation for many international automobile entrants.

In the 2000s, it is mainly the mini, the compact and the mid-sizesegment that provide decent production volumes for the automobilemanufacturers in India. Interestingly, it is not the mini, but the compactsegment, that grows fastest in recent years (see Figure 4.6).

Supply market conditions in India’s automobile industry

Suppliers

As the Indian automobile industry is for decades very small, isolated,and monopolized sellers market, the less than a handful of auto manu-facturers in the market provide little volume for the development of a

96

0

200000

400000

600000

800000

1000000

1200000

1400000

Num

bers

1995

–199

6

1996

–199

7

1997

–199

8

1998

–199

9

1999

–200

0

2000

–200

1

2001

–200

2

2002

–200

3

2003

–200

4

2004

–200

5

Year

Passenger cars MUVs LCVs M&HCVs

Source: SIAM (2002); SIAM (2006).Figure 4.4 Development of the Indian passenger and commercial vehicle market(sales), 1995–1996 to 2004–2005

2001–02 2002–03 2003–04 2004–05 2005–060

100000

200000

300000

400000

500000

600000

700000

800000Mini (bis 3400 mm/�5000 €)

Compact (3401–4000 mm/5000–8000 €)

Mid-size (4001–4500 mm/8000–13,000 €)

Executive (4501–4700 mm/13,000–22,000 €)

Premium/Luxury (4701–5000 mm/22,000 €�)

Source: Compiled from SIAM (2006) p. 17 (data for 2001–2002 to 2004–2005); ACMA (2006)(data for 2005–2006).Figure 4.5 Development of the Indian passenger car market by segment,2001–2002 to 2005–2006


strong supplier industry. In addition, the licensing system, low volumes,supply uncertainties and the governing tax regime provide little incen-tive for car manufactures to outsource parts or components (D’Costa,2003). In the absence of market growth and competition, existing sup-pliers have little capital and incentive to upgrade their manufacturingtechnology and facilities (Bhargava, 2002). Moreover, the dispersal ofthe suppliers over different states in India and the absence of the ValueAdded Tax discourage concentration processes (ACMA and SIAM Inter-views). As a result, the Indian automobile suppliers remain small players,feature low production capacities, low technological know how and lowquality levels (D’Costa, 2003; Bhargava, 2002). The contractual relationsin the industry are based on low trust and arms length relationships.The supply logistics are shaped by supply uncertainties, the geograph-ical dispersion of suppliers and the poor transportation infrastructure.As a result, high inventories are for many manufacturers a necessity.

Before the beginning of deregulation in 1980s, Indian suppliers areunable to live up to international standards, especially not in termsof quality, quantity and price. This scenario changes, however, withthe market entry of Suzuki in the early 1980s and the entry of otherinternational automobile suppliers asking their suppliers to follow andforge local linkages (Bhaktavatsala, 1993; D’Costa, 2003; Sutton, 2004;Becker-Ritterspach, 2008). The ‘follow sourcing strategy’ implies that biginternational suppliers, such as Bosch, Cummins, Delphi, Denso, Valeo,or Visteon, follow their buyers and either establish wholly owned sub-sidiaries or engage in local tie-ups and JV (Humphrey, 1999; Humphrey,2000; Bhavani, 2002; Humphrey, 2003).

For local Indian suppliers the entry of the international suppliers trans-lates, in turn, into a huge challenge. The pressure to catch up withinternational cost, quality and technology standards is in many casesonly possible by means of international cooperation. Humphrey alsostressed in this context, the entry of international suppliers has led to a‘clear marginalization of locally owned companies’ (Humphrey, 2003,p. 136). Nevertheless, in the 2000s the automobile manufacturers inIndia can draw on a local supplier base that is increasingly internation-ally competitive in terms of manufacturing cost, capacity, technologyand quality (ACMA, 2006).

Human resources

India’s education efforts have a legacy of focusing on higher education(Becker-Ritterspach, 2000). While the number of university graduates isamong the highest in the world, India as a whole faces still high levels


of illiteracy. This imbalance is partially mirrored in the availability ofhuman resources for the automobile industry. While the Indian labourmarket offers a decent supply of highly qualified managers and a largelow-cost labour pool, concerns have been raised about a shortage ofskilled labour and engineers (Belzowski et al., 2007).

Apart from the shortage of human resources in quantity terms, thereis also a concern about the quality of graduates for the automobileindustry (Belzowski et al., 2007). A common complaint about India’shuman resources is a lack of practical skills. It is a problem that isrooted in the segmentation of India’s higher technical education sys-tem, a socio-religiously founded prejudice towards physical/manualwork, a poor funding of educational facilities and outdated curricula(Heitmann, 1995). Finally, although the Indian automobile industry hasseen a double digit wage growth in recent years, the country remains alow-cost labour country.

5The Case of Maruti–Suzuki India

Introduction

In the 1960s and 1970s the Suzuki Motor Company (SMC) starts with theinternationalization of motorbike production. However, it isn’t untilthe 1980s that the company develops a strong internationalization ofautomobile production. The company’s first automobile assembly siteopens in 1976 in Indonesia. In 1981, SMC signs its first business tie-ups with the General Motors Corporation (GM). In 1982, SMC starts anassembly operation in Pakistan and in the same year a JV agreement issigned with Maruti Udyog Limited (MUL) for the set-up of an integratedproduction site in India. SMC internationalization efforts in the 1980salso include a JV with Santana Motors in Spain (1985), an agreementwith General Motors Corporation of Canada to establish a productionJV – better know as CAMI (1986) – and the establishment of assemblysites in New Zealand (1984), Columbia (1987) and Egypt (1989). In the1990s this pattern of internationalization continues. In Asia SMC estab-lishes wholly owned operations, ties ups and JVs for the production ofpassenger cars in Korea, China, Vietnam and Myanmar. In Europe, SMCbuilds an integrated production plant in Hungary (Suzuki, 2004). In add-ition, SMC enters into a number of collaborations and strategic alliances,the most important of which with General Motors in 1998. The stronginternational expansion in the 1980s and 1990s is followed by a phaseof consolidation and strategic reorientation in the 2000s. Maruti–SuzukiIndia (MSI), for example, is no longer mandated to mainly serve thedomestic market, but receives the mandate to produce for the Europeanmarket (The Financial Express, 2002). In the 2000s, SMC is in the processof reorganizing its international division of labour. SMC envisions MSIto develop into a global R&D and production hub for small cars.

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Global product strategy

SMC’s overall generic product strategy in the passenger car segment isbetween a cost focus and a cost leadership strategy (cf. Porter, 1980).SMC focuses mainly on light, sub-compact and small car market seg-ments (Kasahara,1994). Along with this product focus, the companytargets the less wealthy but more populated areas of the world, includingIndia, China and Eastern Europe (Reference for Business, 2003). AlthoughSuzuki has widened its range of segments, its product strategy for emerg-ing economies can be best described as a cost focus orientation. As alogical concomitant of this product strategy, SMC relies on high vol-umes and stresses constant cost reduction in its production organization.While SMC has in 2003 an overall product range of 14 models, MSIoffers in India only nine – most of which targeting the lowest marketsegments (MSI 4). All of these models are essentially developed in Japanand the level of customization to the Indian environment is rated low(MSI 2). In the past, SMC has been hesitant to offer the latest modelsin its developing country markets. This is also reflected in MSI’s productportfolio showing a time-lag and a technology gap compared to modelintroductions in more developed markets (MSI 1, 2, 3). However, withthe intensification of competition in the Indian automobile market andMSI’s increasing international production mandate, the time-lag/gapnarrows in the 2000s.

Establishment mode and equity development

SMC enters the Indian passenger car market in the early 1980s in theformat of a JV with Maruti Udyog limited, a PSU at the time. Althoughthe company is established before SMC’s involvement, the JV is basic-ally a Greenfield start-up. Founded by Sanjay Gandhi in 1970 and takenover after its failure by the Indian Government in 1981, Maruti Udyogoffers little more than a plot of land for production (MSI 4). For SMC,despite the risks involved, a market entry into India provides an opportu-nity to advance its lagging internationalization (Venkataramani, 1990).The entry allows getting a foothold in a market, which remains closedfor other international competitors in the passenger car sector, whichlacks serious domestic competition and which offers a huge unsatis-fied demand in those lower segments, SMC specializes in. The IndianGovernment, in turn, looks for a foreign collaborator because it lacksthe capabilities to build a modern, large scale passenger car produc-tion facility (Mohanty et al., 1994). After a prolonged search period,the Indian Government finally selects SMC as its partner. SMC con-vinces with its small car product portfolio. Moreover, SMC promises to


transfer the much sought after Japanese manufacturing culture. Mostimportantly, SMC’s equity participation offer is higher than that of allother contenders (Venkataramani, 1990).

On the 2 October 1982 a Joint Venture and a 10 year licensing agree-ment (for the transfer of technology) are signed between Maruti andSuzuki. The equity participation between the Indian Government andSMC is set at 74 per cent and 26 per cent. The JV agreement includes aprovision allowing SMC to raise its equity to 40 per cent. In 1989, SMCexercises this right and raises its stake to 40 per cent. When the ten-yearagreement between the JV partners ends in 1992, a new JV agreement issigned, allowing SMC to raise its share to 50 per cent. Around the sametime, India embarks on its new economic policy, which fundamentallychanges the country’s FDI conditions. In 1993, the licensing system isabolished for the automobile Industry, which essentially invites potentialcompetitors for MSI into the country. Feeling the heat of the emergingcompetition, SMC asks the Indian Government for a majority stake inMSI in 1997. The Indian Government declines the request, however, andperiod of conflict between the JV partners follows. It is not until 2002,following a revived disinvestment policy by a newly elected government,that SMC is finally able to increase its stake. After a rights issue and aninitial public offering in 2002 and 2003, MSI becomes a subsidiary ofSuzuki. While the Indian Government continuously reduces its stake inthe company in the 2000s, SMC’s stake remains stable. In 2007, the SMChas a 54.21 per cent stake in the company followed by institutional andother shareholders.

Location, production programme and market share

SMC’s dominant mode of establishing foreign production sites has beensetting up satellite assembly plants (Reference for Business, 2003). Onlya few of SMC’s sites are fully integrated production sites. MSI is oneof them and is in 2003, with an installed capacity of 350,000 unitsand around 4600 employees the biggest and most important site amongSMC’s foreign operations. MSI’s three main production plants are locatedin Gourgaon, the State of Haryana. They are all integrated plants withflexible assembly lines. Most of the lines are able to handle differentvariants in changing sequences (Muthukumar, 2004; Mohapatra andDittakavi, 2003). The plants perform all major automobile productionsteps, including: engine manufacturing in the three machine and engineassembly shops; blanking and forming in the balking line and press shop;welding and painting in the three weld and paint shops; and assembly intrim, chassis and final line, followed by final vehicle inspection (MSI 3).In 2007, a forth plant is opened in Manesar at new site in Haryana. The


new site raises the installed capacity to 450,000 (and the actual capacityclose to 700,000) units.

In line with SMC’s core competence in the small car segment andthe Indian Government’s wish to mass-produce a ‘people’s car’ (a small,energy efficient and affordable car) production commences in 1983 withthe A-segment Maruti 800. As an affordable car for India’s growing mid-dle class, the Maruti 800 proves to be a run-away success. Although thecompany introduces new and also higher segment models over time, themodels catering to the A and B market segments remain MSI’s bread andbutter. In 2003, for example, the A segmented Maruti 800 still accountsfor 43.4 per cent of the company’s domestic sales (Chavan, 2003). Atthe time of research, the site produces nine base models (Maruti 800(A), Alto (B), Wagon R (B), Zen (B), Baleno/Altura (C), Esteem (C), Gypsy(UV), Omni (MPV), Versa (MPV)) in over 50 variants.

Enjoying preferential treatment by the government in the first years(Chatterjee, 1990, p. 39) and a first mover advantage, thanks to a restrict-ive licensing policy until 1993, MSI becomes the undisputed marketleader. In 1998, MSI’s market share peaks at around 83 per cent. Althoughforeign and domestic competitions cut into MSI’s market share, the com-pany remains the market leader. In the 2000s, MSI still has an overallmarket share of around 50 per cent. Until 2008, MSI dominates the smallcar market with a share of 100 per cent in the A segment. While it remainsto be seen what effect the introduction of Tata’s low-priced Nano-modelwill have on MSI’s market share, it is certain that no other companyhas dominated and institutionalized the Indian automobile market andindustry as MSI has in the past.

Analysis of the hybridization profile

The general transfer scenario

The set-up of the MSI’s production system follows from the beginninga comprehensively defined template. This template is SMC’s main plantin Kosai, Japan. The template transfer becomes possible because, despitesome differences in production volumes and product variety, the overalltask profile is sufficiently similar to follow a transplant approach. Both,the available literature (e.g. Mohanty et al., 1994) and the interviewees(MSI 1, 2, 3, 4, 5) underline that SMC’s Kosai plant is from the start untilthe present day the main point of reference. This is also reflected in thefollowing comment:

No as far as I can see from where I am, it is definitely a one-wayflow and Kosai is the benchmark and everything that we do tries to


emulate what happens in Kosai. Yea, there is no benchmarking withother plants in the rest of the world or anything like that either. It isall with respect to Japan and with respect to Kosai.

(MSI 2)

In no other research case, do interviewees suggest with a similarly clearlanguage – using the words ‘replica’ or ‘duplicate’, etc. – the copycatcharacter of the production system set up (MSI 1, 2, 3, 4, 5). Evenmore than SMC’s management, it is the Indian top management thatactively supports the comprehensive replication of SMC’s productionsystem (Chatterjee, 1990; Venkataramani, 1990; Mohanty et al., 1994).According to Mohanty et al. (1994), this comprehensive transfer intentis already fixed in the initial technology transfer agreement between theJV partners.

The transfer essentially targets all major dimensions of the productionsystem ranging from structural attributes to core aspects of the processorganization (Mohanty et al., 1994, see also Venkataramani, 1990).

The organizational structure of MUL is devised on exactly the simi-lar pattern of its Japanese partner i.e. Suzuki Motor Company. Thestaffing of people, factory layout, installation of plant and machinery,etc. are inherited in toto form Suzuki Motor Company, Japan. Thebasic reasoning of such a structure is to realise the industrial successbased on Japanese Business Management Systems in India.

(Mohanty et al., 1994, p. 133)

While the transfer targets all dimension of MSI’s production system themain thrust of the transfer effort is on human resources and aims atreplicating behavioural patterns and attitudes of SMC’s Japanese workculture (Mohanty et al., 1994; Kasahara, 1994, p. 78). The transfer effortstrongly aims at the internalization of soft practices and attitudes withinthe Indian workforce (MSI 1, 2, 5). It is stressed that such a transfergoal cannot be achieved in one step and requires intensive human inter-action, instead of document transfer, as a transfer mechanism. (Shirali,1984; Venkataramani, 1990; Kasahara, 1994).

The functional differentiation of the organization structure

Transfer scenario

MSI’s functional differentiation is designed to follow the example of theKosai plant in Japan (MSI 1, 4, 5). Despite being the junior partner inthe JV the entire production set-up, including the functional differenti-ation, is SMC’s responsibility. After all, SMC introduces the products


and is chosen as a JV partner because the Indian partner lacks the capa-bility to design and produce automobiles on its own (Venkataramani,1990). As a Greenfield site, MSI also lacks a pre-existing functional set-up(MSI 4). At the same time, there are no indications that any local/hoststrategic or institutional distance prevents the transfer of SMC’s homeplant functional set-up. Specifically, as the MSI operation aims at theestablishment of an integrated plant with a similar task profile (high vol-ume production of low segment cars) and level of vertical integration,the functional differentiation required, is about the same. The Greenfieldnature of the site also implies that there is no existing local institutionalcontext that discourages a transfer ex ante. In fact, local management verymuch invites the comprehensive transfer of SMC’s production organiza-tion. Thus, even though SMC is the minority partner, the capability gapbetween SMC and its local partner, the Greenfield nature of the projectand the absence of major strategic and institutional distance suggest thetransfer of SMC’s home plant’s functional differentiation.

Misfit

The interviews suggest that the implementation of the functional lay-out of the Kosai template faces no major institutional or strategic misfits(MSI 1, 2). Given that MSI is a Greenfield site, there is no pre-existingtask profile and corresponding functional configuration standing againstthe requirements of the foreign/parent template. There is also no indi-cation that the local institutional context demands any changes in thetransferred template. Again, the Greenfield nature of the site may beimportant explanation here as there are no pre-existing local institu-tional patterns that contrast with the template’s requirements. Whilethere is no on-site strategic or institutional misfit and demand mar-ket conditions also suggest a transfer, there is some misfit betweenthe foreign/parent template and the supply market conditions in thewider host context. The Kosai functional differentiation is based on anextremely low vertical integration of no more than 26 per cent in-housevalue addition (Bhargava, 2002; UNIDO, 2003). This requires, however,a developed supplier base (including reliable supply of energy), whichthe Indian strategic context does not provide in the early 1980s.

Mode of recontextualization

Some adaptation of the foreign/parent template to the host context Oncetransferred, there is only little contextual (mis)fit/recontextualizationpressure working against the implementation of Kosai’s functional dif-ferentiation. Yet, there is some misfit that results in an adaptation of


the foreign/parent template. It is the absence of a developed supplierbase and other infrastructural shortcomings that lead to some functionalextensions, rather than fundamental changes, in the site’s functionaldifferentiation. Due to the strategic misfit in supply market conditions,MSI creates additional functions that are not part of the functional dif-ferentiation in the Japanese operation. A case in point is the ‘VendorUpgradation Division’, which has the task to develop a supplier base(Mohanty et al., 1994; UNIDO, 2003). MSI even establishes an on-siteelectricity unit, to secure its energy supply (Gulyani, 1999). Thus, thereare some minor adaptations of the foreign/parent template throughextension or internalization (Westney, 1993). However, overall, thereis not much willingness on the part of the Japanese parent to change thetemplate by, for example, internalizing the absent supplier base into theorganization.

Major adaptation of local/host context to the foreign/parent templateWhile there are no adverse local strategic or institutional demands orconditions calling for a substantial template change, there is also nolocally existing structure to draw on. This implies that the organization,and the functional differentiation as a part of that, has to be newly cre-ated. This organization building is realized through a substantial resourcemobilization by SMC. Specifically, in the form of Japanese expatriateswho are transferred and provided with a mandate to establish MSI’s func-tional differentiation. The establishment is facilitated by a resilient localcontext, which is constituted by a top management that welcomes thetransfer and young newly recruited workforce with few preconceivednotions (MSI 1, 2). The strategic misfit with regard to host context sup-ply conditions, in turn, leads to a massive host context adaptation. Weshall see in more detail later, how SMC and MSI engage in a substantialeffort to build a host context supplier base. This context creation allowsMSI to replicate a crucial aspect of Kosai’s functional set up, namely itslow level of vertical integration (UNIDO, 2003).

Outcome

The functional differentiation of MSI’s production system can be bestunderstood as an imitation of SMC’s home plant Kosai. Without provid-ing detailed information, interviewees underline that MSI’s functionaldifferentiation largely follows the mother plant Kosai in terms of dif-ferent divisions, departments, sections and work groups (MSI 1, 2; cf.Mohanty et al., 1994). Moreover, available literature underlines the ambi-tious replication of the home plants levels of vertical integration equally


suggesting a similar functional set up (UNIDO, 2003). This outcome restson a foreign/parent template transfer that meets only a weak local stra-tegic and institutional misfit. While there is some strategic misfit, mainlywith regard to an absent supply market in the host context, this misfit isovercome by a recontextualization mode that involves a minor adapta-tion of the foreign/parent template and a major adaptation of the hostcontext. Specifically, while the functional template is largely imitated,some functions are added. As these additional functions neither mirrortypical foreign/parent nor local/host context patterns (D’Costa, 2003),they can be best understood as customized/novel solutions. Neverthe-less, the dominant recontextualization mode comprises a creation ofthe local/host context in line the foreign template’s requirements. Wecan, therefore, describe the contextual constitution of MSI’s functionaldifferentiation as dominantly imitation involving some customizations.

The hierarchical differentiation of the organization structure

Transfer scenario

Despite the comprehensive transplant approach, there are no indica-tions that SMC also transfers its home plant’s hierarchical differentiation.Instead, the hierarchical differentiation of MSI shows clear signs of usinga host context template similar to other PSUs in India (MSI 4, 5). Thefact that this aspect is left out can be attributed to MSI’s equity mode.SMC enters a JV with a Government of India company as a minoritypartner. While SMC is mandated to shape the production organization,the shaping of certain structural aspects follows PSU rules and regula-tion. This is particularly the case with regard to policies of recruitment,staffing, remuneration and promotion and has strong implications forMSI’s hierarchical differentiation. MSI’s former chairman and managingdirector Bhargava (quoted by Chatterjee, 1990) underlines the point asfollows:

Yes, we have made some ‘adaptations’ of Japanese practices. We couldnot blindly copy everything. I do not know whether you should callit dilution or not there have been modifications in some of the man-agement practices we follow. For example, in our manpower planningand in our manpower policies we have to take note of the fact thatwe work in a system where the kind of freedom which is available tothe Japanese in rewarding employees, and granting pay scales, thesethings are not available (to us); so we have to follow a different thingin the system of assessment of people, the promotion policies and inall of these we have to follow something which is different from the


Japanese. In our system, on the financial side we have to take noteof the fact that we are a Government company and there are certainrules and regulations prescribed by the Government to be followed,whereas in Japan there is much less of that kind of thing.

(Chatterjee, 1990, p. 134)

Being essentially a PSU, it is the local partner’s mandate to take careof human resource planning and major human resource policies. This,in turn, impacts the transfer scenario, namely the use of a local/hosttemplate for the hierarchical differentiation of the company. Apart fromthe Government of India ownership or majority in early years, there arealso indications that a transfer of SMC’s flat hierarchical differentiationwould have been difficult given the local/host institutional demands forextensive organizational hierarchies.

Misfit

Findings are inconclusive whether the local/host context template facesa misfit with regard to SMC’s foreign/parent context. Looking at thesituation from SMC’s side, there is a substantial institutional distancebetween the host context template and what SMC probably would havepreferred with regard to MSI’s hierarchical differentiation. A number ofJapanese researchers who had the opportunity to research MSI underlinethe institutional distance between typical hierarchical differentiation inJapanese automobile companies and MSI’s 19 levels of hierarchy (Okada1998). Kasahara (1994) finds that MSI, in comparison to SMC, features amuch higher level of positional demarcation and rigidity. For example, incontrast to the Japanese context, it is impossible for operators to cross theline into supervisory levels in the first years of operation. Kasahara (1994)argues that in SMC, or Japan more generally, ‘professional duties’ tendto be only few and vaguely defined. Moreover, changes to ‘professionalduties’ are readily accepted by employees based on management needs,personal training requirement and a strong in-house qualification sys-tem (Kasahara, 1994).1 The opposite is the case in MSI, which Kasahara(1994) attributes to the fact that staffing of different organizationallevels is tightly coupled with specific educational qualifications and withthe wider condition that hierarchical demarcations play a central rolefor an Indian employees’ work identity (Kasahara, 1994). Yet, while theinstitutional distance appears substantial, there is little evidence thatthe institutional distance translates into a recontextualization pressureon the local/host template from the foreign/parent. After all, SMC is fora long time the junior partner in the JV and any serious effort to reduce


hierarchical designations or levels would be up against a strong resistancefrom the local/host institutional context where steep hierarchical demar-cation are deeply rooted. Finally, there is little evidence to suggest thatthe local/host template of hierarchical differentiation causes a misfit withforeign/parent strategic demands or conditions.


Adaptation of foreign/parent demands to the local/host template Basedon MSI’s equity mode, SMC is not able to transfer the hierarchical differ-entiation of the Kosai template. At the same time, interviews remaininconclusive with regard to the question whether SMC pushes for achange of the local/host context template. Even if SMC pushes for sucha change, these demands are not easy to realize. For SMC is until 2003 inno majority position in the JV. While SMC delegates have the mandateto shape crucial aspects of MSI’s production system, the ultimate con-trol remains until 2003 in the hands of Indian managers. Based on theequity mode, SMC’s ability to shape the organization is limited. Further-more, in the Indian institutional context, hierarchical differentiationand regular promotions to ever better designations are expected and playa very important motivating role. Against this background, it is doubtfulwhether SMC seeks a reduction of hierarchical designations and lev-els after the takeover. Both the equity mode and entrenched local/hostinstitutional conditions render it likely that SMC either refrains fromdemands for a flatter hierarchical set-up or that demands from SMC areadapted (or flatly rejected) to maintain the local/host context template.

Minor (ceremonial) adaptation of the local/host template to foreign/parentcontext There are strong indications that the hierarchical differentia-tion of MSI is created in line with PSU rules and regulations. As such itreflects a typical host context template. Even when MSI seizes to be aPSU and when its majority is acquired by SMC, no major reductions ofhierarchical designations are reported. However, at the time of researchit is too early to tell if the shifts in equity translate into foreign/parentdemands for a changed hierarchical differentiation. The only adaptationof the local/host template observed, appears to be of ceremonial nature.A human resource manager interviewed suggested that MSI has a flathierarchy in terms of ‘responsibility levels’ and ‘salary levels’ compara-ble to those of SMC (MSI 5). According to the manager, MSI has onlythree ‘responsibility levels’ – as publicly purported by MSI’s website2. Atthe same time, the human resource manager (MSI 5) and other inter-viewees (MSI 1, 2) admited that there are many more hierarchical levels


than reporting levels. It, therefore, remains unclear whether there is ameaningful difference between responsibility levels and hierarchical des-ignations. While MSI’s possible decoupling of hierarchical designationsand reporting levels may mirror a response to demands from the Japaneseparent, such ‘decoupling’ is also not uncommon in typical Indian com-panies. However, there is little indication that MSI’s publicly purportedflat structure is more than ‘ceremonial adoption’.

We can conclude that the host context template of hierarchical differ-entiation is, if at all, only marginally adapted to foreign/parent contextdemands. This is either the case because the foreign/parent does not posedemands for change or because the host template is not very resilient dueto the equity mode and the deeply ingrained institutional patterns in thelocal/host context.

Outcome

Despite its overall transplant approach, MSI’s organizational hierarchyshows clear signs of being based on a host context template. MSI’s hier-archical differentiation is created in line with PSU rules and regulations.Referring to MSI Kasahara (1994) concludes along similar lines: ‘[t]he factthat along with the occupational categories, a hierarchy is also clearlydefined, is a characteristic of firms run by the Indian government’ (Kasa-hara, 1994, p. 76). The structure that MSI features is a steep structure of19 hierarchical designations (MSI 5). Chatterjee (1990) explicates theselevels as follows:

Employees are divided into levels beginning at one going up to 19.Initial recruitment has been generally made from among candidateswith an ITI qualification for levels 3–7. Level 8 employees are normallydiploma holders and the group 8–10 work as Supervisors. Level 11recruits are drawn from Engineering graduates on the technical side.Levels 11–13 are in the grade of Section Managers. Above this layer isthe level 13–17 group having Department Managers. Finally there areDivisional Managers who vary between levels 15–19.

(Chatterjee, 1990, p. 47)

These 19 designations include: several Operator designations, Supervisor,Executive, Manager, Senior manager, Deputy General Manager, Gen-eral Manager, Deputy Departmental Manager, Departmental Manager,Divisional Manager, Joint Managing Director, Managing Director (MD),Chairmen (MSI 5). Thus, MSI features a hierarchical differentiation thatis very similar to other companies in India, particularly in the publicsector.


In summary, a host context template is used that is institutionallydistant from SMC’s set-up. However, this distance does not amountto an effective foreign/parent recontextualization pressure on the hosttemplate. The only sign for such a recontextualization is the possibledecoupling of responsibility levels and hierarchical designations. Yet,such a decoupling is not uncommon in Indian companies. Overall, wecan conclude that there is little or no adaptation of local/host templateto foreign/parent demands and conditions. Therefore, the hierarchicaldifferentiation can be best described as localization.

Technical configuration of the production process

Transfer scenario

As part of the overall transfer approach the Kosai plant is used as atemplate for the set-up of the Indian site’s production processes. Again,the local JV partner’s lacking capability for developing suitable cars andcorresponding production processes are a key reason why the IndianGovernment and its management invite a template transfer by SMC.Irrespective of being the junior JV partner, it is SMC’s task to establishthe site’s production process. This comprises the set up of the plant’sbasic factory layout, process design and technical hardware.

The Greenfield nature of the operation, combined with the lackingcapabilities of the local JV partner and the fact that the cars to be pro-duced are SMC models, explain why no local/host template is used.However, while SMC delegates are in charge of establishing the tech-nical configuration of the MSI site, there is also no all out transfer effortof the Kosai template. With regard to adopting Kosai’s template for MSI’sbasic factory layout and process design, there are no local/host strategicor institutional misfits. Transfer is pursued in this respect because theIndian demand conditions – mass demand for a small low-segment car –imply a task profile for MSI similar to that of SMC’s Kosai plant. In add-ition, there are no local/host institutional obstacles working against thetransfer of Kosai’s basic production layout and process design (MSI 4).

This is different, however, with respect to the transfer of Kosai’s tech-nical hardware configuration. On the one hand, there is a substantialstrategic misfit between what the foreign/parent template is strategicallydesigned for and what the host strategic context offers. Operating in adeveloping country implies not only a highly price sensitive demand-side for low-segment cars, but also a supply side with labour costs thatare much lower than in high-wage economies like Japan. This, in turn,rules out a comprehensive transfer of Kosai’s capital intensive technical


hardware configuration, marked by high levels of mechanization andautomation.

In addition to this strategic misfit, there is also an institutional misfitworking against a full transfer of Kosai’s technical hardware configura-tion. Especially, in the early years, the Indian JV partner pushes hard fora labour-intensive production set-up. As MSI is a PSU, the Indian Gov-ernment and union representatives demand employment-generatingproduction concepts. Although MSI sees neither a foreign/parent tem-plate transfer, nor a local/host template use, there is a foreign/parent andlocal/host context the site has to respond to with regard to its technicalhardware configuration.

Misfit

There are few indications that the foreign/parent template of productionlayout and process design face any substantial strategic or institutionalmisfit once transferred. There are only some limited constraints withrespect to the site’s geographical properties and inherited buildings.With regard to the company’s technical hardware configuration thereare, however, signs of substantial misfit. This misfit primarily revolvesaround contradictory demands between the foreign/parent strategic andthe local/host institutional context regarding the appropriate technol-ogy/labour mix. Specifically, while the local JV partner demands labourintensive production, SMC’s increasingly demands a reduction of what itperceives as ‘rampant overstaffing’. Looking at it from SMC’s side we cancall this as a strategic misfit because SMC finds the institutional demandsof the local partner problematic in terms of production cost and quality.


Adaptation of the foreign/parent template and demands to the local/hostcontext As far as the basic factory layout and process design of theKosai template is concerned, there is little adaptation of the transferredtemplate to the local/host context. After all, there is little recontextu-alization pressure in this respect due to a strategic fit and an absentinstitutional misfit. This is different with regard to the configurationof the technical hardware. In this respect, there is only a selective trans-fer of the Kosai template. While the technical hardware of up-streamprocess steps – such as pressing and stamping – sees a transfer, down-stream process steps – such as body welding and final assembly – seemuch less of a transfer (MSI 3). In the latter areas, the technical hardwareset-up is not built on the Kosai template but rather created or tailored


to respond to the foreign/parent as well as to local/host context. Inter-estingly, there is some changing response to these partly contradictorydemands over time. While in the first years, the technology/labour mixreflects more an adaptation of foreign/parent demands to local/host con-text demands, the situation turns the other way around as the equityshifts in favour of SMC. Thus, under the condition of minority owner-ship the local/host context is not very resilient to meet foreign/parentdemands for more productivity and cost reduction through lower staffinglevels and increased automation.

Adaptation of local/host context to the foreign/parent template anddemands To implement the factory layout and process design in linewith the Kosai template, a local context has to be created at the MSI site.The strong presence of Japanese expatriates, massive transfers of person-nel across all levels, from India to Japan and vice versa, the Greenfieldnature of the site as well as the local management support, allows areplication of the Kosai set-up (MSI 1, 2, 5). What is more, this process oftransfer effort continues over the years as both MSI and Kosai grow anddevelop. In the 2000s, for example, SMC initiates yet another initiativescalled ‘Challenge 50’ and ‘Next leap’, to bring MSI’s processes and prod-uctivity performance even further in line with those of Kosai (BusinessStandard, 2005).

In the area of the technical hardware configuration there is much lessof local context creation in line with a foreign/parent template. Apartfrom some transfer of special machinery and equipment, the technicalhardware configuration is based on the simultaneous response to theforeign/parent and local/host context. On the one hand, the techni-cal hardware configuration (like the entire process) has to satisfy SMC’sstrategic demands of manufacturing of a specific range of models at cer-tain volumes, quality and cost (adaptation of the local site set up toforeign/parent strategic context). On the other hand, the set-up hasto respond to a not very resilient host strategic and institutional con-text, marked by low labour cost, highly price sensitive customers anddemands for labour intensive manufacturing (adaptation of the localsite set up to local/host strategic and institutional context). As a resultof different (partly contradictory) demands, a shifting equity situationbetween the JV partners, and a growing local capability, a customizedtechnical hardware’s configuration emerges. Particularly in the 2000s,when MSI faces increasing competition and SMC acquires a majoritystake in the company, the local technology/labour mix is increasinglyadapted to foreign/parent demands for cost reduction and productivity


increases. It involves repeated rounds of layoffs, a re-composition of theworkforce, combined with an increased application of in-house devel-oped automation technology (Muthukumar, 2004; c.f. Maruti Udyog,2004). Reflecting Suzuki’s aim to reduce what it sees as rampant over-staffing and to bring down cost, Maruti–Suzuki reduces its level ofpermanent employees through VRSs. The first round of employee reduc-tion starts in 2001–2002. As 19 per cent of Maruti–Suzuki’s employeesaccept the scheme, the employment level comes down by more than1050 employees, reducing it employment levels from 5770 in 2000–2001to 4590 in 2002–2003. In 2003–2004 Maruti–Suzuki initiates a secondround of VRS, sacking another 1250 workers. In addition, shifts in theworkforce composition take place. MSI increasingly sources out ‘low-value jobs’ to contract labour, many of these contract workers are formerpermanents (Red Herring Prospectus, 2003). In 2006, out of around 5000workers only 1300 are permanent workers. Compared to the wage ofthe shrinking core of permanent workers (earning between Rs25000 andRs35000, including incentives), the contract workers earns Rs4500–5500(Gurgaon Worker News, 2007).

Outcome

The hybridization outcome of MSI’s technical configuration has to bedescribed in a differentiated manner. MSI’s basic factory layout and pro-cess design can be best captured as imitation, based on foreign/parenttemplate transfer, low misfit/recontextualization pressure and a creationof the site in line with the template. An Indian engineer familiar withboth sites indicated that MSI factory layout and process design has evengrown closer to the Kosai plant over the years (MSI 1). Similarly, MSI’smaterial flow system is based on SMC’s Kanban concept and is saidto have moved very close to Kosai’s practices (MSI 4). Mohanty et al.(1994) and Gulyani (2001) also indicate that MSI’s in-house logisticsincreasingly approach Kosai’s levels of work-in-progress-inventories. Inaddition, the MSI site’s Maruti Production System (MPS), which ‘focuseson elimination of wasteful activities’, is said to mirror SMC’s productionsystem (Red Herring Prospectus, 2003).

This imitation outcome contrast with the outcome of MSI’s technicalhardware configuration, which can be better described as being betweenimitation and customization. A part of Kosai’s technical hardware con-figuration is also transferred. This is mainly the case for upstream processsteps such as blanking and pressing as well as with respect to specializedequipment such as CNC-machines, special tooling, jigs and a limitednumber of robots (MSI 1, Red Herring Prospectus, 2003). An imitation


of Kosai manufacturing equipment can be found where it is eithera process-related requirement (e.g. for quality reasons) or where theautomation of highly standardized production steps offers cost savingsdespite low labour costs. In other areas, however, SMC refrains fromsuch a transfer and creates local hardware solutions that are specif-ically customized to the foreign/parent and the local/host context. Areaswhere such customizations can be found are the weld shops and thefinal assembly lines. Here, the Indian site contrasts sharply with themother plant Kosai. An Indian production manager commented in thiscontext:

Factory layout would be pretty much similar, yes. Certain portions,because I have visited certain plants with SMC, are of course heavilyrobotized and the weld shop here is very man-intensive, [there are] alot of people here.

(MSI 1)

This contrast becomes more explicit when comparing productivity ratios.In 2001, MSI and SMC (Kosai) produce an annual per employee output of100 cars and 140 cars respectively. While MSI achieves this output witharound 100 robots, SMC’s Kosai operation relies on some 1400 robots(Mohan, 2002). In contrast to MSI, Kosai’s welding and machine shop ispractically completely automated. Production in India, particularly thewelding activities, have been far more labour intensive throughout MSI’sexistence. For as long as comparatively low labour cost and high pricesensitivity stays in place, a boost in MSI’s productivity levels is unlikelyto be driven by imports of expensive automation technology (MSI 4).

While process-related necessities and the absence of local/host contextcapabilities in pre-liberalized India of the early 1980s render the selectedtechnical hardware transfers necessary, this necessity changes as the MSIaccumulates know how. With the rise in capabilities, MSI develops in anumber of areas home grown customized solutions. This is even more sothe case as equity shifts in favour of SMC. Responding to foreign/parentstrategic demands for higher productivity and cost reduction and, at thesame time, host strategic context conditions of price sensitive demandand low labour cost supply conditions, MSI develops its own low costequipment and automation technology (MSI 1).

Basically, the McKinsey Global Institute’s study argues that, ratherthan just replicating jobs/processes from high-wage countries to low-wage ones, it makes more sense to actually use local talent to developnew processes. The study cites the example of MUL [later renamed to


MSI] developing its own robots for its assembly lines at a fraction ofthe cost of the ones used by SMC in Japan.

(Jain, 2003)

In 2003, MSI has 122 six-axis and 25 in-house produced two-to-four axisrobots (Red Herring Prospectus, 2003). Over time, the ratio of locally builtrobots increases further. In 2008, MSI has about 150 robots, out of which71 have been developed in-house (Maruti–Suzuki, 2008). While SMCprobably never entirely stops the transfer of certain technical hardware,MSI increases the development of customized solutions for its specificstrategic context. These include: dies, two-to-four axis robots, multi-spot welders, welding jigs, automated trolleys, machine shop equipment(Red Herring Prospectus, 2003). The crucial incentive for their local devel-opment is their low cost compared to imports from the parent. Eventhough these customized solutions are locally developed, they are notypical local solutions. MSI technical configuration has always been moremechanized and automated than comparable sites in India. At the sametime, it features much less automation than the foreign/parent’s homesite. In summary, the overall outcome of MSI’s technical configurationof the production process can be best described as combining imitationand customization.

Work organization and human resource profile

Transfer scenario

From the beginning the transfer or a ‘Japanese work culture’ is a definedgoal of the Indo-Japanese JV. This transfer goal even guides the searchfor a foreign JV partner and influences the choice of a Japanese part-ner (Venkataramani, 1990; Parekh, 1984). The transfer of SMC’s workconcepts, corresponding skills and more general work dispositions, alsoreferred to as ‘attitudinal know how and work-ethics’, are at the heartof the whole template transfer (Chatterjee, 1990; Parekh, 1984; Shirali,1984). According to Mohanty et al. (1994) the transfer of such ‘soft’aspects was part of the JV’s technology transfer agreement:

The technology transfer agreement lays considerable emphasis onhuman resource i.e. the people who are ultimately responsible for thefulfilment of organizational goals. Their attitudes and approach towork need proper orientation. Methods for creating awareness aboutquality, productivity, and cost control are also ingrained in the col-laboration agreement. Moreover, the agreement underlines the need


to inculcate new work culture and work ethos in the organization forgreater performance by undermining hierarchical rigidity.

(Mohanty et al., 1994, p. 135)

Although being the minority partner in the JV, SMC has the mandateto set up the work organization and develop a human resource profilein line with its home operation (MSI 1). SMC’s mandate suggests itselfbecause the company introduces the product and has tested work con-cepts readily available. However, the main reason for SMC’s transfermandate lies in the wish of the local JV partner to avoid the adverseinstitutional conditions in India at the time of market entry. Whilestrategic context conditions – demand market conditions – are not inthe way for such a transfer, the institutional conditions in the Indiancontext, are about the opposite, of what SMC’s work concepts require.Put differently, the perceived Japanese superiority with regard to workconcepts and related human resource practices are seen as a solution toovercome, at least for MSI, the problematic employment relations thatparalyze many industrial organizations in India at the time (Venkatara-mani, 1990; Mohanty et al., 1994; Okada, 1998; D’Costa, 2003). Theseconditions are characterized by mutually enforcing complex of hos-tile labour-management relations, extreme hierarchical-demarcations,labour-inefficiency, low labour involvement, frequent labour-unrest andlow identification with the company (Venkataramani, 1990). Apart fromthe Indian side’s interest in overcoming adverse intuitional conditions bymaking an ‘experiment’ (MSI 1; Venkataramani, 1990: 124) and a freshnew start, it is also the Japanese JV partner that supports the emphasison such a human resource centred transfer approach (Kasahara, 1994).Given the absent local manufacturing capabilities at the Greenfield siteand given that SMC has a brand image to lose, SMC has to engage in asubstantial transfers of work concepts, skills and work practices. More-over, as the Indian site operates with much less automation technologythan the home plant, the role of human resources becomes even moreimportant. Thus, SMC takes the transfer mandate seriously and engagesin a comprehensive transfer of its home plant’s work organization andhuman resource profile.

As far as the work concepts are concerned the transfer not only com-prises concepts related to direct manufacturing. In addition, manyconcepts are introduced over time that target indirect activities andpractices that are geared at continuous improvement in products andmanufacturing processes. These activities focus on permanent cost reduc-tion, productivity increases as well as accident and waste reductions


(MSI 1, 2). MSI’s human resources, in turn, are developed to match thebasic skills and work dispositions of their Japanese colleagues. This isseen as a prerequisite to allow the implementation of high involvementwork concepts (Shirali, 1984).

Misfit

The fact that SMC’s work concepts and matching human resource profileare transferred because and despite of the institutional distance impliesthat they are either not readily compatible with extant institutional con-ditions or meet adverse local institutional demands. Clearly, the workconcepts transferred neither meet a warm welcome nor are the skills andbasic work dispositions required for their implementation readily avail-able in the local/host context. In order to understand the initial misfits,we need to look at what is being transferred.

Regarding the direct manufacturing organization on the shopfloor,much stress is put on transferring SMC’s teamwork concepts. SMC workconcepts underline the crucial role of supervisors. Moreover, it calls uponthe entire production management to take a hands-on-approach andto be close to the shopfloor (Venkataramani, 1990). The teamwork onthe shopfloor involves a wide scope of job enrichment and job-rotation.A substantial range of responsibilities are integrated into the produc-tion line, such as quality assurance (zero-defect production). Like inJapan, workers can autonomously initiate line-stoppages. The job rota-tion not only involves aims at transferring worker across different workstations, but also across different departments. In addition, many con-cepts revolve around the maintenance, the continuous improvementof products and manufacturing processes and are based on individualas well as small group activities. The most prominent concepts fol-lowed in this regard, include: 5S, Kaizen, Quality Circles and SuggestionSchemes. To realize these concepts the Indian workforce has to acquireskills and work dispositions similar to those of their Japanese counter-parts. Interviews (MSI 1, 2) and a literature study reveals that the transferof work dispositions involves, in turn, three focus-areas: Work commit-ment and discipline (stressing the taking of responsibility, punctualityand attendance), cleanliness and quality awareness, cooperation andcommunication (D’Costa, 2003, p. 76).3

Now, the implementation of these work concepts, matching skills andwork dispositions is not without difficulty. Particularly in the beginningthe transfer of a teamwork concept, the central role of the supervisor,the taking of responsibility and the practice of job-rotation faces insti-tutional misfits. For example, the implementation of teamwork faces


substantial difficulties as team members find it hard to cooperate (e.g.Khare, 1999; Pitroda, 2001). These difficulties reflect socio-professionaldemarcations produced by India’s social stratification and education sys-tem (see Chapter 4). Similarly, there are indications that the central roleof the supervisor is not readily accepted in the Indian work context. Thefollowing paragraph from a MSI’s manual allows such an interpretation:

SUPERVISORS ARE MANAGEMENT MEN WHO MAKE THEIR WORK-SHOPS SUPERIOR TO THOSE OF OTHER COMPANIES. Supervisors arein reality “front line managers” and should therefore, be “viewed withimportance.” The Supervisor is “the pivot in the workshop operation”and holds the “important responsibility” for improving the work-shop’s performance in safety, orderliness, productivity, loss avoidanceand cost reduction. On him too rests responsibility for ensuring highmorale of workers.

(Venkataramani, 1990, p. 111)

Apart from the supervisors, production managers in general, do not iden-tify themselves with manufacturing operations on the shopfloor. Thereis also reluctance on the part of production management and engineersto be close to or get involved on the shopfloor.

A senior SMC deputationist said in an interview that some youngIndian engineers coming to work straight from a university and withno hands-on experience, tended to be impatient listeners. While allaround them in the plant there were problems to be tackled andimprovements to be made, they were ready to engage in discussionson other matters, especially on far out technologies calling for mater-ials and equipment that could possibly be made available. Many ofthem had a theoretical bias rather than a practical orientation. Theyloved to sit at their desks and discharge their duties from the desk.“I try to push them on the shop-floor. ‘This is a car company’, I tellthem. ‘Go out on the floor and at least see what a car looks like’.”


Equally related to socio-professional demarcations, the implementationof job-rotation also proves difficult. Kasahara (1994) reports a stark con-trast between the ease to rotate personnel in Japanese companies andin MSI. He attributes the difficulties to ‘a strong prejudice based on thetype of occupation’ in the Indian society (Kasahara, 1994). There areindications that the implementation of indirect high involvement workconcepts is not passionately embraced either in the beginning (c.f. Khare,


1999). In a case study on MSI, Som (2004) reports that it is difficultto implement quality circles, as Indian employees disperse immediatelyafter work. At the same time, there are also complaints from Japaneseexpatriates about lacking practical skills and basic work dispositions(Venkataramani, 1990). Apart from skill related training needs, the largernumber of training workshops on issues such as ‘quality and discipline’(level 0 to 7), ‘quality and leadership’ (level 8 to 10), and ‘quality andcost reduction’ (level 11 and above) suggest that initial work dispositionswith regard to discipline and quality awareness are far from satisfactory(Chatterjee, 1990, p. 103). Work commitment and the taking of respon-sibility is another aspect that is reported by Japanese expatriates to havecaused problems in the beginning (Venkataramani, 1990:131). Sinohara,a Japanese expatriate who serves as the Director Production and repre-sentative of SMC at MSI, bemoans lacking responsibility, discipline andperseverance among Indian employees:

Shinohara had empathic views on both “responsibility” and “keepingpromises”. “Responsibility means that all the consequences aris-ing out of an activity are to be borne by the person concerned.”Nobody claimed responsibility when a job was not performed prop-erly whereas alibis were promptly offered. Putting the finger on oneall-too-familiar Indian practice, he said.


Yet again, the biggest implementation difficulties are related to thosework concepts and work dispositions that clash with the existing socio-professional demarcations. The communication and cooperation acrosssocio-professional divides is a big issue at MSI and so are a number ofegalitarian concepts that are meant to bridge those gaps. Most of theconcepts that promote openly visible egalitarianism, such as a sharedcanteen, company uniforms, a shared toilets and open offices, meetstiff resistance from many managerial employees in the beginning (c.f.Som, 2004). My own interviews indicate, for instance, that the conceptof common uniforms meets strong resistance (MSI 3). These findingfind further confirmation in comments made by MUL/MSI’s formerManaging Director Bhargava:

Behind MUL’s success is another significant aspect of Japanese workculture – parity among the employees. In Indian conditions, we ini-tially did face problems introducing the Japanese management ethosin MUL. There was, especially among managers, a certain amount ofreluctance and hesitation about wearing a uniform and eating in the


same canteen, sitting in the open offices, and all that. It required thetop management to spend time with these managers and convincethem that this was the only way to do things. It worked after sometime. And as we went along, our managers realized that the conceptnot only produced results but also that it was not a bad thing to weara uniform and eat in a common canteen with the workers. Similarly,when we introduced the open office concept, initially there were somepartitions. But gradually, those partitions were also removed and theoffice became a totally open hall. People got used to it and realisedthat it did not adversely affect them.

(Bhargava and Behl, 1997)

Similarly, while all employees are asked to eat in the same canteen,there is, at least in the beginning, not ‘as much fraternization inMUL’s dining room among executives, supervisors, and workers as inJapan’ (Venkataramani, 1990, p. 225; c.f. Som, 2004). Indications arethat middle to lower management shows the strongest signs of resist-ance. Kasahara (1994) underlines that white-collar workers, engineersand junior management levels have the biggest difficulties in accept-ing equality-based practices and also stressed their lacking willingness toshare knowledge. The initial management resistance towards egalitarianpractices is probably also compounded by the fact that management,compared to workers, is relatively poorly paid by Indian industry stand-ards at the time. This leads, in turn, to turnover problems among theseemployees (Okada, 1998). Thus, middle management is the group whoseidentity is most strongly encroached by measures aiming at levelinghierarchy (Kasahara, 1994). Nevertheless, while the transfer of institu-tionally distant concepts and practices is clearly not received withoutresistance, the fact that the MSI is basically a Greenfield operation with ayoung workforce implies that local institutional conditions are probablyas conducive as they could possibly be at that time (MSI 1, 2, 5).


Some adaptation of the foreign/parent template to the local/host contextFrom the very beginning it is the goal to transfer and imitate SMC’shome plant work concepts and corresponding human resource profile asfar reaching as possible. While the host strategic context conditions areno major obstacle to such a transfer, the adverse local/host institutionalconditions are both a major reason and obstacle for the transfer. Espe-cially in the beginning, institutional misfit manifests in implementationdifficulties (limited local resilience). For example, MSI’s work practices


and their employees’ work dispositions are marked by much strongersocial-professional demarcations than those envisioned by SMC’s workconcepts. Due to India’s pronounced hierarchical distance some practicesare not transferred at all. A case in point is the Ringi-System, which isbased on consensual decision making (Chatterjee, 1990; Kasahara, 1994).Interviews suggested that decision-making practices in MSI and particu-larly in the factory remain very hierarchical and top-down rather thanconsensual or participative (MSI 2; c.f. Som, 2004). However, althoughthere is some adaptation of the transfer template and not all work prac-tices are implemented from the start (Shirali, 1984), no other company inthe researched sample features a similar degree of effort to avoid a deflec-tion of the foreign/parent’s template in the area of work organization andhuman resource profile.

Substantial adaptation of local/host context to the foreign/parenttemplate MSI and SMC invest a tremendous amount of resources tobring work concepts and basic work dispositions in line of those of theforeign/parent template. The only way to transfer SMC’s work concepts,skills and basic work disposition with as little departures as possible is toselect, change and create a different local/host institutional context forMSI. And in fact, in no other company researched in this study, is there acomparable systematic and comprehensive effort to adapt the local/hostcontext to the requirements of the foreign/parent template of workorganization. The effort to rests on the interplay of the following factors:Top management commitment, massive training, personnel transferand socialization efforts, a young workforce, monetary and normativeincentives and the cultivation of a culture of equality.

From the start MSI’s Indian top management is not only committedbut actively seeks the transfer (Venkataramani, 1990; Kasahara, 1994).Indian top managers are repeatedly depicted as religious followers ofthe Japanese work concepts and practices. Interviewees stress that theIndian top management sets examples and is committed to SMC’s workconcepts and practices beyond lip service (MSI 1, 2). For example, topmanagement is also not exempt from practices such as using a commontoilet or working in an open office.

The second aspect that is said to have enabled a far-reaching change ofthe local context is the comprehensive personnel transfer. SMC engagesin massive personnel transfer from Japan to India (Okada, 1998). Allmajor production departments are either headed or co-headed in atandem-like fashion by Japanese expatriates. At the same time, thereis a continuous training (on the job and in workshops) on skill and


Table 5.1 Overseas training programmes in MSI

Overseas training: Training held in co-ordination with SMC, Japan and AOTS(Association for Overseas Technological Scholarship) (covered 1600 employeesunder the various schemes)• 6 months SMC Training for Technicians – OJT in SMC, Japan

(2 batches/yr of 50 each)• 9 months Javada Training for Press, Tool & Die Specialists – Design

and Maintenance• AOTS Managerial Training (4–10 weeks for Manager & above – Managerial

Best Practices)• AOTS Technical Training (3.5–6 months) for Supervisors and above –

Technological Knowhow• R&D Training (2 yes) – Research on new Technologies

Source: Adapted from MSI’s HR department (2003).

attitudinal development (Okada, 1998; Chatterjee, 1990). The transferof Japanese expatriates to India as well as elaborate on-site and off-sitetraining programmes in India, are only one part of the training effort.On top of that, MSI has a comprehensive overseas training programmewhich involves all employee categories (see Table 5.1).

For example, as of March 2003, 1900 employees out of 4590, have beentrained one way or another in Japan. In 2008, after repeated rounds ofvoluntary retirements, the ratio of the workforce that has been trainedin Japan is about half of the total employee population (Maruti–Suzuki,2008).

A third aspect that is seen as crucial for the transfer success is the con-dition that most workers have high formal industrial qualifications, butno prior work experience (MSI 2). They come straight from industrialtraining institutes (ITIs) (c.f. Chatterjee, 1990, p. 41). Okada states thatMSI prefers ‘fresh ITI graduates to workers who have work experience inother industries’ (Okada, 1998, p. 30). One of the interviewees points outthat MSI is among the first companies to start the industry wide trend ofhiring ITI graduates for worker positions (MSI 4). In any event, interview-ees at MSI stress that the young workforce is a major factor that enablea far-reaching transfer of Japanese work concepts and work dispositions(MSI 1, 4).

I think what also happened was that in the initial stages, when thoseconcepts were brought in, the work force was very young. It was avery young workforce, you know, and that helps because, I suppose,


it is more adaptable, more open. But I think as far as the productionset-up is concerned, the factory set-up is concerned, I don’t think thatthere were too many issues. Because, I think, the young workforcething really played a big role. So you don’t inherit this workforcefrom somewhere else. So they don’t have any preconceived notionsabout what should be right and what is not right, I don’t know, to thatextent. Of course people who come in new, at middle managementlevel, they have a bit of a problem.

(MSI 2)

In contrast to the workers, the managers recruited do have a prior workexperience. However, an advantage is that even they have no priorexperience of working together (Venkataramaini, 1990, p. 134).

Two of the interviewees independently underlined that a great dealof transfer success – particularly with regard to different high involve-ment or continuous improvement concepts and practices – is relatedto MSI’s monetary and normative incentives structures (MSI 1). MSIhas come to put great stress on productivity-linked payment schemes(Red Herring Prospectus, 2003). For example, the worker level incentive-based pay makes up a much higher proportion than the base salary.Moreover, quite deliberately no difference is made between blue- andwhite-collar workers to enhance cooperation between these tradition-ally distant groups (Bhargava and Behl, 1997; D’Costa, 2003). However,pay is not only linked to overall productivity and performance of thecompany. In addition to overall productivity-linked pay, compensationis also linked to attendance levels, group and individual suggestions aswell as their implementation and related cost savings (Chatterjee, 1990,p. 124). Replying to the question how successful the transfer of qualityactivities and suggestion schemes really is, an interviewee explains:

It is also some amount of incentive system and rewards, I think. Thesuggestion schemes, if you actually put your mind into it, you canmake a fair amount of money on it, you know. That kind of thing, itall helps.

(MSI 2)

The payment of high salaries to workers and salaries directly linked tocompany, group and individual performance are seen to have a posi-tive effect on the implementation of the Japanese high involvementpractices. High salary levels also contribute a low level of industrialconflicts and a highly motivated labour force (Okada, 1998). Over-all, the intricate system of incentives has direct effects on MSI’s work


discipline, attendance-levels and on the successful implementationKaizen activities, quality circles and suggestion schemes which are alsoconfirmed as exemplary by a number or independent sources (c.f. MSI’sindustry awards). In short, while failure to perform in line with Japanesework practices and concepts lead to quick financial punishment, com-plicance and above average performance not only pays off financially,but also offer ‘normative recognition’ in the company (MSI 1).

The final aspect that MSI engages in is a cultivation of a cultureof equality by introducing a number of highly visible practices thataim at reducing hierarchical demarcations. Among these are a com-mon canteen, uniform, toilets and transportation for everybody, openoffices (Afsar, 2003). The introduction of these visual manifestationsof equality provoke as much initial resistance as they are said to havehelped to bridging professional and social demarcation in the company(D’Costa, 2003).

In summary, it is fair to say that while there is some adaptation of theforeign/parent template to the local/host institutional context, the dom-inant recontextualization mode in the set up of MSI work organizationand human resource profile is an adaptation of the local/host context tothe foreign/parent template. Although MSI is a Greenfield project witha young workforce (offering a much more resilient local context thana comparable Brownfield PSU), the local context’s resilience has limita-tions at the outset. These limitations are largely overcome by a long termapproach and massive resource mobilization.

Outcome

A substantial local context adaptation to the foreign/parent templatesuggests that imitation is a dominant outcome with regard MSI’s workconcepts and human resource profiles. At the time of research, thereare a number of observers from inside and outside the company whounanimously suggest that SMC has been relatively successful in transfer-ring work concepts and human resource profiles in line with its homeplant standards (MSI 1, 2; D’Costa, 2003; Okada, 1998). To what extentJapanese attitudes have been internalized cannot be answered. Inter-viewees stress, however, that MSI employees generally find it hard towork in a ‘normal Indian work environment’ after having worked forthe company (MSI 3, 5). Undoubtedly, enormous efforts have beenmade to institutionalize Japanese work practices in MSI. Comprehen-sive training and socialization efforts bring MSI’s work concepts andthe required human resource profile relatively close to those of theJapanese parent. Such a finding does not to deny that there are aspects of


work organization where transfer and imitation proves difficult or unsus-tainable. These areas are predominantly those related to institutionallyfounded socio-professional demarcations between different employeecategories. Many concepts and practices promoting egalitarianism areat least initially difficult to replicate. However, even if hierarchicaland occupational demarcations remain more pronounced in MSI thanin SMC’s home plant, we can expect more co-operation across socio-professional divides in MSI than in typical Indian companies. This is notleast the case because it literally pays off to change behaviour.

In summary: Based on the some adaptation of the template to thelocal/host context and simultaneously a substantial adaptation of thelocal context to the foreign/parent template we see MSI’s work organ-ization and human resource profile to vary between imitation andhybridization.

Industrial relations

Transfer scenario

From the beginning a key goal is to replicate a Japanese/SMC companyunion concept (MSI 4, 5). In contrast to all other companies researched,MSI is the only company with a clear intent to transfer a template offoreign/parent industrial relations. In fact, transferring Japanese labourrelations is a crucial cornerstone of the whole transfer effort (Chatter-jee, 1990). The goal is to transfer the Japanese company union conceptwith its emphasis on harmonious labour relations. To ensure harmo-nious relations, different discussion forums-concepts are established tosolve problems at an early stage (MSI 1). Problems should not even havethe chance to come up, but should be tackled as they arise.

Although SMC is in the minority position the adoption of SMC’s com-pany industrial relations is an expressed transfer goal. It is particularlythe Indian top management that strongly supports the transfer of theindustrial relations template (Chatterjee, 1990; Venkataramani, 1990;D’Costa, 2003). The institutional distance between Indian conditionsand the idealized company industrial relations in Japan are the maindriver of the local transfer request. Put differently, the transfer of SMClabour relations are deliberately sought as a means to break away fromobstructive labour relations common in Indian enterprises at the time.For Indian and Japanese managers alike, it is clear that only if typical locallabour relations are avoided, can a non-antagonistic work climate beachieved that is required for the implementation of SMC’s high involve-ment work concepts. Thus, a crucial part of the transfer effort is to


establish a new mode of cooperative industrial relations that radicallydepart from what is dominant in Indian industry (D’Costa, 2003). Themain point of departure is having only one company union, as opposedto many, and having the union not externally-affiliated as opposedto being established by external unions or affiliated with politicalparties.

Misfit

Given that the foreign/parent template transfer is sought because of insti-tutional distance, there is a potentially adverse local/host institutionalcontext standing in the way of a smooth transfer. The establishmentand maintenance of a single company union that is independent ofoutside unions and political parties clearly turns out to be a challengefor MSI. Repeatedly outside union activists affiliated to INTUC, HindMazdoor Sangh, Lok Dal and Lok Mazdoor Sangh seek to establish com-peting unions in MSI (Chatterjee, 1990; see also Gurgaon Worker News,2007). At the same time, the internal union repeatedly threatens to alignexternally. Over the years, MSI’s foreign/parent template faces increasingrecontextualization pressure, pulling MSI’s company industrial relationstowards local/host context solutions. These pulls rest on an institutionalcomplex of stringent labour laws, strongly protecting labour in formalsectors, long standing radical-unions movements, many of which an armof the political parties and multiple unions competing and fighting eachother in companies (see Chapter 4).


Adaptation of foreign/parent template to the local/host context From theinception until my research in 2003, MSI and its top management makean enormous effort not to adapt the company’s Japanese/SMC templateto the local/host institutional demands and conditions. However, theforeign/parent template cannot withstand the local/host context institu-tional pressures. Apart from external unions seeking to get a foothold inthe company, MSI’s company union itself, the Maruti Udyog EmployeesUnion (MUEU), repeatedly threatens to align with external politiciansand departs from MSI’s consensual approach. In 1998, amid the Gov-ernment of India’s new openness for SMC’s takeover bid, MSI’s companyunion threatens to call off its non-affiliation agreement (Indian Express,1998). As the company faces a tougher competitive environment in the2000s and announced a new incentive scheme a strike breaks out. Thelabour conflict displays many features of a typical Indian labour conflict


including: tool-downs, indefinite strikes, lockouts, political affiliationand a dharna (a hunger strike). What is more, during the labour conflicta second union, the Maruti Udyog Kamgar Union (MUKU) is formed,which stalls the company’s one union policy.

Although MSI is able to revert formally to its one-company-union pol-icy in the 2000s, the union behaviour and conflict pattern during thestrike are highly reflective of local/host institutional patterns, departingradically from those in SMC’s home plants.

Adaptation of local/host context to foreign/parent template To trans-fer the institutionally distant industrial relations concept, MSI engagesin an adaptation of its local institutional context. To establish the for-eign/parent template, SMC and MSI management take a number ofmeasures and invest resources to create an enabling local institutionalcontext. Among the most important measures is the commitment ofthe Indian Government and the ruling party at the time of establish-ment to discourage any party involvement in MSI’s labour relations(MSI 4; Indian Interviewee Friedrich Ebert Stiftung, 2003). The selec-tion of a young work-force, personnel transfers to Japan and excellentpay for permanent workers, well above Indian industry standards, areall investments that contribute MSI’s overall peaceful labour relations(MSI 4).

Q: So do they have a strong history of industrial conflict or do theyrather? A: No, they don’t. I mean Maruti is one of the best payingcompanies today in this region. And I guess that has done a lot tokeep them away from . . . I mean they had some industrial conflictbut I don’t think it has been anywhere near as bad as in many otherorganizations.

(MSI 4)

Yet, following the first strike in the 2000s, MSI management revertsto more draconic measures to assure industrial peace and to re-installthe company’s one-union and a non-affiliation policy. In reaction tothe strike, MSI’s management not only pushes through a new incentivescheme which is the major bone of contention, but also asks its work-men to sign ‘a good conduct undertaking’. MSI also dismisses a numberworkers and trainees due to their strike-related activities. The signing ofthe ‘good conduct undertaking’ is made a precondition for workers to re-enter the plant. Among other things, the workers have to sign that theywill not go on strike in future. In 2002, MSI is finally able to revert to a oneunion policy. Following financial irregularities, MSI de-recognized the


MUEU – MSI’s first union – and recognized the MUKU instead. Also, themassive re-composition of the workforce to a small core of well paid per-manent workers and a huge pool of contract labour and apprentices thatlack union representation play a role in controlling industrial action inthe 2000s (Gurgaon Worker News, 2007).

While MSI’s industrial relations are very peaceful by Indian standardsand have probably set an example for a new mode of industrial rela-tions in modern Indian enterprises, the Japanese template of harmoniousindustrial relations with one company union gets corrupted over time.While it remains to be seen how stable the company’s recent return to asingle union policy proves in future, it is fair to say that India’s local/hostcontext is not overly resilient with respect to industrial relations. As theinstitutional pattern of industrial relations is deeply entrenched in theIndian society, politics and legislation, a departure from them requires asubstantial and continuous mobilization of resources.

We can conclude that the recontextualization mode includes both:A substantial adaptation of the local/host context to the foreign/template(particularly in the beginning) and over time an increasing adapta-tion of the foreign/parent template to the local/host institutional con-text. Clearly, the adaptation of the local context to the foreign/parenttemplate strongly relied on a massive mobilization of resources andcommitment given the not very resilient local/host industrial relationscontext.

Outcome

MSI receives a foreign/parent template, which marks a deliberate depart-ure from local/host institutional conditions. However, because of suchan institutional distance, it faces a misfit with the local/host institu-tional context. Being aware of that, efforts are made to adapt the localinstitutional context by taking a number of measures to ensure the sur-vival of the contrasting concept. As a result, MSI’s company industrialrelations depart particularly in the first years from traditional Indianindustrial relations. This concerns the level of industrial peace, the pro-vision of forums and processes to address grievances as well as the levelof cooperation between labour and management.

However, what begins as a showcase of industrial peace modeled onforeign/parent industrial relation practices, increasingly moves towardslocal/host industrial relations patterns (cf. Sachitanand, 2000). Theinvolvement of multiple, politically and externally affiliated unions aswell as a tradition of radical industrial action pose a constant threat. InMSI this local/host mode of industrial relations surfaces as the company’s


profitability comes under pressure and a less favourable incentive schemeis introduced for workers.

Thus, MSI’s industrial relations start off as an imitated solution. Overtime, this solution turns into a hybrid (reflecting Japanese origins aswell as host context elements), if not increasingly into a localization, inthe face of local/host context institutional pressure (MSI 1). At the timeof research, the company industrial relations could be best described assomewhere between hybridization and localization. It remains an openquestion if the establishment of a new company union in the 2000s andthe employee re-composition towards a small core of permanent employ-ees heralds a shift back towards an imitation foreign/parent industrialrelations.

Supplier relations

Transfer scenario

From the start the set-up of MSI’s supplier relations is strongly guided bySMC who has the configuration mandate despite being the junior JV part-ner. SMC takes a step-by-step approach to replicate the foreign/parenttemplate. The transfer effort comprises the contractual, the structuraland the process-related dimension of the supplier relations. In contract-ual terms, the goal is to establish close ties between MSI and its suppliers.In structural terms, SMC seeks to increasingly implement a tierisation ofMSI’s supplier relations. And even in supply flow terms, SMC pushed forjust-in-time (JIT) supply logistics.

From the very beginning, SMC management insists that MSI follows acomprehensive outsourcing policy excepting only the most critical com-ponents. As part of this effort, in house value addition is to be no morethat 26 per cent (UNIDO, 2003). Based on this foreign/parent demand,a substantial proportion of the value addition, has to come from outsideMSI. In theory, MSI could import the outsourced parts and compon-ents from Japan but there is a host institutional and strategic contextthat rules out such an option. First, high import tariffs set by the hostinstitutional context make a largely imported vehicle too expensive forprice-sensitive entry-level customers. Secondly, MSI has to observe localcontent requirements that form part of the JV agreement and the IndianGovernment FDI policy. Specifically, it is agreed that out of the 70 percent of the non-company value addition, at least 60 per cent have tobe locally procured (Mohanty et al., 1994). Thirdly, even without highlocal content requirements and high import tariffs the combination ofa high Yen and a low market segment focus, rule out the import of


costly components in the long-run. In short, SMC’s demands, the IndianGovernment demands, a high Yen and a prices sensitive market demandsuggest a central role to be played by suppliers located in India (MSI 1;Okada, 1998).

However, this supplier infrastructure hardly exists and where it existshost context conditions are institutionally too distant for MSI’s require-ments in terms of contractual relations, structure and the process andconsequently too strategically distant in terms of technology, quality,cost and volume capability. In the early 1980s, the Indian automobilesupplier Industry is small, weak and fragmented. It is dominated by smalland technologically weak players (Khare, 1997; Bhargava, 2002). Tier-ization and JIT supply logistics are unheard of and contractual relationsare arms-length and low trust in nature (D’Costa, 2003). At this point intime, Indian suppliers are not capable to supply MSI with parts and com-ponents in the right quality and quantity (Mohanty et al., 1994; Joseph,1990). Given that SMC introduces the product and given the absence oflocal/host capabilities SMC assumes the mandate to establish MSI’s sup-plier relations. While the host context market demand conditions allowa far reaching replication effort, it is the absent supply conditions makesuch a massive transfer effort a requirement.

Misfit

The transfer intent of foreign/parent supplier relations implies that whatis going to be transferred faces either an absent or a partly adverseinstitutional and strategic context. The strategic context reflects institu-tional conditions in the supplier industry that are still shaped by India’sstate-led growth regime in the 1980s. For example, as the Indian sup-plier market is not concentrated and as the financial and technologicalcapabilities are low, the cost reduction by means of a tiered supplierstructure is impossible in the beginning (Humphrey and Salerno, 1999).The lacking reliability of subcontractors also puts a break on tierisationefforts. Moreover, the absence of VAT means that a tierisation of suppliersincreases the cost for supplies (ACMA Interview, 2002; SIAM Interview,2002). Another reason why tierization remains slow is related to the lowproduction volumes in the Indian automobile industry (Okada, 1998).A somewhat similar situation can be found with regard to JIT supplies.Here, the high geographical spread of MSI suppliers, poor road condi-tions, unreliable suppliers, frequent strikes and seasonal rainfalls posedifficulties to its fast implementation.

Finally, getting the Indian suppliers to invest in and cooperate withMSI is no easy task to begin with (Bargava, 2002). A heritage of arms


length and low trust patterns in the Indian supplier industry, make itdifficult to win over potential suppliers for long term cooperation (Bhar-gava, 2002; D’Costa, 2003). Suppliers also fear that their investmentsfor a lofty Indian Government project may not pay off. One of thefirst challenges is, therefore, to overcome mistrust of suppliers and con-vince them that state-owned MSI is determined to realize the targetedvolumes.


Adaptation of foreign/parent template to the local/host context As thereis no existing supplier infrastructure, SMC has the crucial role to orches-trate its set up. While this set up is largely based on the foreign/parenttemplate of supplier relations, not all aspects of the template can beimplemented over night. There are strong indications that substantialadaptations of the foreign/parent template to the host (institutional andgeographical) context are required because the host context conditionsare not very resilient (e.g. wide geographic spread of suppliers, poorroads, taxation policies). This particularly involves the de-selection oftierisation and JIT in the beginning. Clearly, a part of the recontextual-ization effort rests on the adaptation of the foreign/parent template tothe local/host strategic and institutional context.

Increasing adaptation of local/host context to the foreign/parent templateover time The dominant recontextualization mode with regard to thesupplier relations is, however, an adaptation of the local/host institu-tional/strategic context to the foreign/parent template. In order to tackleMSI’s supply problem, SMC and MSI embark on a massive ‘supplierdevelopment programme’ (UNIDO, 2003). The programme essentiallycentres on an immense institutionalization effort. Specifically, the selec-tion, change and creation of the local/host supplier context in line withSMC’s set up of home supplier relations.

In the initial phase, the institutionalization and capability buildingeffort focuses on realizing SMC’s outsourcing policy through the devel-opment of suitable suppliers in India (UNIDO, 2003). To achieve thegoal, a multi-pronged approach is taken. In a first step, MSI tries to buildup trustful relations with existing suppliers which are selected as suitablepartners. It does so by giving all kinds of support, ranging from financialto technical assistance to the Indian suppliers (Khare, 1997; Bhargava,2002; UNIDO, 2003). Even some personnel is sent from MSI to suppli-ers for longer periods of time. Additionally, the mistrust of suppliers isovercome by doing away with the annual tender system and replacing


it with long term contracts. The new system gives assurances to the sup-pliers with regard to production volumes, prices and dates of payment(Bhargava, 2002; UNIDO, 1999). However, simply supporting existinglocal suppliers proves insufficient. In a second step, MSI gets involvedin suppliers and founds JVs with local suppliers (Okada, 1998). MSI notonly helps in bringing together SMC and Indian suppliers for JVs, but alsoenters into 15 JVs with suppliers (Maruti–Suzuki, 2008). Although MSIholds only minority equity positions in these companies, it is stronglyinvolved in their quality and productivity assurance.

Yet, the transfer effort does not stop at the contractual level. In the late1990s, MSI starts to reduce its suppliers. This development gains newmomentum when SMC takes over the company in the 2000s. While MSIhas about 406 suppliers in 1998, it has almost halved the number to 220in 2004 (Maruti–Suzuki, 2004).

Also with regard to JIT, MSI is able to change the situation through ahost of measures (Shelley, 2002). From the beginning, there are a num-ber of key suppliers that build their production facilities directly on theMSI compound. Next to this, MSI’s JVs, producing the most importantcomponents, are located near its plant (Halasyam, 2001, former DirectorFinance in MSI). What is more, the majority of MSI’s parts and com-ponents are provided by suppliers that are within a radius of 100 km(Red Herring Prospectus, 2003). Getting more and more supplier to locatenear its plant also reflects MSI’s effort to lure in far away suppliers bymeans of incentives. Such incentives comprise: offering subsidised, welllocated and industrially developed land, sales tax concessions and reli-able power, which supply MSI generates itself (Gulyani, 2001; D’Costa,2003). In addition, MSI asks suppliers unwilling to relocate, to build or atleast make use of warehouses near its plant. In these cases, MSI is willingto bear the expenses incurred to maintain the warehouse (Venkatachari,2000). To better co-ordinate and facilitate JIT, MSI also develops a lowbudget IT-solutions for its suppliers helping to schedule JIT deliveries(Kulkarni, 2002). While these efforts are far reaching efforts to bringMSI ever closer to the foreign/parent template in terms of the supplyflow, there are still factors, such as the transportation systems, that workagainst a full the realisation of the JIT concept (c.f. Gulyani, 2001).

To conclude: MSI has taken a long term approach to implement majorfeatures of the foreign/parent template in terms of supplier relations andthere are still some adaptations to the local/host context. Nevertheless,the dominant recontextualization mode has become an adaptation ofthe local/host context to foreign/parent template. While the certain con-ditions in the host supplier context remained non-resilient, SMC’s and


the local JV partner’s commitment of substantial resources created anincreasing host context resilience for an adaptation to the foreign/parenttemplate.

Outcome

SMC embarks on a huge transfer effort with regard to its supplier rela-tions. This is possible because of a strategic fit with regard to the demandmarket conditions. At the same time, it is necessary because of thecombined effect of foreign/parent demands and host supply market con-ditions. Put differently, SMC has to undertake a huge transfer effortbecause it wants to observe its outsourcing policy, but faces an institu-tional/strategic environment that does not allow the fulfilment of such apolicy without major transfers of home practices. In the face of a weaklyand adversely institutionalized market for parts and components, SMCdevelops suppliers by founding JVs and assisting suppliers. In order totransfer its supplier relations SMC embarks on a massive institutional-ization effort that involves a selection, change and creation of local/hostsupplier relations. The overall result is that MSI’s supplier relations movecloser to a pattern of imitation over time.

For example, in contractual terms MSI develops relations with sup-pliers that come very close to those of SMC, departing radically formthose typical in the host context (UNIDO, 2003). Like in MSI’s sup-plier development programme, SMC in Japan had been from the 1950sonward very actively involved in the establishment of its supplier net-work through special developmental activities and direct support (e.g.SMC Supplier Cooperative Union). Like in MSI, SMC in Japan providedfinancial support and training to its suppliers. Similar, to the MSI set-up,SMC supported its suppliers in Japan in the early 1960s to move to anearby supplier park and also directly influenced the management ofthese enterprises (c.f. Price, 1997). And, like in the MSI set-up, SMC hadthe policy at home to have at least two suppliers for all major parts.Additional support for a replication strategy of supplier relations comesfrom an UNIDO (2003) report. The report suggests that MSI’s supplierrelations are strongly modelled on Japanese examples. The overall resultis that, in contrast to old Indian practices, substantial outsourcing, hightrust and cooperative supplier relations develop.

While MSI’s initial transfer focus is more on establishing suppliers andhaving close relations with them to assure the quality and quantity ofsupplies, the focus widens over time. More recently, efforts are made toreplicate the structural and process-related features of the Japanese sup-plier set-up. At the time of research, the tierisation and supply logistics

134Table 5.2 Summary of MSI’s hybridization profile

Firm > PS dimension MSI

Functional differentiation Transfer scenario: Transfer of foreign/parent templateMisfit: Minor strategic misfit between template and local/host contextMode of Recontextualization: Low template adaptation to local/host context; high adaptation oflocal/host context to foreign/parent template

Outcome: Mainly imitation

Hierarchical differentiation Transfer: Use of host context templateFit/Misfit: Little (known) institutional misfit between host context template and foreign/parent demandsMode of Recontextualization: Likely adaptation of foreign/parent demands to host context template;creation of site in line with host template with minor host template adaptation to foreign/parent context

Outcome: Between localization (and hybrid)

Technical configuration Transfer: Transfer of foreign template with regard to factory layout and process design; only selective andincreasingly less transfer with regard to technical hardware

Fit/Misfit: Hardly any strategic misfit between selected aspects of foreign/parent template and local/hostcontext; some misfit between foreign/parent strategic and local/host institutional demands

Mode of Recontextualization: Little adaptation of those foreign/parent template aspectstransferred; mainly creation in line with foreign/parent template or demands and host context

Outcome: Between imitation and customization

Work organization/ Transfer: Transfer of foreign/parent templateHR profile Fit/Misfit: Institutional misfit between foreign/parent template and local/host context

Mode of Recontextualization: Some adaptation of the template (de-selection) to local/host context;mainly adaptation of local context to foreign/parent template

Outcome: Between imitation and hybridization

Industrial relations Transfer: Transfer of foreign/parent templateFit/Misfit: Misfit between foreign/parent template and local/host institutional context;Mode of Recontextualization: Adaptation of local context to foreign/parent template as well asadaptation of the foreign/parent template to local/host context

Outcome: Between hybridization and localization

Supplier relations Transfer: Transfer of foreign/parent templateFit/Misfit: Foreign/parent template misfits local/host institutional/strategic contextMode of Recontextualization: Initially adaptation of foreign/parent template to host context;over time major adaptation of local/host context to foreign/parent template

Outcome: Between hybridization/customization and increasingly imitation


of MSI are not exactly those of SMC. The number of direct suppliers isstill more compared to the Japanese parent and the supplier hierarchy isless tiered than in SMC. Similarly, the level of JIT is still behind that ofthe Japanese parent (Okada, 1998). However, MSI is narrowing the gap.Although MSI is in 2003 still away from full JIT-deliveries, it has comecloser to the ideal over time. An indication is MSI’s falling inventorytimes. While in 1992 MSI’s total inventories are 57 days of stock, theyhave come down to 19 days of stock in 2003-2004 (c.f. Gulyani, 2001;Maruti Udyog, 2004).

In summary: MSI has come closer and closer to an imitation of itshome supplier relations. While in the beginning, MSI’s supplier relationsreflect more a hybrid solution-based on a combination of imitation andlocalization (possibly also customized solutions reflecting foreign/parentdemands and local/host context conditions) – they develop towardsimitation (see Table 5.2 for a summary of MSI’s hybridization profile).

6The Case of Fiat India

Introduction

Fiat’s internationalization starts already with car export before the FirstWorld War and is triggered by the company’s small domestic market(Volpato, 2000/2001). After the Second World War Fiat’s international-ization strategy increasingly focuses on setting up production sites forsmall cars in emerging markets. Volpato (2000/2001) calls Fiat’s pathalso a ‘forced specialization’. He sees it as the result of tax regimes (i.e.heavy tax progression with engine size) and gasoline prices in Italy,dating from the fascist period and continued after the Second WorldWar. Volpato argues that the business conditions in Italy ‘progressivelyreduced the possibilities for Fiat to compete in foreign markets on highersegments of automobile production’ (Volpato 2000/2001, p. 2). Fiat’s‘forced specialization’ explains why Fiat shifts its internationalizationfocus comparatively early to emerging markets, which eventually cul-minates in an emerging market World Car strategy in the 1990s andbeyond.

Apart from some licence-production agreements with Premier Auto-mobiles Limited/India in 1951, with Zavodi Crvena Zastava/Serbia in1954 and the establishment of engines and transmissions plants inBrazil in 1958, Fiat’s internationalization does not take off before the1970s. In 1971, Fiat starts the Tofas-Bursa plant in Turkey (JV withthe Koc Group). In 1973, the Betim plant is founded in Brazil anda year later the Tychy plant in Poland. While Fiat’s internationaliza-tion sees some disinvestment and slow down in the 1980s, caused bythe oil crisis and domestic conflicts (Balcet and Enrietti, 2002a,b,c),it receives a new boost in the 1990s. This boost is driven by Fiat’sWorld Car project. For the production of its World Car range, Fiat

136


transforms its existing plants (Brazil/Betim 1996, Poland/Bielsko-Biala,Turkey/Bursa 1998), enters into new JVs (Morocco/Casblanca 1997,Egypt/Cairo 2002, India/Kurla 1997, China/Nanjing 1999) or licensingagreements (South Africa/Johannesburg 1998 and Vietnam/HoChiMinhCity 2000) and establishes new operations (Argentina/Cordoba 1996,Venezuela/LaGuaira 1997). However, facing a crisis in the 2000s andonly a modest success of its World Car range in major Asian economies,including India and China, Fiat’s World Car driven internationalizationspree comes to a halt and a period of consolidation follows. Yet, despitedisappointing sales, the strategic importance of the Indian operation isheld on to in the 2000s (Fiat Group, 2005a). Fiat’s Indian operation is stillconsidered an important strategic pole for Fiat’s World Car productionin Asia. This is not least related to the fact that Fiat enters into a strategicpartnership with Tata Motors in 2006. Apart from the joint distributionand production of Fiat models, the partnership also envisions a jointproduction in Fiat’s Latin American operations (Fiat India, 2006, 2007).

In contrast to this ‘focussed globalization’ oriented towards emergingeconomies (Balcet and Enrietti 2002b), Fiat’s production international-ization in the developed triad markets – even in Europe – is comparativelyweak. This also has do with the failed involvement in Citroen in theearly 1970s, the failed merger with Ford Europe in mid 1980s and thefailed expansion into the USSR in the early 1990s (Volpato, 2000/2001).Fiat’s European production internationalization is, therefore, largelyconfined to the company’s cooperation with GM. With the Fiat Group’scrises in the 2000s, Fiat’s internationalization strategy receives a shiftin orientation. Apart from announcements to close down some of itsinternational sites, the internationalization strategy shifts more towardsforging new international alliances with limited or ‘no equity’ commit-ment (Fiat Group, 2005b). Interestingly, a good amount of these alliancesare forged with strong players in emerging markets (e.g. Tata Motors,Maruti-Suzuki).


Based on Porter’s (1980) classification of generic strategies, Fiat’s globalproduct strategy can be best described as a combination of cost leadershipand differentiation. In a similar vein, Boyer and Freyssenet label thecompany’s profit strategy a ‘diversity and volume’ strategy (Freyssenet,1998; Boyer and Freyssenet, 2003). Already in the 1960s Fiat starts tobroaden its brand portfolio. The major road post of becoming a multi-brand company are the takeover of Autobianchi in 1958, Lancia in 1969,Ferrari in 1966, Alfa Romeo in 1986 and Maserati in 1993.


Fiat’s global product strategy has been regionally differentiated forsome time. This involves offering state-of-the-art products in developedmarkets (production of which mainly located in Italy) and ‘mature’ oroutdated products in second and third world economies (production ofwhich mainly located in emerging markets). In the 1990s, this patternchanges and continues at the same time. With the World Car project Fiatintroduces a range of new models that are based on one platform andspecifically developed for emerging markets. This implies a continuationof a strong regional differentiation, however, with models that are newlydesigned for emerging markets. While Fiat’s overall global product strat-egy can be labelled a combination of cost leadership and differentiation,its product strategy vis-à-vis emerging markets can be more appropriatelydescribed as cost focus. Despite developments in the 2000s towards lessregional differentiation, Fiat’s strategic orientation of cost focus is stillvery present in Fiat India (FI) in 2003.


In 1951, Fiat enters into a license agreement with the India automobilecompany PAL. The agreement involves the license production of the Fiat500 and later the Fiat 1100. In 1972 this agreement expires. However,the model continues to be built in India under the name Premier Pad-mini (Mohanty et al., 1994). In 1981, a second technology agreement issigned with PAL (Mohanty et al., 1994). In the 1990s with India’s mar-ket liberalization, Fiat’s involvement in India sees a revival. Like otherinternational auto manufacturers, Fiat identifies a huge potential in theIndian car market. What is more, in the 1990s Fiat focuses on developingcountries as the major future markets for its products. In line with thisstrategic focus, Fiat announces in 1995 its World Car project which isspecifically designed for emerging markets and envisions India as a pro-duction pole (Alzona and Prakash, 2001). Against the background of itslongstanding connection with PAL and its World Car project, Fiat opts fora two-pronged entry into the Indian market (Goldstein, 2002). In 1996Fiat enters into a technical collaboration with PAL for the import andassembly of the Fiat Uno from CKD-kits. The Uno assembly is conferredto PAL and established at PAL’s Brownfield site in Kurla in the outskirts ofMumbai (Subhadra, 2002). Simultaneously, Fiat plans to set-up a whollyowned Greenfield plant for the production its World Car model range.To realize the project, Fiat founds a new subsidiary, Fiat India Auto Ltd.(FIAL) and buys a factory site in Ranjangaon near Pune. In 1997 Fiateven signs a MoU for the Greenfield project with the State Governmentof Maharashtra for the annual production of 100000 cars. The project’s


plan is to start production by the end of 1999. However, things don’twork out as planned. PAL which takes care of the Fiat-Uno productionproves to be a problematic partner. Fiat becomes very unhappy with theway PAL management handles the Fiat-Uno project and PAL’s unwilling-ness to step up investment in the JV (Goldstein, 2002; Subhadra, 2002;FI 2; FI 3). In addition, a strike brakes out followed by a lockout, whichleads to delivery delays and vast cancellations of car bookings (Subhadra,2002). Overall, the PAL-led Fiat-Uno project contributes to a huge imageloss for Fiat in India.

In reaction to these problems, Fiat takes over the Uno project in 1997.To realize the take-over, Fiat acquires a majority in the newly founded JVIndia Auto Ltd (IAL) with PAL and raises its stake continuously (Subhadra,2002; FI 4). Parallel to these developments, the Indian automobile mar-ket moves into recession and sees increasing competition at the end ofthe 1990s. As a consequence, initial sales projections of 100,000 vehiclesper year are scaled down to a mere 25,000 vehicles per year. The changeddemand scenario leads Fiat to reconsider its Greenfield project. The prob-lems with PAL and doubts whether the Greenfield investment pays off,lead Fiat to put its Greenfield project on hold and turn to the jointlyowned Brownfield facility as an alternative for its World Car production.Instead of building a new production site, Fiat increases its stake in theJV IAL and concentrates on refurbishing the Kurla Brownfield facility. Atthe end of 1998, Fiat increases its stakes in IAL and announces the freezeof Rangjangaon Greenfield project. In 2000, Fiat increases its share in IALagain from 76 per cent to 95 per cent and in 2004 to 99 per cent (Alzonaand Prakash, 2001). At the time of research, IAL is renamed to Fiat IndiaPrivate Ltd. (FI) and has practically become a wholly owned subsidiary ofFiat Auto Italy. In 2006, as part of a new strategic partnership with TataMotors, Fiat establishes a new 50:50 per cent production JV. The new JVis named Fiat India Automobiles Private Limited (FIA).


In 2003, Fiat’s automobile factory in India is located in Kurla in theagglomerations of Mumbai (State of Maharashtra). The factory site andthe factory halls are inherited from former JV partner PAL. Fiat investssubstantially to upgrade the Brownfield facilities which are in a poorcondition (Atzeni, 2001; Subhadra, 2002).

At the time of research, Fiat manufactures three models: the Uno, theSienna/Sienna Weekend and the Palio in about twelve variants. In termsof market-segments, the models range from the lower B to the lower Csegment. Having difficulties to sell the C-segment Sienna, the company


plans to focus more on the B segment to realize higher sales and produc-tion volumes. While all models share the same platform, it is specificallythe Sienna, Sienna Weekend, Palio that belong to the World Car range(FI 1). In 2003 FI has an installed capacity of about 60,000 vehicles perannum and runs its operation with around 2000 employees. Daily out-put was at 150–200 vehicles manufactured in two shifts. Until 2002, thesite produced the Uno and the World Cars in two separate lines. From2003 onwards, they are all integrated into one flexible manufacturingline. FI’s on site production steps comprise: a body shop, a paint shop,an assembly line and a finishing line. In addition, there is an on-siteengine assembly facility. The bottleneck of the FI’s manufacturing set-upis its paint shop. As the paint-shop is only capable of painting one car ata time, which lasts about 4 minutes, the whole process organization isadapted to the paint shop’s cycle time (FI 2).

In 2006, Fiat shifts its entire passenger car production from Kurlato its new production JV with Tata in Ranjangaon near Pune (State ofMaharashtra). The new plant – which is not established at the time ofresearch – is the long awaited state-of-the-art Greenfield plant. It willhave an installed capacity to produce 100,000 cars and 200,000 enginesand plans to operate with about 4000 employees (Fiat Group, 2007).

FI’s market share in the 2000s reflects the company’s modest successwith the introduction of its World Car models to the Indian market.While especially the Palio (launched in 2001) gives Fiat’s sales in Indiaa boost, the new introductions do not live up to the expectations. Interms of sales volume, FI sells in the B segment 17,067 cars in 2001–2002 (out of a total of 293,131 sold in the B segment) and 16,366 cars in2002–2003 (out of a total of 158,291 sold in the B segment). These aremarket shares of 5.8 per cent and 10.3 per cent in the B segment in therespective years. In the C segment the tendency is similar. In 2001–2002Fiat sells 898 vehicles (out of a total of 72,610 sold in the C segment) andin 2002–2003, 1850 vehicles (out of a total 37,957 sold in the C segment).These are market shares of 1.7 per cent and 4.9 per cent in the two years(data provided by Red Herring Prospectus, 2003). Despite efforts to boost itsmarket share with new model introductions, Fiat’s overall market sharein the passenger car segment in India remains weak in the 2000s.


The general transfer scenario

The transfer intent and effort of Fiat in India is closely linked to Fiat’sWorld Car project code-named ‘178’. Apart from a standard range of cars


based on a single platform, the project comprises of a production-systemtemplate. Camuffo and Volpato (2000/2001) describe the main goals ofthe World Car project also code-named ‘178’ as follows:

1. Define a family of new models, based on the same platform, to beproduced and sold with basically no significant change, in a numberof countries. 2. Create a worldwide supply chain to manufacture, indifferent places of the world, a family of new models suited to themotorization needs of BEMs [big emerging market]. 3. Take advan-tage of cost differentials, namely labour cost differentials, available inPLEMAs [peripheral of large existing market areas]. 4. Guarantee abso-lute standardization of each version of the models produced, even ifthey are targeted to different markets. 5. Establish an organizationallearning process capable of conciliating the design of a centralizedproduct with the needs of various final markets. 6. Diffuse, by replica-tion and adaptation to foreign plants, the lesson learned in the settingup and operation of the highly successful green-field plant in Melfi(Italy). 7. Develop a global supply chain, flexibly and efficiently usingthe production capacity and the supplier base available in differentcountries.

(Camuffo and Volpato, 2000/2001, p. 4)

The World Car’s production template is based on the ‘Fabbrica Integrata’1

concept, which Fiat has implemented at its Italian Greenfield site in Melfi(Camuffo and Volpato, 2000/2001). According to Volpato, the Melfiplant serves as a ‘paradigm’ to be applied ‘to the various new plantsmade under “Project 178” in a flexible and adaptive way’ (2000/2001,p. 9). While the ‘Fabbrica Integrata’ experience is the paradigmatic start-ing point for the World Car production-systems, changes are made toadapt it to developing country conditions. These comprise mainly lowerwages, lower volumes and local content requirements. In contrast toMelfi, the standard production volumes for the World Car productiontemplate are lower and as is the targeted level of automation. In addition,a human resources focus is defined as a corner stone of the template. Con-cerning supplier relations, also some key concepts are drawn from Melfi.These include a nearby supplier park and substantial levels of outsourcing(c.f. Camuffo, 2000/2001).

To develop the World Car and its production template, Fiat evenestablishes a pilot plant in Turin and transfers technicians, mainlyfrom South American, for a better understanding of developing coun-try requirements. The pilot plant in Turin becomes a permanent testing


and developing ground for the product and the production templateof the World Car project (FI 2). According to Volpato, the pilot plantalso serves as a ‘conservatory of weights and lengths’ which ‘dictates theproduct and manufacturing specifications to which all Fiat and supplierplants must conform to’ (2000/2001, p. 14). In 1996, Fiat starts withthe implementation of its World Car project in Brazil. In the same year,Fiat builds a whole new Greenfield site in Cordoba, Argentina, wherethe World Car production template is most faithfully realized (Volpato,2000/2001). It is also this plant that initially serves as a model for theplanned Greenfield site in India (Autojunction, 2003).

Fiat’s World Car production template is very comprehensive (Camuffo,2000/2001, Cardoso, 2004). The template defines major organizationalstructural parameters such as hierarchical levels, functional differenti-ation and a standard concept of work organization. It includes a standardproduction layout for 400 vehicles per day (which can be downgraded to200) and specifies the technical configuration (emphasizing low levelsof automation) of the production process. It even defines a range ofconcepts and policies with regard to supplier relations and employmentrelations. Apart from the World Car related template and policies, theFiat-group has global standards for industrial relations and supplier rela-tions. In this respect, however, subsidiaries have a substantial freedomto respond to specific host context conditions (FI 4).

While Fiat seeks to transfer World Car its template to its Indian oper-ation, the decision to start the production at PAL’s Brownfield siteimplies from the start that certain aspects of the template cannot beimplemented. This mainly concerns the transfer of more advancedmanufacturing technology and the nearby supplier park (FI 1, 2).However, despite these adaptations, the interviewed managers insistthat core aspects of the World Car template have been transferred toIndia.


Transfer scenario

Fiat transfers to its Indian operation the functional configuration of theWorld Car production template. This comprises two crucial concepts, the‘Management by Process’ and the ‘Unità Tecnologica Elementare’ (UTE),that are based on integrating different functions in organizational unitsfor the production of a specific product family. ‘Management by pro-cess’ involves the entire production process. Here, different functionaldepartments are allocated to a certain product family (e.g. Palio or Uno).


The product family is headed by a ‘process manager’ who oversees thewhole process. As part of this concept, the process manager is alsoresponsible for human resource management including issues such asrecruitment and promotions (Cardoso, 2004). The same idea of func-tional integration can be found in the organization of different processsteps (e.g. final assembly) in operational units called UTEs. One UTE gen-erally integrates the functions production, maintenance, product andprocess quality assurance, material handling (FI 2; cf. Cardoso, 2004).The Italian interviewee pictured them as a ‘little factory’ comprisingabout 50 people, each (FI 2).

In a common approach to all its world car sites (Cardoso, 1998;Cardoso, 2004), Fiat transfers the template’s concepts of functional dif-ferentiation or rather integration also to its Indian site Kurla (FI 1, 2).Based on its entry mode, Fiat could have drawn on the existing functionaltemplate of the Brownfield site. However, given Fiat’s control over thesite, its product ownership, its strategic intent to implement the WorldCar template and the capability gap between Fiat and its local partnerPAL, a continued use of the local template is out of the question. The factthat Fiat has practically from the beginning a majority in the JV, plus thefact that Fiat introduces the vehicle and has essentially the mandate toestablish the production of its World Car, allows the foreign/parent tochange the local template. At the same time, there are no reports thathost context institutional or strategic demands and conditions triggeredany changes in transfer intent of the World Car template’s functionaldifferentiation.

Misfit

While there is no strategic or institutional distance that deters the tem-plate transfer up front, it is also clear that the World Car template facesan existing local template of functional differentiation. However, thereis no indication that the implementation of the new functional dif-ferentiation, which requires a change of the existing template, causesadverse reaction among the local employees (FI 2, 3, 4). While somehuman resource and shopfloor related practices of the UTE concept provehard to be implemented, due to the sites institutional heritage, the for-mal structural aspects and functional differentiation of the UTE systemsmeet little institutional misfit. What is more, the condition that thehost strategic context features a lower market demand than the idealWorld Car template requires in volume terms, does not cause a strategicmisfit/recontextualization pressure for the ‘management by process’model or UTE concept (FI 2). It appears that the inbuilt possibility to


scale down the template (Camuffo, 2000/2001), gives the template somerobustness vis-à-vis varying volumes.


Minor adaptation of foreign/parent templates to the local/host contextThere are no indications that Fiat’s World Car template undergoes majoradaptations with regard to its functional differentiation. Neither is thereany report that the existing local template obstructs the implementa-tion of the World Car template’s functional differentiation, nor that thelocal/host context strategic and institutional conditions and demandsinduce an adaptation of the foreign/parent template (FI 1). Althoughthere are no reports in this regard, some adaptations of the template tolocal/host context demands and conditions are likely.

Major adaptation of local/host template to the foreign/parent templateThe template transfer and the absence of an adverse local/host strategicand institutional context with regard to the World Car template’s func-tional differentiation, allow an adaptation of the existing template ofPAL in line with the foreign/parent template. This replication success ismainly achieved through the transfer of Italian expatriates to the Indiansite and the transfer of Indian employees to the Italian pilot plant inTurin. The Italian side is willing and able to restructure the functionalset-up along in own template because the steady increase in equity ofthe JV and the product ownership provide the mandate to restructurethe site.

On the one hand, the adaptation of the extant local template is basedon Fiat’s firm willingness to invest resources in the form of substantialpersonnel transfer (FI 1). On the other hand, there is a high resilienceof the local context with regard to a change in the functional differenti-ation. This is not least the case because the change of the local site’sfunctional differentiation does not fundamentally challenge existingstatus order at the site.

Outcome

Despite some strategic distance between the Indian and other World Carsites, the Indian site is strategically close enough to implement the basicfunctional configuration. There is also no indication that strategic orinstitutional context, be it the existing local template or the wider hostcontext, call for a major modification of the functional differentiationtransferred. In strategic terms this is probably related to the fact thatthe template’s functional differentiation is already an adaptation of the


‘Fabbrica Integrata’ to emerging market conditions. While the ‘manage-ment by process’ and the UTE concept seem to have been formally imple-mented, there is little information if the behavioural underpinnings,such as ‘teamwork free from hierarchies’ and ‘participated management’have taken root (cf. Cardoso, 2004).

Nevertheless, there are clear indications that the formal structure ofthe foreign/parent template has been transferred with regard to the site’sfunctional differentiation (FI 2). Thus, a clear transfer-intent, low recon-textualization pressure, due to a moderate strategic and institutionalmisfit, and an adaptation of the local context as the dominant recon-textualization mode, lead to an imitation of the World Car template’sfunctional differentiation.


Transfer scenario

From the outset Fiat plans to transfer the hierarchical differentiation asan integral part of its World Car template. Derived from its ‘FabbricaIntegrata’ concept, Fiat’s World Car production template includes astandard hierarchy of five hierarchical levels (c.f. Camuffo, 2000/2001;Camuffo and Volpato, 1994). However, as market demand falls belowexpectations, Fiat drops its Greenfield project and decides to moveits World Car project to the existing Brownfield site Kurla, where itcommenced earlier the production of the Fiat Uno. While this shiftto the Brownfield site does not cause Fiat to change its plan to trans-fer the World Car template’s hierarchical differentiation, the shift doesimply that the template’s ideal hierarchical structure faces the muchsteeper hierarchical differentiation of an existing site. That is, of theproduction site Fiat has taken over from its Indian JV partner PAL. Yet,neither this potential institutional misfit, nor a local/host strategic dis-tance cause Fiat to revise its intent to transfer the World Car template’shierarchical differentiation. Fiat’s control over the site, its product own-ership, its strategic intent to implement the World Car template andthe capability gap between Fiat and its local partner PAL suggest andallow Fiat to pursue a transfer of the world car template’s hierarchicaldifferentiation.

Misfit

While there is no strategic misfit putting a recontextualization pressureon the foreign/parent template once the transfer commences, there is aninstitutional misfit between the foreign/parent template’s hierarchical


differentiation and the existing local template institutionalized at theBrownfield site. After all, the existing hierarchical differentiation ofthe Kurla site mirrors the wider host institutional context conditionsin India, marked by extensive socio-professional demarcation and hier-archical differentiation. As a result, there is a substantial resistanceto the changes that go along with the implementation of the WorldCar template’s hierarchical differentiation (FI 4). Specifically, the newhierarchical differentiation implies a reduction from about twelve tofive hierarchical levels (FI 4). This de-hierarchization causes resentmentamong those who feel that their seniority- or experience-based status isdisrespected. Depending on how one looks at it, there is, a strong recon-textualization pressure on either the existing local/host template or onthe foreign/parent template to dissolve the misfit.


Minor adaptation of foreign/parent template to the local/host context FIshows hardly any signs of having adapted the hierarchical differentiationof the World Car template to the existing local template, local demandsor the wider host institutional context. With one more hierarchical levelthan the ideal foreign/parent template envisions, Fiat India has comeclose to fully implementing the template’s hierarchical differentiation.The only aspects remaining from the local/host template are the titles ofthe former hierarchical designations (FI 4).

Major adaptation of local/host templates to the foreign/parent templateFiat carries through the reduction of hierarchical levels against local resis-tance. In line with its World Car template, the hierarchical levels of theexisting Brownfield template are reduced, from previously twelve (andthese are probably only counting managerial levels) to six levels andthere is still one more level to be cut:

When we were having in Fiat earlier Premier Automobile, there weremany hierarchical levels. I don’t remember exactly how many but itwas more than ten or twelve hierarchical levels. Now presently we areworking, comparatively, with a very flat structure. We are having sixlayers in officers. That is: Vice President, General Manager, AssistantGeneral Manager, Manager, Assistant Manager and Executive, so theseare the levels. […] That is six grades. As per Italian standard we needto have as far as officer grades, white collar grades, are concerned,we need to have five levels. For that we have a tool, which has beendeveloped by Italy.

(FI 4)


Fiat is in the position to change the local context or rather the exist-ing local template’s hierarchical differentiation – despite its Brownfieldbackground – because the company is quick to acquire a majority inthe JV with PAL. As the Italian side is in control and the site’s topmanagement staffed with Italian expatriates (with a clear mission fortemplate implementation), there is little local top management left thatcan successfully oppose the changes in the organizational hierarchy.The dominant recontextualization mode with regard to the site’s hier-archical differentiation is, therefore, an adaptation of the local/hosttemplate to the foreign/parent template.

Outcome

With around 2,000 employees and six levels of hierarchy, Fiat India hasthe flattest organizational hierarchy in the sample of the four researchcases. Unlike the other cases, Fiat India does not feature a decouplingbetween formal hierarchical levels and a great number of hierarchicaldesignations. Being a Brownfield site, FI faces an existing local organ-izational template. At the same time, Fiat has a clearly defined templatefor the site’s hierarchical differentiation. Even though the institutionaldistance between the local template and Fiat’s World Car template issubstantial and causes resistance, the company pushes through the hier-archical differentiation of its World Car template. The fast equity shiftallows Fiat to replace the old hierarchy with Fiat’s template without fac-ing the intervening power of the local JV partner. Despite employee resis-tance, FI quite rigorously implements its foreign/parent template. As faras the formal hierarchical structure of FI is concerned, there is a clear shiftfrom a local/host context solution, as is prevalent in PAL, to a foreign/parent standard. The result can be labeled an imitation of the hierarchicaldifferentiation of Fiat’s World Car template (cf. Cardoso, 2004).


Transfer scenario

In line with the World Car project the structuring of FI’s basic factory lay-out, process design and technical hardware configuration is envisionedto follow the World Car production template. Specifically, the IndianWorld Car site is planned as a Greenfield project, based on the Argen-tinean site in Cordoba. As an integral part of its World Car strategy, Fiataims at transferring similar technical configurations to all its World Carsites, including India.

Coming to modularity in organization, with regard to intra-firmorganizational design, the roll out of Palio in foreign plants followed


a common technological and organizational template, exported andreplicated in the different countries. As already mentioned before,each technological/organizational “module” was characterized bycertain equipment and degree of automation (with possible vari-ants and potential adaptation), and was organized to meet a givenproduction capacity, which is 400 vehicles per two-shift day.

(Camuffo 2000/2001, p. 22)

However, this comprehensive transfer intent of a standard technological/organizational module’ is partly dropped in the Indian case, as the strate-gic context proves too distant to allow the set-up of a completely newGreenfield site.

The World Car template is optimized for 400 vehicles per day(Camuffo, 2000/2001). The Indian market demand allows, however, aproduction of hardly more than 200 vehicles a day. This strategic misfitmakes it impossible for Fiat to set up an all-new World Car template as ithas originally planned (The Tribune, 1999). The shift of operations to aBrownfield site instead, implies a task profile and spatial/physical condi-tions that differ from the strategic context the template is optimized for.Not only does the site have to cope with production volumes lower thanthe World Car template is designed for but there are also spatial restric-tions related to the factory’s location in the agglomerations of Mumbai(FI 1, 2, 3). For example, the existing layout of the paint shop posesthroughput limitations. This, in turn, poses limitations for the realiza-tion of the World Car template’s ideal cycle times. The lower volumesand spatial limitations also rule out the implementation of the World Cartemplate’s nearby Supplier Park for JIT supplies, which translates into anobstacle to fully transfer the template’s Kanban system.

While the strategic misfit between the local/host context and the tem-plate is poses already some barrier to transferring the template’s factorylayout and process design, the situation is even more pronounced withregard to the technical hardware configuration. Despite the fact thatthe template is already optimized for low volumes and cost sensitivecustomers and labour intensive production in low labour cost countries,there is too much of a strategic misfit to transfer the template’s ideal tech-nical hardware configuration. Thus, highly price sensitive customers –probably even more than in other emerging economies – and modestdemand conditions are responsible for the misfit and transfer restraint.

Although the market demand in India and the ensuing shift of theWorld Car production to a Brownfield site have some effect on Fiat’stransfer intent, a use of the local template in an unchanged manner is


not an option. For one thing, because Fiat introduces its own productand finds the existing manufacturing infrastructure as strategically toodistant to produce the World Car range of vehicles, at the quality, quan-tity and cost required. For another, because Fiat is quick to control thesite, has the undisputed configuration mandate and thereby the abilityto change the extant site as much as possible in line with its template.

Misfit

While there is some transfer restraint of the World Car template, dueto a host strategic misfit (low demand), there is also a misfit due to theexisting local template of the Kurla site. The site’s existing technical con-figuration and infrastructure is, strategically distant from the World Cartask profile in volume, quality and product specification terms. It doesnot fit the requirements of the World Car models and is, therefore, underrecontextualization pressure to fit the foreign/parent template require-ments or, where transfer is refrained from, to fit foreign/parent demandsfor producing the World Car under specific strategic host context condi-tions. It should be noted that this strategic misfit is not accompanied byan institutional misfit. There are no indications that the technical con-figuration of the foreign/parent template is perceived as a threat to or bythe local/host institutional context. In fact, as far as host institutionaldemands are concerned, the World Car template is designed to respondto common emerging economy demands, such as high local contentrequirements and high import tariffs.


Adaptation of the foreign/parent template to the local/host contextThe World Car template itself is already an adapted template, because itmirrors the adaptation of Fiat’s ‘Fabbrica Integrata’ to developing coun-try conditions. However, as far as the application of the World Cartemplate’s technical configuration is concerned this adaptation is notsufficient for the Indian strategic context. On the one hand, local supplyand demand conditions, call for an adaptation or a de-selection of aspectsof the foreign/parent template. On the other one hand, the extant phys-ical infrastructure of the Brownfield and its location in Mumbai limitthe resilience of the site for change. As a combined result of strategicand spatial misfit, Fiat is only selectively able to transfer its ideal WorldCar factory layout and process design. With regard to its technical hard-ware configuration the strategic misfit rules out the template transferentirely. Those aspects that are transferred, however, do not meet further


recontextualization pressure and are implemented in line with the tem-plate. Despite strategic and physical/spatial misfits, FI’s managers insistthat it has been possible to reproduce major aspects of the factory lay-out and process design of the World Car template, such as a U-shapedflow layout (FI 2). Moreover, in line with the Cordoba plant and otherWorld Car plants, the Indian plant achieves similar levels of vertical inte-gration and outsources core process steps including welding (althoughperformed on site) and forging. While some adaptation of the foreigntemplate is reported with regard to the template’s factory layout andprocess design, such as a selective use of the Kanban system, there is amore substantial adaptation of the template’s technical hardware config-uration to the host context (FI 2, 3). In fact, the strategic misfit makes Fiatrefrain almost completely from transferring the technical hardware con-figuration. This, in turn, doesn’t mean the full absence of foreign/parentdemands vis-à-vis the sites technical hardware configuration. After all,the site has to be able to produce a certain volume at a defined qualityand cost level.

Adaptation of local context (existing template) to the foreign/parenttemplate or demands To achieve a factory layout and process designin line with its World Car template, Fiat initiates a renovation andrestructuring of the Kurla site. According to Atzeni (2001; see also Sub-hadra, 2002), Fiat upgrades manufacturing technology, machinery andrenews buildings and other facilities (Atzeni, 2001). Regarding the site’sfactory layout and process design, the upgrading largely follows theforeign/parent template implying an adaptation of the existing localtemplate (FI 1, 2). As far as the set-up of the technical hardware config-uration of the site is concerned, the local context is not adapted to theforeign/parent template (FI 1, 2). Instead, the local context is adaptedto meet foreign/parent demands for the production of the World Carunder specific (not too resilient) local/host demand and supply condi-tions. The adaptation of the local Brownfield context is, therefore, acustomized solution and does not aim at replicating the World Car’stypical technology/labour mix. The Italian interviewee spoke in thiscontext even of the use of old technology:

A: So this factory is old. But the project is for a new car, the Palio.If you compare, this project is realized with old technology . . . Theproject is realized with old technology.Q: This is possible?A: Yes it is possible because the robot activity is here a manual activity.Here all is manual and it is old. I think Fiat didn’t want to invest in


Kurla because it is a little factory, there is not enough space to put thecars, and the warehouse park is little.

(FI 2)

While there are few automated manufacturing aggregates, the factorytour revealed, a substantial level of mechanization. This mainly involvesnumerous welding stations as well as a few semiautomatic welding unitsfor bigger body panels. Other upstream activities, such as blanking andpressing of body panels, are not performed on site, but supplied fromoutside. However, except for a few narrowly circumscribed manufac-turing activities, the technical hardware configuration is characterizedby very low levels or almost absent automation. It appears that trans-fer of advanced automation technology is tightly restricted to thoseareas in which it is a process-related requirement. This is the case inthe paint-shop.

The Indian market is very price sensitive, so if I am bringing technol-ogy then it is adding to the cost. As and when there is a requirementwe put in technology. We have put in a robot in our paint-shop nowbecause it was a requirement. If I am saving some money, maybe onlabour or any other parameter maybe my delivery time or total timeis decreasing, yes, then we are putting that money into the system.

(FI 4)

Overall, FI’s technical hardware configuration is a customized responseto low and price sensitive demand and low labour costs in India. As theKurla site is a run down, it requires some upgrading of the existing tech-nical hardware configuration. Yet, this upgrading leads nowhere nearother World Car site’s automation levels, let alone, Fiat’s state-of-the-art technical hardware configurations in Italy. The fact that FI not eventries to replicate the technical hardware configuration of other WorldCar sites can be readily understood when comparing volumes. In Brazil,for example, Fiat has an annual output of about 500,000 cars. In India,the total annual production output of the entire Indian passanger carsector in 2002/2003 is around 600,000 cars. While the Brazilian outputis at roughly 1500 cars per day, FI barely realizes 200 (FI 2).

To conclude, the dominant model of recontextualization is an adapta-tion of the local site in line with the foreign/parent template as well asin line with foreign/parent demands and host context conditions.

Outcome

According to the managers interviewed, the Indian site has successfullyimitated the basic factory layout and process design of the World Car


template. Here, some customizations are required which are related tothe lower volumes and the physical/spatial restrictions of the Brownfieldsite in Mumbai. FI’s outcome with respect to its technical hardware con-figuration is for the most part a customized solution. This finding is alsoin line with Camuffo’s findings (2000/2001) showing that the Indiansite’s automation level is among the lowest across the World Car sitesand does not reflect the World Car template’s typical technical standard:

An optimal “module” of four hundred vehicles was replicated forevery Operating Unit in each of the Palio project foreign plants, withthe exception of India (Brownfield plant in Kurla, Mumbai, in theMaharashtra state of Southwest India). Here, demand expectationsand labour costs suggested a module adaptation and downsizing(characterized by partly different machinery and a lower level ofautomation) leading to a “degraded” module with a capacity of twohundred vehicles.

(Camuffo, 2000/2001, p. 23)

While the technical hardware configuration of the site relies on sometransfers of technical hardware from Italy, this is not a replication effortof any template or existing site. Although the technology of Fiat’s tech-nical hardware configuration e.g. welding guns, semiautomatic welding-units, testing equipment – are transferred from Italy – the site reflects nei-ther Fiat’s state-of-the-art technology configuration nor any of the otherWorld Car sites. For the most part the technical configuration rests ontechnical solutions, customized to meet foreign/parent demands underspecific host strategic context conditions that differ markedly from thetemplate’s ideal context conditions. FI’s technical hardware configura-tion is mainly customized to low volumes and comparatively low labourcosts in the host context – a finding also confirmed by Goldstein (2001).We can, therefore, best describe the technical hardware configuration ascustomized solution and the overall technical/physical organization ofthe production process as being between imitation and customization.


Transfer scenario

The UTE concept is the corner stone of the World Car template’s workorganization and human resource profile. Similar to other World Carsites (Cardoso, 1998; Cardoso, 2004), the transfer of the UTE conceptto the Indian production site is an important if not the most importanttransfer goal (FI 2, 4).


UTE 1

Body shop

UTE 2

Paint shop

UTE 3

Assembly

Figure 6.1 The UTE concept

The UTE concept is first introduced in Italy and becomes subsequentlyan integral part of the World Car production template. UTE’s are thecentral operational units that integrate all tasks and jobs to ensure thecontinuous production of a certain product at a defined volume, costand quality. Different UTEs are organized along the production pro-cess and are linked in supplier-customer relationship to one-another (seeFigure 6.1).

The idea of the UTE is to integrate vertically all responsibilities tothe lowest possible level and horizontally all activities and functionsrequired for a particular process segment. The UTE is designed as ahighly autonomous and integrated unit that takes care of: operationalplanning, smooth production/variance absorption, quality assurance,problem solving and even continuous process improvement, learningand training of its human resources (Camuffo and Volpato, 1994, 1998).

Structurally a UTE chief heads a UTE or ‘a team’ comprising on aver-age of about 50 people. As part of the UTE, technologists (product andprocess technologist, line technologist, quality technologist, specialisttechnologist) and technicians take on different functional tasks to sup-port the UTE chief (cf. Camuffo and Volpato, 1998). Cardoso (2004)explicates the role of the technologist as follows:

The target of the technologist of product and process is to support theintegration between the technical team of the product project andproduction control. The line technologist is interested in each unit interms of the technical management of work resources, as well as theobjective of continuous improvement in cycle times, notably in thecontext of technical cost. The role of the quality technologist, simplyput, is to ensure high product quality. Finally, the specialist technolo-gist is responsible for technical support at project level, which includesproviding solutions to technical anomalies.

(Cardoso, 2004, pp. 65–7)

As far as the direct work organization on the shop floor is concerned,a group leader – a Conduttori di Processi Integrati (CPI) – reports to theUTE-chief and heads a group of workers. Thus, the CPI is positioned


UTE Chief

Production operators

Integrated process conductor (CPI)

Four Technologists Technicians

Source: Adapted from Cardoso (2004).Figure 6.2 Organization of an UTE

between the UTE chief and the operators/workers who are performing thedirect production operations. One UTE can consist of varying numberof work groups – depending on the kind of production line segment (seeFigure 6.2).

As a deliberate alternative to Taylorist work concepts, the UTE conceptbuilds on delegating responsibilities to the lowest possible levels andemphasizes the important role of workers. Cardoso (1998, 2004) pointsout that generally the UTE chief, the CPI, as well as the supporting tech-nicians and the technologist are recruited from the ranks of the workers.They are usually highly skilled and experienced workers. Moreover, therole of workers on the line is emphasized. They are asked to performa wide range of activities which are not directly related to productionsuch as self-certification and quality control, continuous improvementand housekeeping etc. (FI 2, 4). The UTE concept builds on a humanresource profile that stresses skill-polyvalence and high-involvement ofthe worker level.

Now, it is this concept Fiat also tries to transfer to its Indian operation.Fiat is able to do this because the company is quick to take control of theJV with PAL, introduces the vehicles and has the configuration mandate.Moreover, after quality problems with the local partner in the joint UNOproduction, Fiat finds the introduction of a different form of work organ-ization as crucial to meet the volume, quality and cost requirementsof the World Car range. While Fiat rules out to continue with existingpatterns of the work organization at the Kurla site, it does work with theextant human resources. As far as the transfer of the basic formal conceptof the UTE system is concerned, institutional or strategic distance poseno transfer obstacle ex ante. The strategic context regarding the demandand supply conditions as well as the corresponding task profile are similarenough to allow a transfer of the World Car template’s work organization


and human resource profile. After all, the UTE system is designed forthe strategic conditions of low labour costs and low volumes. However,the distant local/host institutional context, the entrenched behaviouralpatterns of the Brownfield site, lead to some transfer constraint withregard to high-involvement practices that form part of the work conceptsof the World Car template (Atzeni, 2001; Goldstein, 2001).

Misfit

When the transfer effort begins, it becomes clear that institutionalconditions at the Fiat Brownfield site are not conducive to apply allaspects of the work organization and human resource profile of theforeign/parent template. However, some differentiation in terms of insti-tutional fit and misfit is again required here. The local institutionalconditions do not stand in the way of transferring and implementingthe formal structure of the UTE system, which forms a central part ofthe World Car work organization. For example, there are no reporteddemarcation problems between CPI’s (supervisors) and operators. Part ofthe institutional fit in supervisor-operator relations is probably related tothe fact that Fiat’s UTE concept is not interfering with (or circumventing)managerial work identities. As part of the UTE concept, supervisors – theCPI – are recruited from the ranks of the workers. This implies that Fiatdoes not ask employees with a managerial work identity to work as super-visors close to the shopfloor. Simply speaking, the UTE concept doesnot seem to call into question local/host socio-professional demarca-tions. At the same time, even though UTEs are integrated units, they arehierarchically and functionally differentiated (c.f. Camuffo and Micelli,1997). This, in turn, fits well with the Indian work context, where socialstratification and educational systems produce strong socio-professionaldemarcations.

While the structural aspects of the UTE work organization do not seemto cause a major local/host institutional and strategic misfit, this is dif-ferent with regard to work dispositions and practices envisioned by thetemplate. The local human resource profile, the old workforce of theBrownfield site, proves to be institutionally about the opposite of whatis required for practices such as continuous improvement, allocation ofresponsibilities down in the line, quality circles, and self-certification.Particularly in the beginning, Fiat faces an obstructive workforce, whichit inherits from the JV partner PAL. The workforce reflects traditionalIndian patterns of low efficiency, low involvement and contentiousindustrial relations. In fact, Fiat’s Kurla facility is renowned for its hostilelabour relations. Against this background, Atzeni (2001) who researches


the Indian site in late 1990s, reports a lot of frustration on the part ofItalian expatriates. And these frustrations with the local workforce havenot entirely faded when the site is visited in 2003 for this study (FI 2).The biggest misfits between the foreign/parent template and/or demandsrevolve around the issues of quality awareness and cleanliness, the tak-ing of responsibility and most of all work commitment and involvement(Atzeni, 2001). Apart from this quality-related work disposition, the Ital-ian expatriate interviewed complains about the initial reluctance of theIndian employees to take responsibility and to work in a self-directedmanner (FI 2). Similarly, Atzeni (2001) and also Goldstein (2001) reportthat it is very difficult to transfer a range of high-involvement activitiesdue to the local institutional conditions of a Brownfield site. Goldstein –who also has the opportunity to research FI – finds in this context:

Despite introducing in Kurla one of the basic organisational features ofthe integrated factory model – the so-called elementary technologicalunits (UTE) – fully implementing lean manufacturing has been verydifficult. Because of labour market regulations, Fiat has been unableto substitute PAL workers with a younger workforce and found ithard if not impossible to adopt concepts such as continuous improve-ment, total employment involvement, and quality control circles andchange the value system.

(Goldstein 2001, p. 15)

Moreover, Fiat faces resistance when it begins to introduce housekeepingactivities to the work profile of operators (FI 2). This resistance is rootedin the pronounced socio-professional demarcations in India’s institu-tional context. Finally, Italian expatriates and Indian managers complainabout unsatisfactory skill levels of newly recruited workers. This misfithas its institutional roots in the weak practical training component ofthe Indian industrial training system (see Chapter 4).


Substantial adaptation of foreign/parent templates to the local/hostcontext Interviews underline that there is no adaptation of the for-mal structure of the UTE concept to the local/host context. Whilethe formal aspects of the World Car template’s work organization aretransferred, notably the UTE concept, there are indications that corre-sponding human resource profile deviates from the ideal staffing pattern.In contrast to other World Car sites, for example in Brazil (Cardoso,1998, 2004), the UTE chiefs in India are not recruited from the ranks


of workers. In India, this position is staffed with polytechnic graduates(officers) and not with workers. It may well be that Fiat, in order to offerat least some hierarchical differentiation to its managers, pulls down themanagerial hierarchy into the UTE concept. Thus, placing non-workersinto the UTE’s usual profile can be seen as an adaptation of the conceptto local/host qualification-related staffing patterns. At the same time,such a higher qualification approach to the staffing of the UTE does notcause a strategic misfit due to the low labour cost in the host context.

A more important adaptation of the World Car template’s work organ-ization to the local/host institutional context is that Fiat drops or is veryslow to implement many of the UTE template’s underlying practices.Cases in point are the high-involvement activities, such as continuousimprovement, total employment involvement, and quality control cir-cles, self-inspection. For example, under the UTE concept workers areideally responsible for quality assurance based on self-certification. In FI,this concept is not implemented and relies, instead, on a line-externalquality control (FI 2). Thus, indications are that FI does not fully succeedin implementing the high involvement concepts of World Car template’swork organization. In this respect, Fiat either drops or adapts them tothe work dispositions of the Brownfield site’s human resource profile thatproves not very resilient.

Substantial adaptation of local/host template to foreign/parent templateHaving said that Fiat does not succeed in transferring certain aspectof its UTE concept is not to say that there are no efforts to adapt thelocal institutional context or the existing local template. In fact, FI takesa whole range of measures to change or re-institutionalize the localhuman resource profile. These measures include: a re-composition ofthe work-force, socialization efforts through personnel transfers, and onsite training and schooling.

One measure to change the local human resource profile is based onfiltering and laying-off a substantial amount of the workforce andreplacing it with a new one:

See, when Fiat came into this site, instead of a Greenfield, which washaving old technology due to a lack of investment and the manpowerwith an old culture, you know, to overcome this, we were thinkingto invest and gradually to joining together there was a scanning andpeople were filtered. A good amount of those filtered received all sortsof training and were given to the human resources.

(FI 3)


Based on overstaffing, a problematic old work culture and a lacking eco-nomic success, FI also sees the need to reduce its old workforce throughVRSs. In 1998 FI lays off about 1500 workers, getting rid of about halfof its old workforce. In the early 2000s, when the introduction of thePalio leads to a rise in demand, Fiat takes the opportunity to change thecomposition of its work force by hiring 600 new ITI graduates (FI 3).

An important part in adapting the local context to the template,are also investments in socialization through personnel transfers andin on-site training and schooling. At the time of research, eleven Ital-ian expatriates are heading various top management positions in FI.With FI’s decision to take over the majority in PAL and to set up theWorld Car production in Kurla, Italian expatriates take over the con-trol of the site’s development. Italian expatriates have the task and thepositional power to socialize, train, or enforce a work organization andcorresponding human resource profile in line with the World Car tem-plate. That the latter is only gradually possible has been discussed earlier.However, despite adverse local conditions, the commitment to imple-ment UTE’s high involvement practices remains an ongoing goal of theItalian expatriates (FI 2).

Open information policies, reducing hierarchical distance andbehavioural consistency are also mentioned as actively pursued practicesby Italian management to come closer to the desired work dispositions(FI 2). With regard to creating quality awareness within the Indian work-force, personnel transfers also play a crucial role. Expatriates serve astrainers to institutionalize higher quality awareness. Additionally, spe-cial teams are sent for shorter periods from the pilot plant in Italy totrain the required quality standards in India (FI 2). At the same time,Indian quality specialists are regularly transferred to Italy for training.Fiat even transfers around 100 workers to the World Car pilot plant inTurin for training.

Than there were one, two, three, four batches of workmen were sentto Italy. Around 50–100 were sent to Italy, many sent there for twomonths, three months, six months to understand the work cultureof the European Auto Fiat. How they maintained the shopfloor, howthey work, what is the dress code there, how they behave, how thetesting is done, technically and also all other things. Three months,four months the people were sent there. So the people are sent thereand then they are brought here. . . . The line was set up by the Italiansalong with the Indians, so it was making a Fiat Auto in India in thisfactory. Everybody was, the local man, were very proud that I am


part of the team which is making Fiat Auto. So mentally, psychologic-ally everything was starting to change. It was not only the technical,the instruments which was changing. Also the minds of people werechanging. Also the technique was made available, it was seeing andbelieving. So people were sent, this is not a magic what Europeansare doing, but you really go and see. It is not a magic, it is a practicalproblem, so hundreds of workmen were sent to Fiat factory to seephysically and believe and start changing their own. Those 100 peoplehave already changed the other people.

(FI 2)

Upon return, the workers transferred to Italy assume positions as CPI inthe UTEs and are asked to transfer their know how into their work groups(FI 2, 3).

While there are no indications that FI uses incentives or compensa-tion systems to institutionalize different work dispositions, its effort topromote industrial peace through pay rises probably also plays a role.Moreover, by appointing an Italian manager experienced with radicalunion action as the head of human resources and by changing the humanresource approach to more transparency, the company succeeds in bring-ing about industrial peace. Such an industrial peace, in what uses tobe a very conflict-prone company, also suggests that work dispositionalchanges are achieved (c.f. Atzeni, 2001). Nevertheless, an Italian expatri-ate interviewed in 2003 still displayed a great deal of frustration despitethe various measures mentioned to bring the local workforce in line withthe human resource profile required by the Word Car template workconcepts.

To conclude: The recontextualization mode shaping FI’s work organ-ization includes both a substantial adaptation of the foreign/parent tem-plate to the local context/template and vice versa. FI’s Brownfield humanresource profile prove to be not overly resilient for a change towardshigh involvement work disposition. At the same time, FI’s mobilizationof resources for change is also not as comprehensive as in MSI’s case.

Outcome

Indications are that Fiat succeeds in transferring and imitating the formalor structural aspect of its UTE concept of World Car template’s workorganization.

What we are having, we are having an Italian system implementedmore or less implemented here in India. If you look at the typical


production area, where we are having a, that is, each assembly line wehave divided into a system called UTE. So UTE is basically a commongroup of working, where one particular similar kind of activity is beingmanufactured. Than total, or let’s say for example, 178-Siena, whichhas been broadly divided into broadly three categories: so UTE one,UTE two and UTE three. Each UTE is headed by an UTE-chief. He isbasically the officer responsible for the workmen. Between workmenand that officer we have a group leader. He is called Capo UTE [alsocalled CPI].

(FI 4)

However, Fiat faces severe problems in transferring concepts of highinvolvement activities that are an integral part of the ideal UTE concept.Especially in the beginning, the site’s human resource profile reflectswork dispositions that are traditional Indian industrial work relationsand not conducive to implementing post-Taylorist work concepts. Due tothe site’s Brownfield heritage it has been very difficult, if not impossible,to transfer work dispositions to fully implement the World Car tem-plate’s work organization and shopfloor practices. Only slowly, throughthe gradual adaptation of the local institutional context, a selection andchange of the local human resource profile has FI been able to movecloser to the implementing of its World Car work concepts and the workdispositions these concepts require.

In summary: Fiat’s work organization and human resource profilefeatures elements of typical local institutional patterns and elementsmirroring the foreign/parent template. Particularly in the beginning,there is a strong decoupling between the imitation of formal, structuralelements of the foreign/parent template, and work disposition reflect-ing local/host patterns. Over time, Fiat seems to have achieved changesin line with its template. Over all, adaptations of the transferred workorganization – by dropping or changing certain practices – as well asadaptations of the local human resource profile – through selection,socialization and training – suggest that the resulting work organiza-tion and corresponding human resource profile could be best capturedas a hybrid solution, reflecting both foreign/parent template and oldlocal/host template origins.


Transfer scenario

Concerning FI’s industrial relations there is no conclusive evidencewhether Fiat seeks the transfer of a specific industrial relations pattern.


While it is part of the Fiat group’s defined policy to handle industrialrelations ‘in compliance with the law and practice of the individual coun-tries’ (Cantarella, 1997), there is, at the same time, a broader formulateddemand for developing cordial and participative labour relations. Rec-ognizing that industrial relations tend to be different from country tocountry, the Fiat group formulates only broad guidelines, rather thandefining specific modes of company industrial relations to be transferredas an integral part of the World Car template. This approach to industrialrelations is also reflected in comments by an Indian interviewee:

Globally, you can run globally in terms of systems maybe humanresource developmental systems. Like what I have just shared withyou competence assessment system, than performance managementsystem, than people satisfaction survey. All this can run globally. Butwhen we talk about local environment workers settlement, agree-ments with the workmen, wage negotiations, that has to be localized,what we are having. Ok, we take a guideline from Italy, but it has tobe handled, it has to be taken care in the local way.

(FI 4)

Fiat’s guidelines are a reflection of the company’s overall reorientationtowards emphasizing the importance of human relations in the 1990sthat goes hand in hand with the introduction of the ‘Fabbrica Integrata’.Within this new production paradigm, human resources are given a cen-tral role. It is stressed that such a constructive role can only be realizedif hostile industrial relations are overcome. Cardoso (2004) even arguesthat the ‘Fabbrica Integrata’, involves a clear anti-union stance, becauseunions stand in the way of integrating workers deeply into the com-pany and creating a work identity based on the idea of the ‘Fiat family’.As Fiat’s World Car production template is an offspring of the ‘FabbricaIntegrata’, it too rests on a concept of cordial labour relations and prob-ably an anti-union stance. Clearly, the human-factor, specifically a highinvolvement and commitment of the workforce are strongly emphasizedin the World Car template. So, while there is no comprehensively articu-lated template to structure industrial relations, there are broader policiesfrom the foreign/parent calling for constructive, peaceful and ideallynon-unionized labour relations.

Now, Fiat’s Brownfield site Kurla has an existing template of typicallocal/host industrial relations that contrast markedly with the foreign/parent’s industrial relations policy. In fact, FI’s company industrial rela-tions profile has a record of hefty labour unrest and strong externalunion involvement. As the existing template is not conducive for the


implementation of the World Car template’s ideal work organization andstands against Fiat’s corporation wide policies, FI’s management is notwilling to accept the local situation. The fact that Fiat is in control of theJV and Italian managers assume top management positions, includingin human resources, gives Italian managers the mandate to change thelocal situation of industrial relations.

Misfit

Recognition of the fact that industrial relations vary by country doesnot mean that Italian managers are satisfied with the company indus-trial relations they find in FI. In fact, when Fiat takes over the Kurla sitefrom PAL, industrial relations conditions are about the opposite of whatFiat policies ideally envision and require for its high involvement workconcepts. The local situation is a far cry from the broadly demandedcordial industrial relations let alone a non-union site. This is not sur-prising given PAL’s history of hostile company industrial relations. Thecompany has different rivaling unions. At least one of them is exter-nally linked and, in addition, the company sees prolonged periods ofstrike and labour unrest. When Fiat takes over the Brownfield operation,FI’s industrial relations have all the characteristics of traditional Indianadversarial labour relations (Atzeni, 2001). Atzeni (2001) who researchesthe site in the late 1990s reports that company industrial relations are soadverse – and compounded by cultural differences between Italian andIndians – that Italian managers see little scope for the implementationof constructive and participatory labour relations.

Questioned if they had promoted or had planned to introduce a dif-ferent model of IR, the Italian managers answered that there was noroom for any type of discussion around the argument. The Indian real-ity was so different and contrasting to that of Italy that any attemptsor ideas to move forward were considered risky and fruitless from thestart. They also argued that a union such as the one existing, withtheir members and their “original” way to behave was a sufficientreason to keep labour relations as they were conflictive, chaotic andnot stable, but at least they knew with whom they were dealing. . . .Later on, further attempts to see labour relations in the plant froma different perspective were specifically rejected. “We are in India,a place where industrial relations are like the times of Valletta. Thereis no room for dialogue. Concertation, participation are very far fromthis reality”.

(Atzeni, 2001, p. 9)


Put differently, there is a huge distance between the existing local tem-plate and the foreign/parent policies. However, while the institutionaldistance seems to rule out any change of the local/host template in thebeginning, this situation changes over time. Italian managers do notaccept the extant industrial relations scenario at their plant and put apressure on the local/host template to change in line with foreign/parentpolicy demands.


Major adaptation of foreign/parent demands to the local/host contextIn the first years of operation, the local institutional conditions of theBrownfield site prove so un-resilient that Italian management dropsthe intention to bring industrial relations in line with Fiat’s industrialrelations policies. It essentially implies an adaptation (surrender) offoreign/parent demands to the local/host context. However, at the timeof research in 2003, indications are that the company has made a bigleap towards to fulfiling Fiat’s industrial relations policy demands. Afterall, these demands are not overly comprehensive and mainly ask for cor-dial industrial relations (ideally without unions) in line with local/hostcontext conditions.

Increasing adaptation of local/host template to foreign/parent demandsWhile initially cooperation and participatory relations are out of reach,the Italian and local management makes an effort to turn the companyindustrial relations into a peaceful local/host mode. A part of this effortexpresses itself in the preferential treatment of an internal union thatemerges during a prolonged strike. After a long strike and lockout in1996 the external union, the Engineering Workers’ Association (EWA)which leads the industrial action, loses support. In the wake of EWA’sweakening, a new internal union, the Kamgar Ekta Premier Sanghatana(KEPS), is formed. This union emerges from a fusion of the existentinternal union, the PAEU (abbreviation origin unknown) and somemembers of the EWA. In this scenario of a weakening external union, Ital-ian management ceases the opportunity to support the internal union(FI 2, 3). This is seen as the best option, given the industrial relations con-ditions in India in general and at the FI’s site in particular. Atzeni statesin this context that the ‘internal union exists just because managementhas preferred to deal with it rather than run the risk to bargaining withexternal powerful unions’ (2001, p. 7).

Although the Kurla site has a wild industrial relations record, with oneof its peaks in 1996, culminating in a six months strike and lockout,


things calm down after Italian management takes root in the company.Indications are that this change is achieved through a mix of confidencebuilding measures. Apart from a different communication approach,change also results from the re-composition of the local workforce as wellas personnel transfers and training of Indians in Italy. The appeasement isprobably also related to the fact that Fiat transfers human resource man-agers from Italy. According to Atzeni (2001), these are highly experiencedand tested in dealing with industrial conflicts. What is more, althoughthe internal union has initially little backing in the workforce (Atzeni,2001), pay rises and improvements in working conditions help the inter-nal union to gain increasing acceptance or toleration within the localworkforce. Finally, a new generation of Italian managers comes to theIndian site. They express the commitment to more cooperative and par-ticipatory modes of labour relations (FI 2). Thus, while Fiat has to initiallyadapt its demands to a non-resilient local institutional context, it is overtime able to adapt the local context to foreign/parent demands. It isable to do so by mobilizing resources to change the work force com-position and dispositions, helping to bring about a more resilient localcontext.

Outcome

Being aware of differences in industrial relations across countries, Fiatrefrains from making specific modes of industrial relation part of itsWorld Car template. Instead, Fiat promotes an industrial relations pol-icy that broadly aims at achieving cordial labour relations in harmonywith local/host rules and regulations. However, even in this broad sense,Italian managers see initially little scope for a policy implementation.The existing local/host industrial relations template of the Brownfieldsite proves so adverse that the alternative approach demanded by theforeign/parent policy is put aside.

There are profound differences between Italian managers, unionistsand workers. Different cultures, different languages and mutual mis-trust are factors that do not contribute to change the climate of labourrelations from conflict to cooperation. To this we should add the heri-tage of anarchy that dominated the plant during the last decades. Theresearch has shown, at least for what concern Fiat’s plant in India,that lean production is not always coupled with a more co-operativelabour/management approach.

(Atzeni, 2001, p. 15)


Over time the site’s industrial relations turn more peaceful. FI’s last strikeis in 1998 and there is no new one since (FI 3). While FI’s industrialrelations have probably not changed into a showcase of cooperativeindustrial relations, they have become very peaceful from the Indian andItalian management’s point of view. The Italian manager interviewedeven describes FI’s company industrial relations as ‘paradise’, comparedto the situation in Italy (FI 2). In contrast to what Atzeni (2001) foundearlier, my findings suggest very smooth labour relations in 2003 (FI 2, 3).

This change reflects efforts of changing the site’s industrial relationsinto a more cordial and less conflict-prone mode. This adaptation of theexisting template does not imply a shift toward a typical foreign/parentpattern. In rather means a shift to a different local/host context pattern,more in line with Fiat’s policy. That is, a mode of industrial relations,characterized by one, rather weak, unaffiliated internal union and lowlevels of industrial action. As such, FI’s industrial relations shift froma traditional to a more modern local/host context pattern. We can,therefore, label FI’s industrial relations as localization.

Supplier relations

Transfer scenario

In line World Car template Fiat plans the transfer of a number of supplierrelations concepts to its Indian operation. In can do so because the com-pany is quick to take over the site, introduces the vehicle and has theconfiguration mandate of supplier relations. The original transfer intentenvisions the set-up of a new site in India. This Greenfield project is basedon extensive outsourcing and includes the establishment of an adjacentsupplier park. The suppliers, in turn, are expected to supply just-in-timeallowing low levels of inventory. With regard to the supplier structurethe World Car plants typically rely on global suppliers that follow Fiatworldwide (Camuffo and Volpato, 2000/2001).

Yet, Fiat is not following a rigid template transfer strategy with regardto supplier relations. The main goal is rather to ‘[d]evelop a global sup-ply chain, flexibly and efficiently using the production capacity andthe supplier base available in different countries’ (Camuffo and Volpato,2000/2001, p. 4). Thus, more important than strictly following an idealtemplate is that supplier relations fit into Fiat’s ‘world material flow’ andrespond to purchasing policies that are part and parcel of the World Carprogramme. The ‘world material flow’ can be understood as a ‘doublenetwork’: comprising an internal exchange of ‘makes’ between differentWorld Car sites and an external supply of ‘buys’ (Camuffo and Volpato,


2000/2001). The internal network is composed of global poles of Fiatgroup companies, producing parts and components for the World Car.The external supply of ‘buys’, in turn, is composed of a network of firsttier suppliers that are asked to follow or at least supply the World Car sites,wherever Fiat decides to establish them. The kind of suppliers and theirsupply location is not a coincidence, either, but is defined by Fiat’s WorldCar purchasing policy. The choice of a particular supply mode dependson two variables: The first variable is the ‘technological characteristics ofthe part/component, i.e. the complexity of know how required to pro-duce it’ and the second variable is the ‘incidence of logistic cost’ (Camuffoand Volpato, 2000/2001, p. 11). Based on these two variables, know howcomplexity (high/low) and transportation costs (high/low), Fiat draws ondifferent supply modes (Camuffo and Volpato, 2000/2001).

The above discussion of Fiat’s world material flow and material pur-chasing policies highlights that there are specific concepts and policydemands, the Indian site has to respond to. However, from the outset apart of the transfer intent cannot be realized. As the demand scenario inIndia is much below initial projections, Fiat puts its Greenfield projecton hold. This, in turn, has strong repercussions for FI’s supplier set-up.Given the overcapacities of the Indian supplier industry and given FI’slow volumes, the company has difficulties to convince many of its globalsuppliers to open new ventures in India. FI has already problems togive attractive orders to those suppliers who follow to India (Alzonaand Prakash, 2001). Moreover, even though a few suppliers follow toIndia, FI relies for the most part on local suppliers or other internationalsuppliers who have come to India earlier. The disadvantage of this is,however, that many of these suppliers are dispersed all over the coun-try. This, together with FI’s decision to use the Brownfield site Kurla forits World Car production, makes the realization of JIT-supplies from anearby supplier park impracticable. The spatial constraints of the Kurlaoperation essentially renders the concept of a nearby supplier park withJIT deliveries impossible (Goldstein, 2002).

While Fiat gives up certain elements of its ideal World Car produc-tion template, many of the World Car material flow policies apply andhave a shaping impact on FI’s unfolding supplier relations. At the sametime, FI’s supplier relations are also built in response to host institutionaland strategic context. Specifically, observing institutional demands suchas local content requirements or the supply market conditions for partsand components in India. Thus, the site supplier relations are mainlybuilt in response to foreign/parent and host context demands andconditions.


Misfit

While some of the core World Car template’s supplier relations con-cepts cannot be transferred because of strategic misfit, there is also astrategic misfit between the local template of the Kurla operation andthe strategic context of foreign/parent. The existing supplier relations atPAL neither fit with the structural and contractual concepts of the WorldCar’s supplier relations template nor with Fiat’s supplier policies (aboveall in quality terms). Therefore, the existing supplier relations scenariocomes under substantial recontextualization pressure.

Overall, however, Fiat’s supplier policies and the host institutionaldemands fit each other quite well. After all, these policies are pre-conceived to meet host institutional demands of developing countriesand are on top of that flexibly defined. Host institutional conditions suchas the availability of a local supplier base, taking advantage of local labourcosts differentials, observing the incidence of logistics costs, local con-tent requirements, are all factored into the Fiat’s World Car purchasingpolicy and suggest situation specific responses. For example, in a scenariowhere a site is facing limited volumes, high local content requirementsin a low wage environment, where other major World Car productionpoles (the Latin American ones) are far away and where many otherinternational auto supplier are already in the market, the policy suggestsa strong localization of production, taking advantage of the existing hostcontext suppliers infrastructure.

Moreover, given that Fiat produces a low to medium segmentvehicle for price sensitive customers, production and transportation costshave to be kept at a minimum. It is, therefore, in Fiat’s own interestto localize substantial parts of its production in India. Thus, while Fiatmeets some strategic misfits that rule out to transfer of some of its pre-ferred supplier concepts, host strategic and institutional conditions anddemands do not call into question the application of Fiat’s core supplierpolicies.


Someadaptation of the foreign/ parent template/demands to the local/hostcontext At the outset, Fiat plans to transfer a number of supplier con-cepts of its World Car template. However, in the face of strategic misfit,FI de-selects the transfer of major structural and logistical concepts.

As a consequence, Fiat’s main first tier suppliers are not supplying FIlocally. Instead, FI draws much more on locally existing suppliers thanother World Car sites. Fiat’s core World Car suppliers are either not able


Table 6.1 Fiat’s suppliers in India

Cluster Distance from Transit time No. of No. of % of totalKurla (kms) (days) suppliers Items value

Delhi 1408 5 29 124 34Chennai 1367 5 11 53 19Bangalore 1033 4 7 22 3Nagpur 861 3 2 6 0Indore 600 3 1 1 3Baroda 500 2 1 9 9Aurangabad 400 2 1 1 3Pune 200 1 25 146 20Mumbai 100 1 43 386 10

Source: Goldstein, A., Fiat Group’s Projects in E-Business’, in ‘Fiat’, reproduced in ‘ElectronicCommerce for Development’, OECD (2002), table 5.4, P. 108. http://www.oecd.org/bookshop?9264099549. (By permission of OECD.)

or willing to set up their own ventures in India under such low demandconditions. Comau and Teksid, for example, two of Fiat’s main suppliersare not supplying or servicing the company. Fiat also drops the nearbysupplier park concept and with it the concept of JIT deliveries (FI 2).Facing lower volumes than expected, implies that FI has to work withlocal suppliers or international suppliers already in India. These, in turn,are located all over India (see Table 6.1).

As a result, FI has to take into account longer transit times, trans-port related risks of long distance deliveries under poor road conditions,which translates into higher inventory levels.

The fact that Fiat has to drop core aspects of its World Car supplierconcept does not mean that FI’s supplier relations do not comply withFiat’s core supplier policies any more. In this respect, there is little adap-tation of foreign/parent demands to the host context as the policies fitquite well with the host strategic and institutional context. In line withits policies, FI integrates into the ‘world material flow’. FI receives fromother World Car production poles (the internal network) a number ofcrucial components (about 10 per cent of the car’s value). Body-panelscome, for example, from Brazil and engines from Italy (FI 4).

FI’s external network of ‘buys’, is also in line with the companies pur-chasing policies. FI succeeds, for instance, in a substantial localizationof production, claiming to have achieved a real local value additionbetween 80 per cent and 90 per cent (FI 2, 3). These efforts are highlyreflective of Fiat’s policy of controlling logistics costs by means of redu-cing transportation costs, costs related to import tariffs or local content


requirements. That is, ultimately to check the cost for a product thatcaters to price sensitive customers in developing countries (FI 2). In linewith Fiat’s strong outsourcing policy FI even sources out major on-siteproduction steps, specifically the body welding, similar to what is beingdone at other world car sites (Camuffo, 2000/2001).

Overall, the FI’s supplier relations comply with foreign/parentdemands and partly resemble those in Argentina and Brazil – in struc-tural and contractual terms. In structural terms, like in Argentina andBrazil, FI forms partnerships and cooperates with suppliers that areeither international suppliers or have JVs with international suppliers. Inaccordance with its policy, FI takes advantage of existing local capabili-ties and capacities. Cases in point are supplier relations with Mico-Bosch,Tata-Johnson Controls, Automotive Stampings and Assemblies LTD, etc.Indications are that some of Fiat’s core suppliers have contracted outmajor components to other suppliers in India.

Here also there was a provision when we started in this period therewere three phases. Phase A was when the contract was done with theinternal supplier and with the Indian supplier. Phase A was the Indiansupplier will take the total component ready from the Italian supplierand supply under his name to this company and till that time hedevelops more and more. Phase B was instead of assembly he will getsome parts, which are very critical and some he has already devel-oped. He assembles them here and gives them to us. And phase C,the supply from Italy stops completely and he makes the whole onhis own.

(FI 3)

To ensure the required standard quality for the World Car, Italian expa-triates strongly cooperate and get involve with the Indian suppliers. Likein the other cases, the cooperation is not only a policy requirement buta necessity to assure quality. In this context, the Italian expatriate under-lines his strong personal involvement to achieve the desired qualities forthe World Cars produced in India (FI 2).

In India, Fiat relies probably less on its global group of core suppliersthan elsewhere. Yet, it is still following, in contractual terms, its tem-plate’s approach of selecting new local suppliers as global suppliers to betied into long-term relationships. In summary, Fiat has to deselect/adaptcore aspects of its ideal World Car supplier set-up to local/host contextconditions. At the same time, it does not have to adapt its global supplierpolicies to the local/host context because they are flexibly defined andfit well into a developing country context.


Some adaptation of local/host templates to foreign/parent demands Fiatclearly finds the existing local/host supplier relations unfit to meet itsrequirements. Given that FI is a World Car site, given that Fiat is quickto control the site and given the technological and task environmentaldistance between the PAL’s operations and the World Car requirements,it is out of the question to use the Brownfield site’s existing supplierrelations as a template. Instead, FI’s supplier relations have to be tied intothe world material flow, respond to Fiat’s World Car supplier policies andrespond to the specific host context strategic conditions and institutionaldemands (such as local content requirements). Fiat, therefore, engages inan effort to adapt the local/host supplier relations to its needs, observingat the same time local/host context demands and conditions. Regardingthe latter, Fiat has no problem to fulfil the host institutional demands forincreasing local value addition, because this is in its own interest. Howthese local content requirements are realized, mainly follows from Fiat’sglobal purchasing policy.

The dominant mode of recontextualization with regard to FI’s sup-plier relations is selecting, changing and partly creating supplier rela-tions (host context resilience), in line with both foreign/parent policydemands and the local/host institutional and strategic demands andconditions. The existing suppliers in India offer FI a developed pool ofcapable suppliers from which it can chose. Still some involvement of Fiatpersonnel (resource mobilization) is required to bring these suppliers inline with Fiat’s quality standards. However, although some adaptation ofthese local suppliers is required, the set-up of Fiat’s supplier relations innowhere near the institutionalization or (re-) institutionalization effortfirst movers, such as Maruti-Suzuki, had to undertake. For when Fiatenters India, the supplier context is comparatively developed.

Outcome

Fiat is not able to transfer a number of supplier relations concepts ofits World Car template. This transfer restraint is mainly caused by astrategic misfit between the foreign/template requirements and thelocal/host strategic context. At the same time, there is also a strategicmisfit between foreign/parent demands and the existing local/hostsupplier context of the Brownfield site.

It is important to note that Fiat never rigidly applies and imitates itsideal supplier relations template to all World Car sites. After all, differentWorld Car sites have different roles in the internal supply network ofthe world material flow. This rules out a similarity of supplier relationsacross all World Car sites in the first place. As Fiat is not able to

171Table 6.2 Summary of FI’s hybridization profile

Firm > PS dimension FI

Functionaldifferentiation

Transfer: Foreign/parent template transfer (meets local existing template)Fit/Misfit: Minor strategic misfit between foreign/parent template and local/host templateMode of Recontextualization: Mainly adaptation of local template – change and creation – to foreign/parent templateOutcome: Imitation

Hierarchicaldifferentiation

Transfer: Foreign/parent template transfer (meets local existing template)Fit/Misfit: Institutional misfit between foreign/parent template and locally existing templateMode of Recontextualization: Hardly any foreign/parent template adaptation; adaptation of local template to foreign/parent template requirements

Outcome: Imitation

Technicalconfiguration

Transfer: Selective foreign/parent template transferFit/Misfit: Some strategic misfit between existing local template/manufacturing infrastructure of Brownfield site and foreign/parent template and demands

Mode of Recontextualization: Mainly adaptation of local template (i.e. change of Brownfield context) to foreign/parent template,plus creation of site’s technical hardware configuration in line with foreign/parent strategic demands as well as specific local/host strategic conditions

Outcome: Between imitation and customization

Work organization/HR profile

Transfer: Transfer of foreign/parent templateFit/Misfit: Institutional misfit between foreign/parent template’s work concept and local HR profile of existing Brownfield templateMode of Recontextualization: Adaptation of foreign/parent template to local/host context; increasing adaptation of localsite/template to foreign/parent template

Outcome: Hybridization

Industrialrelations

Transfer: Foreign/parent demands pitted against locally existing templateFit/Misfit: Institutional misfit between foreign/parent demands and local/host industrial relations templateMode of Recontextualization: Adaptation of foreign/parent demands (i.e. withdrawal of foreign parent demands foralternative); over time more adaptation of local context to foreign/parent demands in line with host content

Outcome: From traditional to modern localization

Supplierrelations

Transfer: Foreign/parent and local/host context demands and conditions to be metFit/Misfit: No misfit between foreign/parent strategic and host institutional demands; strategic misfit between the foreign/template requirements and the local/host strategic context

Mode of Recontextualization: Little adaptation of foreign/parent demands, little adaptation of host context demands;adaptation of local/host supplier relations to meet foreign/parent and local/host context demands and conditions

Outcome: Between customization and imitation


transfer its foreign/parent supplier template and is not willing to use thelocal/host template of its Brownfield operation, it customizes its sup-plier relations. It customizes them by building supplier relations thatrespond simultaneously to the foreign/parent and local/host demandsand conditions.

Specifically, the supplier relations respond to low demand marketconditions in India, they observe host institutional demands for thelocalization of production and they observe the foreign/parent demandscomprising quality assurance, taking advantage of international cost dif-ferentials, transportation cost reduction and drawing on existing supplierindustries in emerging economies.

To build its supplier relations, FI largely draws on the locally existingsupplier infrastructure. However, this does not mean that Fiat simplyuses its local JV partner’s supplier relations as a template. Among otherthings, this is ruled out by Fiat’s the equity mode, product ownershipof the World Car and the related strategic distance with regard to thetask profile and technology level between the World Car and PAL’s mainmodel, the old Padmini. Instead, Fiat selects some suppliers and developsintense contractual relations with them. Clearly, this requires some adap-tation of the local/host supplier relations to meet Fiat’s demands. Asa result of selective template transfer and responses to Fiat’s supplierpolicy, FI comes in certain respects to structural and contractual solu-tions that resemble the supplier relations of other World Car sites. Inthat sense, there is some degree of imitation. However, for the mostpart FI’s supplier relations are customized solutions, responding to bothforeign/parent and local/host demands and conditions. To conclude,Fiat’s supplier relations can probably be best described as somewherebetween customization and imitation (see Table 6.2 for a summary ofFI’s hybridization profile).

7The Case of Mercedes-Benz India

Introduction

While the internationalization of Daimler’s commercial vehicle produc-tion starts already in the 1900s, the internationalization of passengercar production, starts late compared to other auto manufacturers. Atthe beginning of the 1990s, Daimler-Benz (DB) has practically nointernationalization experience in passenger car production (Grunow-Osswald, 2006; Pries, 2000). This changes, however, in the 1990s. Themost noteworthy steps of internationalization are the mergers/takeoversof Chrysler in 1998 and Mitsubishi in 2001. Proving unsuccessful, thetwo mergers/takeovers are dissolved in 2007 and 2004 respectively.

Apart from its international mergers, DB initiates organic inter-nationalization efforts with its Mercedes-Benz (MB) brand. In the UnitedStates DB sets up an integrated plant for Sports Utility Vehicles (M-class)in Tuscaloosa/USA in 1997. At the same time, the company targets newlyemerging markets and establishes a number of Semi Knocked Down(SKD)/Completely Knocked Down (CKD) assembly sites throughout the1990s. In 1994 Daimler’s Indian site is established and belongs, togetherwith the Indonesian and the South African operation, to DB’s first pas-senger car production sites aboard. In 2003, the India site (assemblingthe S, E and C-class) shares its basic task profile and strategic role as aSKD/CKD assembly site with similar sites in Indonesia (assembling theS, E and C-class), Malaysia (assembling the S, E and C-class), Thailand(assembling the E and C-class), Vietnam (assembling the E-class), thePhilippians (assembling the E-class). Daimler, moreover, establishes anew SKD/CKD operation in China in the 2000s for the assembly of theS-, E- and C-class (Petri, 2004). While Mercedes-Benz India (MBI) is, interms of production volume and variety, strategically very distant from

173


the main plant Sindelfingen in Germany (where mainly the E and S classare built), there is much less of a strategic distance to other SKD/CKDoperations worldwide.


Drawing on Porter’s (1980) concept of generic strategies,DaimlerChrysler’s (DC) global product strategy in the early 2000s canbe best described a differentiation strategy. Daimler and particularly itsbrand Mercedes-Benz are focusing on the premium market segments withan increasing product variation in these premium segments. Especiallyin the 1990s, Daimler-Benz’s (DB) and then DC’s product strategy shiftsfrom a narrow premium-niche market strategy to a more differentiatedpremium-niche market strategy.

Now, as far as Daimler’s emerging market SKD/CKD sites for theMercedes-Benz brand are concerned, the company allocates only a lim-ited range of its full model portfolio to the respective assembly sites.The models produced include a narrower up-market segment range andreflect, at the same time, the state-of-the-art of the company’s productofferings. We can, therefore, also call the product strategy applied toMB’s emerging market sites a differentiation focus.


In 1994, Daimler Benz (DB) establishes the Greenfield JV Mercedes-BenzIndia Limited (MBI) with Tata Engineering and Locomotive CompanyLimited (TELCO) for the CKD production of the Mercedes-Benz E-classin Pune. DB’s selection of a local JV partner is based on the followinggrounds. First, DB has a long standing relationship with TELCO. Alreadyin 1954, DB signs a technical collaboration for the production of truckswith TELCO. While this collaboration ends in 1969, DB continues to beshareholder (10 per cent) in TELCO. When DB sees new opportunitiesin India’s passenger car market, following the 1991 market reforms, aJV with the old partner is an obvious starting point to enter the Indianmarket. Moreover, choosing a market entry within a JV framework is,at the time, not only an option but linked to incentives, namely a fasttrack approval process for all JVs in which foreign equity does not exceed51 per cent.

Against this background, MBI features an initial equity situation inwhich a 51 per cent share is held by DB and the remaining 49 per centby TELCO. Along with the sharing of equity, there is also a task sharingbetween the JV partners. The German partner is responsible for get-ting production up and running and the Indian partner has to handle


administrative matters, including personnel administration. TELCO isasked to bring in its market knowledge and distribution network to sellthe vehicle. In line with high market expectations – 10,000 vehiclesdomestic sales and 10,000 for export – a production capacity is installedfor 20,000 vehicles. DB’s market entry mainly aims at servicing theIndian market with the Mercedes brand and getting a foothold in one ofAsia’s largest countries. In this context India is considered as a strategicmarket for the future (MD, 1998). India’s potential for global sourcing oflabour intensive material-groups is also part of DB’s entry consideration.However, things don’t work out as expected for a number of reasons.The Indian market potential for luxury vehicles is overestimated. Thecompany also makes the mistake to enter the market with an outdatedmodel which causes resentment among potential Indian buyers whoare well aware of MB’s latest models. Moreover, TELCO with its sellers-and truck-market background proves too inexperienced in marketing ahigh-segment luxury-brand. TELCO is also unwilling to keep pace withDaimler-Benz’s investments into the site (MD, 1998). The combination ofthese problems triggers not only a downscaling of the initial productionset-up but also an equity and control shift in favour of the German part-ner. In 1997, equity shifts from 51:49 per cent to 76:24 per cent. In 2001,Mercedes-Benz India becomes finally a 100 per cent subsidiary of DC. Inthe same year, the company changes its name to DaimlerChrysler IndiaPrivate Ltd. However, with the breakup of the merger between Daimlerand Chrysler the Indian’s operations name changes once again. In 2007,the company is renamed to Mercedes-Benz India.


MBI’s factory is located in Pune (State of Maharashtra) one of the coreindustrial locations for automobile production in India. MBI’s produc-tion starts initially in a factory hall on the huge factory compound of theJV partner TELCO in Pune. Along with the final equity shift, MBI alsoshifts its operations outside the TELCO -premises into a new building. Inthe new location the manufacturing activity takes place in a newly builtfactory hall, which is built by and leased from former JV partner TELCO.The new factory is still very close to the TELCO factory compound andremains a CKD operation. The new factory features, however, a lowerinstalled capacity than the initial one.

MBI starts production in March 1995 with the W124, an E-class model,which is at the time not the latest model in its class. When MBI is visitedin 2002, it has advanced to producing a selected range of the MB’s lat-est models (C-class, E-class and S-class) in a limited number of variants


(diesel/petrol, automatic/manual transmission, classic/ elegance interiortrim). The output of the E- and C-class adds up to three to four cars perday, the S-class output is no more than three to six vehicles per month.While MBI’s possible plant capacity is at 9000 vehicles per annum, itsactual production capacity is only 1500 cars per annum, which is real-ized with around 320 employees in 2002. Segment-wise, all MBI-modelsare categorized as belonging to the D- and E-segment (i.e. premium- orluxury segment) in the Indian market.

Throughout the 1990s and the 2000s MBI sales in India are modest(e.g. 810 vehicles in 2000 and 1,335 in 2001) (DaimlerChrysler 2004b)remaining well below initial expectations. From the inception in 1994until the time of research sales figures grow only slowly to around 2000vehicles per annum. While MBI’s total market share in the Indian auto-mobile market is negligible (0.22 per cent in 2004–2005), it has in 2003a market shares of 14 per cent and 100 per cent in the premium andluxury segments respectively (SIAM, 2006).


The global transfer scenario

MBI’s production system is neither modeled on a specific home-plantblueprint nor on any other defined template. Although DC is in theprocess of developing such a template for SKD/CKD sites and also drawson MBI’s experience to develop it, no such template is available at thetime of MBI’s set up (MBI 3). Besides, the transfer of an all-encompassingtemplate could have been hampered by the fact that MBI starts its Indianoperation within the format of a JV involving divided responsibilitiesbetween the JV partners. As part of the initial JV deal, a number of humanresource related responsibilities, including initial recruitment, staffing,and basic organization building, are given to the Indian partner. Indianmanagers, who are transferred from TELCO to the JV, draw selectivelyTELCO’s organizational set-up. Similarly, German managers, who aremainly responsible to establish the production process, draw on theirhome plant experiences in the set up of MBI.

After all, the products manufactured at the Indian site are the sameand have to meet the same specifications than those produced at thehome operations. For German managers the site set-up mainly involvesthe planning and the supply of documentation of technical aspects ofthe production-system. This includes documentation on vehicle assem-bly, production layout, the transfer of technical equipment and qualitysystems and procedures. The German head of the factory states in this


context that technical equipment and the technical process of buildinga car are clearly derived from home operations in Germany (MBI 1).

Interestingly, the set-up of MBI’s work organization and humanresource profile is not defined or planned in any way up front (MBI 1).Instead, their realization is left to the experience of expatriate managersin cooperation with their Indian partners. However, to state that Germanmanagers have no defined template for the transfer of ‘soft’ contents, isnot to say that they have no demands with vis-à-vis MBI’s work organ-ization and human resource profile. After all, MBI has a slight majority inthe JV, provides the product and has a strong expatriate presence particu-larly in the early years of the operation. These expatriates have more orless explicit concepts in their mind of how things ought to work. Specif-ically, demands for change and transfer intentions emerge and becomevisible as German managers see behavioural patterns of Indian employ-ees as inappropriate or problematic, based on their own performancestandards and goals.

Finally, in 2002 MBI takes the initiative to introduce as the first CKDplant the Mercedes-Benz Production System (MBPS). However, as MBPSis designed for the production systems of integrated plants, it is in manyrespects completely unsuitable for MBI’s task environment. Being awareof these limitations, the MBI’s management is free to implement the sys-tem, where it is deemed possible, and to alter it, where an adaptationto the local/host task environment of a CKD plant is required. In thisprocess, MBPS does not change the local production systems as muchas the local production systems changes MBPS. After all, this is not anunintended consequence, but part of the whole exercise as the reformu-lated MBPS is fed into a blueprint for other CKD plants. However, just asin the case of the initial transfer of technical documentation, the headof production (MBI 1) stresses that MBPS is a system defining technicalsolutions and benchmarks (technical set-ups, technical equipment, toolsand standards) rather than soft management practices.


Transfer scenario

MBI’s production system’s functional differentiation is not targeted bythe transfer of a foreign/parent template. At the same time, there isalso no mentioning of a local/host template being used to configure theGreenfield site’s functional differentiation. The strategic distance, in thetask profile and demand market conditions between the foreign/parentstrategic context and the local/host strategic context, explain why there


is no effort to replicate one of MB’s home plant functional differentiationat MBI. Moreover, at the time of MBI’s establishment no foreign/parenttemplate is available for the set-up of SKD/CKD sites. Like the non-transfer of a home plant template, the non-use of a local template fromthe Indian JV partner is also explained in part by the strategic distancebetween the task profile and capabilities of an Indian large volume truckmanufacturer and the task profile of MBI involving the production ofa premium product in small numbers. The use of a local/host tem-plate is ruled also out by the fact that the German side introduces thevehicle and by the fact that the German side has the mandate to estab-lish the functional structure of production system. However, while theMBI’s functional set-up is not reflective of a particular foreign/parent orlocal/host template, the site has to respond to foreign/parent and hostcontext demands and conditions.

Misfit

As neither a foreign/parent nor local/host templates is transferred or usedfor the Greenfield site, there is also no misfit between a template anda local/host or foreign/parent context. There is also no indication thatlocal/host demands and conditions and foreign/parent demands are con-tradictory. Yet, there are different strategic and institutional demandsand conditions that call for integration in the newly established func-tional differentiation. The high presence of German expatriates in thefirst years, their configuration mandate and their conviction that cer-tain functions are a must, no matter if 300 or 300,000 vehicles are built,suggests the presence of a range of strategic foreign/parent demands tocreate functions in line with foreign/parent company standards (MBI1, 3). After all, in terms of quality-requirements MBI’s products arenot strategically distant from the vehicles built at the German homesites. There are, therefore, clear demands to set up functions, suchas quality audits and vehicle testing. At the same time, the site hasto respond to a host strategic context; characterized by extremely lowdemand for up-market vehicles and a corresponding low volume taskprofile (MBI 3). And finally, the site has to respond to host institutionaldemands. The most important of which are the India’s local contentrequirements.


Some adaptation of foreign/parent demands to the local/hostcontext Since there is no transfer of a foreign/parent template thereis also no adaptation of it. There are, however, foreign/parent demands


to which the site responds. These demands vis-à-vis the site’s functionaldifferentiation are adapted in the sense that they are aligned with thesites specific task environment of low volume production involving,for example, substantially less vertical integration than foreign/parenthome plants. MBI is only an assembly site, which implies that certainfunctions/departments (machine shop departments) and certain sizes offunctions/departments are not required.

Some adaptation of local/host context to foreign/parent demands Thereare few indications that the host context is substantially adapted to meetforeign/parent demands. Nevertheless, the site is a Greenfield contextand has to be functionally configured or created. This creation or adap-tation of the local context happens in line with different contextualdemands. Specifically, the site’s functional set-up is customized to meetsimultaneously foreign/parent demands, host strategic conditions andhost institutional demands.

For example, the quality function comprises the departments ‘Vehiclein-house’, ‘Supplier parts & Quality audit’. This set-up reflects bothforeign/parent demands for comprehensive quality audits and the sitespecific situation involving system suppliers that needed to be closelymonitored in quality matters. Moreover, MBI’s functional differentiationis tailored to the specific host country strategic context conditions involume and product variety terms. In this respect, the operation’s pro-duction system is customized to a task environment that differs verymuch from parent operations with respect to vertical integration (low),supply logistics (long distance) as well as in terms of product variants(much less) and volumes (much lower) (MBI 3). The main productiondepartments are tailored to the specific assembly activities performed bythe Indian operation and comprise: ‘Body shop & Equipment mainten-ance’, ‘Trim & Mechanical Line’, ‘Finish Line & Paint Shop’. In addition,the small operation has to take care of a range of functions that arenot directly linked to production (e.g. ‘Marketing Services, Marketing &Sales’, and ‘After Sales’). In a home manufacturing operation these wouldnot be part of the overall task profile.

However, MBI’s functional differentiation not only reflects foreign/parent demands and the market demand conditions in the host strate-gic context (MBI 5). A look at the organization chart unveiled thepresence of functions that are the direct result of host institutionaldemands (i.e. for local value addition). Cases in point are the ‘Cus-toms affairs’, the ‘Warehouse/Container station’, and the ‘Local con-tent/Direct purchases’ departments, which are a reflection of the specific


institutional demands and low volume strategic conditions in the hostcontext.

We can, therefore, conclude the dominant (re)contextualization moderegarding MBI’s functional differentiation is a creation in line with differ-ent demands and conditions from the host and foreign/parent context.Low levels of misfit and a high resilience of the site’s Greenfield contextprovide an enabling context for such a (re)contextualization mode.

Outcome

While German expatriates have home operations as their functionalframe of reference and seek to implement company policies whichrequire the establishment of certain functions, there is no indication thatany sort of full or deliberate template transfer is sought. The host stra-tegic conditions are simply too different from those at home. Moreover,there is no foreign/parent template defined for MBI’s specific strategicand institutional conditions. At the same time, the increasing control ofthe JV by the German side, the vehicle introduction by the Germanside, the Greenfield nature of the operation and lastly the strategicdistance between the local JV partner’s task profile and MBI’s task pro-file explain, why no local template is used. As no foreign/parent orlocal/host template is used, the site’s functional differentiation is tailoredto foreign/parent demands under specific host strategic conditions andinstitutional demands.

Thus, the overall outcome is the result of an absent local and parenttemplate transfer/use, the specific foreign/parent context demands in theform of policies and expatriate translations of home functional conceptsas well as host strategic context condition and institutional demandsthat together translate into a functional differentiation that can be bestdescribed as customized or tailored.


Transfer scenario

When MBI is founded in 1994, there is no template transfer effort fromthe foreign/parent side targeting the hierarchical differentiation of MBI.This has to do with two factors. First, MB has no defined template forSKD/CKD sites. Second, resulting from the equity mode and the relateddivision of responsibilities in the JV, the German side sees its mandatelargely restricted to the establishment of the technical and functionaldimensions of the production system, that is, those aspects that aredirectly related to the manufacturing of the product. Other matters, suchas personnel administration and human resource management, are left


in the hands of the Indian JV partner. As many of the Indian managershave worked for TELCO before, they draw on TELCO’s existing hierarchyas a template and derive a downscaled version for the new and smallerMBI site (MBI 2). TELCO’s template counts 27 levels of hierarchy, includ-ing 18 managerial designations and nine levels of blue and white collarworker designations. The initial hierarchical set-up of MBI is based on alocal template which is related to the company’s entry mode:

This has to do with history. We started with a Joint Venture withTELCO and at that time there were 18 levels [managerial] and thewhole system was taken and transferred to MB India because TELCOhad the responsibility in administration and HR. And having putpeople into 18 different levels, we had to collapse it into less, withouttaking away the perceived work concept, if I could call it like that. Sosomehow, we arrived at ten. And even within the ten, the reportingof all employees from ten to five is to level four. So reporting levels,there are only five, not even five, level one we don’t have any more.XY was the last level one. Now it is level two, Executive/MD; levelthree, General Manager; level four, Divisional Manager; and level fiveis everybody else. Four levels only.

(MBI 2)

The absent transfer of a foreign/parent template to MBI is not connectedto any particular strategic or institutional misfit. Rather it is causedby the equity situation that implies that the set-up of the hierarchicaldifferentiation is organized by the local parent and its delegates. Insteadof a foreign/parent template transfer, a local parent template is used.While MBI’s hierarchical differentiation is derived from TELCO, it is fromthe outset clear that, no one-to-one transfer of the TELCO template isappropriate. Given MBI’s size of operation, an unaltered transfer of theTELCO’s hierarchical differentiation is not considered (MBI 2).

Misfit

The downscaled version of TELCO’s template poses some institutionalmisfit with foreign/parent demands (MD interviewed 1998; MBI 3).German managers still find the hierarchical differentiation much toosteep for an operation of MBI’s size. However, it should also be men-tioned that not all German managers find MBI’s hierarchical differen-tiation, as inherited from TELCO, problematic. Germany managers donot unanimously share the opinion that designations should be rad-ically reduced. While some see excessive designations rendering the


organization inefficient (MBI 3), others, particularly the head of pro-duction, sees no problem in having more hierarchical designationsthan actual reporting levels (MBI 1). Nevertheless, as the equity shifts,demands by German expatriates to bring the hierarchy more in line withforeign/parent company standards increase and receive more weight.The foreign/parent pressure for recontextualization of the local template,in turn, meets resistance from host country managers.


Minor adaptation of foreign/parent demands to the local/host contextWhile foreign/parent demands for a reduced hierarchy increases overtime and receives more weight with the shift in equity, the local templatenever fully develops towards foreign/parent or home country configura-tions. The reason for this is that there is no clearly defined foreign/parenttemplate or transfer intent in the first place. At the same time, thereis resistance from the local institutional context (MSI 5). While thereporting levels ultimately come close to foreign/parent demands andstandards, the many remaining hierarchical designations are still remi-niscent of the original TELCO template and a tribute to the local insti-tutional pressures for hierarchical differentiation. Particularly, in thoseareas where some clubbing of designations takes place the company wit-nesses opposition from Indian employees. They see these measures as abreach with the seniority principle and as a disrespect of their experi-ence. There is strong evidence to suggest that the company cannot anddoes not want to ignore the local institutional demands for status-givingdesignations entirely. After all, there are still many more hierarchical des-ignations than reporting levels in MBI. An additional reason why thesedesignations are held on to, is related to the company’s lacking growth.As no new job profiles can be offered to the largely young and ambi-tious employees, the very least the company can do, is to compensatefor lacking career opportunities by offering symbolic promotions in theform of better designations (MBI 2). Finally, the human resource func-tion is, at all times, in the hands of host country nationals. The Indianhuman resource managers have a strong say in the company’s hierar-chical differentiation and cushion some foreign/parent demands despitethe changing equity situation.

Adaptation of the local/host context to foreign/parent demands MBI’shierarchical differentiation sees a substantial change over time. Whilethe site reflects in the beginning a scaled down version of a local/hosttemplate this template is adapted to foreign/parent demands over time.


Among the most important changes are a reduction of the hierarchicaldesignations and a decoupling of the remaining hierarchical designa-tion with reporting levels. The adaptations of the local template aremade in response to foreign/parent demands. They are made pos-sible by the shift in equity and the increased control of MBI by theGerman side. However, while MBI succeeds in reducing the numberof hierarchical designations, the company still has more hierarchicaldesignations than reporting levels. It appears that no further effortis made to bring the Indian hierarchical differentiation fully in linewith foreign/parent institutional context. Given the continued topmanagement position of a host country national in human resourcemanagement and given the local opposition to a complete change as wellas the economic situation of the site, the local resilience for change islimited.

Outcome

MBI’s hierarchical differentiation starts with a derivative of a local/hosttemplate. As equity shifts, the institutional misfit between the local tem-plate and foreign/parent demands leads to a reduction of hierarchicaldesignations and a decoupling of reporting levels from hierarchical des-ignations. When MBI is researched in 2002, it has, in the hierarchicalorder, the following designations: Managing Director, General Manager,Divisional Managers, Senior Managers, Managers, Supervisors/ Execu-tives, Assistants and Operators. These hierarchical designations are nothierarchical levels in the sense of reporting levels. Reporting levels,there are only four. The first reporting level is the Executive Director(Vorstand/E2), the second General Managers (Abteilungsleiter/E3), thethird Divisional Manager (Leiter/E4), the forth level reporting levelincludes everybody from Supervisor/Executive to Senior Manager (seeTable 7.1 showing the change to local template).

Although the German side achieves some reduction of the hierar-chy by reducing reporting levels to four, pushing for an imitation ofGerman standards, there remain much more hierarchical designationsthan reporting levels – reflecting the local template and local/host insti-tutional demands. Similar to the MSI case, it remains unclear, whetherthe hierarchical designations have an effect on the company’s hierarch-ical relations. At the very least, these decoupled structures coexist sideby side. While the hierarchical designations are reflective of the Indianinstitutional scenario, the number of reporting levels corresponded withMB’s categorization of hierarchical levels. The German head of pro-duction underlines that while the reporting levels are deviating from

184Table 7.1 MBI’s hierarchical differentiation

Telco designations 1994 MBI India 1994/5 Oct 98 2002

Executive Director Managing Director L1 Managing Director –EG1a Senior General Manager Vice President L2 Vice President L2 Executive Directors &EG1b General Manager Managing DirectorEG1c Deputy General ManagerEG2a Assistant General Manager Executive Manager L3 General Manager L3 General ManagerEG2b Senior Divisional ManagerEG3 Divisional Manager Divisional Manager L4 Divisional Manager L4 Divisional ManagerEG4 Senior ManagerTM6 Manager – – –TM5 Deputy Manager Team Manager L5 Senior Manager L5, Senior ManagersTM4 Assistant Manager L6, L7, ManagersTM3 Senior Officer L6, L7 Managers L8, L9, Executives/SupervisorTM2 Officer L10 AssistantsTM1 Junior OfficerSupervisor 4 Supervisor 1-4Supervisor 3Supervisor 2 L8, L9 Executives/SupervisorSupervisor 1 L10 AssistantsWhite collar worker A White collar workerWhite collar worker BWhite collar worker COperator 1 Operators Operators OperatorsOperator 2Operator 3Operator 4Operator 5Operator 6


the foreign/parent company, they are very well in line with a mid-sizedcompany in the home country context (MBI 1).

In summary: A local template is used that does not fit with the foreign/parent (strategic and institutional) demands for a flatter hierarchy. Themisfit is overcome by adapting the local template to the foreign parent/demands. However, the foreign/parent demands remain half hearted dueto local counter pressures and an absence of a clearly defined templatefor the Indian site. The result is a hybrid solution, wherein we find aside-by-side of foreign/parent elements (reporting structure) and localpartner/host elements (designations).


Transfer scenario

When MBI’s production site is established in India there is no templateserving as a model to structure the factory layout, process design and thetechnical hardware configuration of the site.

The use of home plants as a template is ruled out by the strategicdistance between the foreign/parent and local/host strategic context.Specifically, the strategic distance in supply and demand market con-ditions rules out the transfer of the factory layout, process design andtechnical hardware configuration of any existing integrated home plantin Germany. This becomes evident if we consider that the demand scen-ario in the Indian market allows little more than a production of 1500vehicles per annum. Such a production volume is about the daily outputof MB’s home plant in Sindelfingen.

Apart from the strategic distance in volumes, MBI’s task profile alsocontrasts with the home plant’s vehicle variety. With its choice of pro-ducing the C, E, and S class, the Indian site’s task profile features a muchhigher base-model variety in a much lower number of variants. Nextto the strategic misfit in the demand conditions, a supply-side strategicmisfit rules out the transfer of the home plant technical hardware con-figurations. For MBI’s technical hardware configuration also has to takeadvantage of low labour costs in India.

We don’t use robots here because of the low number of units. Themechanization of a work place costs us including a robot roughly200,000 German Marks [100,000 Euro]. Given our labour cost here –an employee earns here about 6500 Rupees per Month – that justdoesn’t pay off.

(General Manager Production, 1998)


While the transfer of any home plant’s technical configuration of theproduction process is ruled out by strategic distance, there is also notransfer of other SKD/CKD sites’ templates. Interestingly, it is not beforethe 2000s that efforts are made to develop such a template for CKD sites(MBI 3). In this context, MBPS is redefined for a possible use at CKD sites.Yet, when MBI is established neither its factory layout, process designnor its technical hardware configuration is based on such a template(MBI 3). Conversely, despite having entered the Indian market withinthe format of a JV, no effort is made to draw on a template from the localpartner. Such a local/host template use is ruled out by the fact that thevehicles are introduced by the German partner who holds the majorityin the JV and has the mandate to establish the site’s production process.Also the strategic distance of the local partner’s task profile as a truckmanufacturer stands against such a local template use.

While there is no specific template to be transferred, MBI’s technicalconfiguration of the production process has to meet foreign/parent andlocal/host demands and conditions.

Misfit

The set up of MBI’s process design faces a substantial misfit betweenlocal/host institutional demands and foreign/parent strategic demands.On the one hand, MBI’s factory layout, process design and tech-nical hardware configuration has to respond to foreign/parent strategicdemands with regard to a specific product mix, cost and quality. At thesame time, the site has to respond to the specific local/host strategicconditions, including low volumes based on host demand conditionsand low labour cost based on host supply conditions. On the otherhand, MBI’s factory layout, process design and technical hardware con-figuration has to respond to host institutional demands, notably India’sFDI policies. Like other foreign company’s, MBI has to observe foreignexchange neutrality, import tariff structures and local content require-ments. However, in contrast to other companies (e.g. Fiat or Maruti-Suzuki) that have higher volumes and operate in price sensitive marketsegments, MBI has no intrinsic motivation to localize production. As itscustomers are not as price sensitive and demand is very low, there is littleincentive for MBI to shift major process steps to India.1 For low volumesrender the set-up of capital intensive up-stream manufacturing steps (toachieve the required local content rate) very uneconomical. Thus, thereis a misfit between the Indian institutional context’s demand for localcontent and the foreign parent’s strategic demand for profitable manu-facturing under low volume/low demand strategic context conditions.



Adaptation of foreign/parent demands to the local/host context Giventhe strategic distance between home and host country conditions andgiven that there is no defined template for CKD sites, there is also no for-eign transfer template to be adapted to the local/host context. Instead,there are foreign/parent and local host demands. These foreign/parentdemands vis-à-vis the site’s technical configuration are partly in contra-diction with local/host demands. Yet, indications are that the technicalconfiguration of the production process largely complies with the for-eign/parent demands involving an adaptation of host context demands(MBI 1).

Substantial adaptation of local/host demands to the foreign/parent contextGiven that the product is introduced by the German partner, given thatthe German side holds a majority in the JV and given the Greenfieldnature of the set-up, there is no local/host template use and adapta-tion to foreign/parent demands. Instead, MBI’s factory layout, processdesign and technical hardware configuration is created to meet foreign/parent and local/host demands and conditions. The partial misfit thatexists between foreign/parent and local/host demands, is mainly dis-solved by adapting the host institutional demands to the foreign/parentdemands.

The factory layout and process design is built to meet the quality andassembly requirements of a selected range of models which are similarto those manufactured in the German parent plants. While basic qual-ity processes and assembly steps are in principle the same, they have tobe customized to the low volume production (MBI 3). This customiza-tion involves different aspects. First, MBI’s production process features acomparatively low vertical integration because capital-intensive processsteps (e.g. stamping, pressing, painting) are performed in Germany oroff-site. Low volumes, in a low labour cost context, suggest low levels ofvertical integration and a localization of labour-intensive assembly activ-ities. Second, although the remaining assembly activities are in principlethe same as in the home plants, low volumes call for a revised clubbingof the assembly tasks. For example, unlike in Germany, gluing activitiesare performed at one station only (MBI 10). Similarly, while the test-ing and programming equipment is the same as in Germany, it divergesin how it is applied. In Sindelfingen, testing is done separately in vari-ous line-sections. In India by contrast, it is done only once at the end.In contrast to the German home plants, the factory layout and processdesign is characterized by much fewer stations performing much more


operations which translate into much higher cycle times of around 60to 70 minutes. These contrasts sharply with German operations that fea-ture cycle times of little more than a minute. Third, internal logisticsare customized to low volumes and long distance supplies. For exten-sive storage requirements for bulk shipments of CKD-kits render therealization of home-plant Kanban supply-logistics meaningless. Fourth,MBI designs its operation to meet local content requirements. Apartfrom local sourcing of labour-intensive material groups (e.g. horns) forworldwide production, MBI sources out the assembly of knocked-downcomponents to local module suppliers. While these components are alsodelivered in kits from Germany, they are not assembled on site. Instead,they are assembled by local suppliers, thereby counting as local con-tent. This is in essence an adaptation or rejection of host institutionaldemands. It implies an even lower vertical integration in MBI, comparedto other CKD sites. As a result, the host institutional demand for morelocal content does not lead to more local value addition, but rather tosome tactical outsourcing, which increases the formal, but not the actualrate of local content.

Also with regard to the site’s technical hardware configuration thereare customized responses to the foreign/parent demands and local/hostcontext conditions. Low volumes and low labour costs, rule out thetransfer of capital-intensive process steps and technology such as: trans-fer presses, paint shop technology or automated welding technology.Though the technical hardware configuration receives particularly ini-tially technical equipment from Germany, such as welding guns, jigs,fixtures and testing equipments, there is no replication of home plantmechanization and automation levels. What is more, the technicalequipment used, is increasingly developed on site (MBI 8, 9). MBI’stechnical hardware configuration is based on a ‘low capital intensitystrategy’ translating into low mechanization and automation levels. Themost sophisticated equipment is located in the areas of final testing andsoftware-upload. The highest level of mechanization is in the weld-shop,consisting of a few stations equipped with manual welding-guns. Thiscontrasts with high automation levels in the home plants’ body shops.Likewise, final assembly in Germany has higher levels of mechanizationand automation (e.g. windscreen insertion) (MBI 10). Even vehicle test-ing is more automated in Germany and more manually based in theIndian set-up.

To conclude, the main (re-)contextualization mode found in this areais a configuration in line with foreign/parent and local/host demandsand conditions. While the local content requirements (as MBI can


circumvent them) posed by the host institutional context as well as thelocal strategic context of the Greenfield site prove resilient in the set upof the technical configuration, the local demand conditions prove to bea not very resilient host strategic context.

Outcome

The outcome of MBI’s technical configuration of the production processcan be best described as a customization. This customization is consti-tuted by an absence of a template transfer/use and specific responses toforeign/parent and local/host strategic and institutional demands andconditions, instead.

The factory layout and process organization respond to the strategiccontext of a high base-model mix at low volumes. It translates into a lowvertically integrated production process. Specifically, the factory layoutconsists of two parallel lines: one short line for the S-class and a longermixed line for the C- and E-class. While the S-class has a very short line,purely consisting of assembly activities, the C- and E-class line consistsof more process steps and stations. Although the home plants serve as abroad frame of reference to sequence the production process, the low vol-umes in India imply different and higher work contents at much fewermanufacturing stations. What is more, the low vertical integration of theproduction process, which is even lower than at other CKD sites, is con-nected to local content requirements in the Indian context. For example,to boost its local content rate and to keep investments into volume-sensitive production steps down, MBI sources out painting to TELCO.As a result, the production line for the E and C class is divided into twosubsections with a directly opposite product flow. The production startswith the welding of most body parts from CKD-kits. It continues withthe transfer of the welded car body to TELCO for painting. When thepainted bodies return from TELCO they are handed over to final assem-bly and checking activities. (For the S-class, the process is different asno local welding and painting takes place. High profit margin in theS-class and the low volumes make such low local value addition despitepunishing import tariffs a viable option). Similarly, the absence of auto-mated technology and the increasing use of local technical solutions area response to low labour costs and rising capabilities in the local/hoststrategic context.

In summary, the sites technical configuration of the production pro-cess is a customized solution to integrate foreign/parent demands relatedto the production of particular range of models within a particular hoststrategic and institutional context, which is defined by sluggish demand


for luxury vehicles, low labour costs and the Indian Government’sindigenization requirements.


Transfer scenario

According to the German production management there is no definedtemplate to structure the work organization or the human-resource pro-file of the subsidiary’s production system. The transfer of the home plantwork organization and human resource profile is ruled out by strategicand institutional distance between the foreign/parent and the local/hostcontext.

On the one hand, there is a misfit between what home plant workconcepts are optimized for in terms of supply and demand market con-ditions and what the India’s strategic context has to offer in this respect.Specifically, one of the most important reasons for the transfer restraintis that the group-work as practised at home is optimized for a task pro-file marked by short cycle times in mass production and a minimizationof labour costs in a high wage strategic context. The work profile ofgroups in Germany involves highly repetitive work content, marginally‘enriched’ by job-rotation and self-certification (MBI 3, 10). The groupsare conceptualized as semi-autonomous, self-directed working units.They featured, self-training responsibilities, self-directed rotation andself-directed group meetings, chaired by group-speakers. The humanresource profile of these groups is increasingly based on a semi-skilledworkforce. In this work context, the traditional role of the ‘Meister’, ahighly skilled craftsman, is changing to a more distanced monitoring andcoaching role, involving less direct involvement. Now, German manage-ment underlines that it has no intention to transfer this group concept(German General Manager Production 1998; MBI 3). It is stresses that the‘the American model’ – which they see now applied in Germany – is notapplied to the Indian site because of the nature of the production process(MBI 1, 3). In their view, MBI’s task profile is more akin to workshop pro-duction and requires a more qualified and skilled workforce compared toa strategic context marked by high volumes, extreme division of labourand short cycled times. At the same time, drawing on high qualificationsdoes not cause a cost problem in India, given the labour supply condi-tions in the host strategic context. After all, the Indian strategic contextprovides high industrial qualifications at comparatively low costs. Thefollowing citation underlines that the German expatriates do not seekthe transfer of home group work concepts and corresponding human


resource profiles because of the strategic distance between home andsubsidiary site operations:

A: In Germany the main goal of group work was, let’s say, to increasethe average utilization of the workers on the line. That is, to reduce thecycle segment compensation (Taktausgleich) and to thereby reducethe costs for the company. You only have a very small work content,two to one and a half minutes, and if you have one more workerrotating the cycle segment compensation (Taktausgleich) is less.

Q: Then the work also becomes more interesting?A: That is how we have made it palatable to the employee. But inreality we have increased his average utilization through this enrich-ment and rotation from 94 per cent to 98 per cent. The cycle segmentcompensation could thereby be dropped. We could tact (eintakten)the employees differently and sold it as enrichment, sure. And thissystem doesn’t work here. I have here a work content of an hour andI cannot do group work here. I would have to put four men in a groupand they would have four hours of work content and which wouldcause quality problems, in turn. No, the group is here rather a unitunder the supervisor.

(MBI 3)

Another manager interviewed in 1998 (German General Manager Pro-duction, 1998) argues along similar lines, stating that it makes absolutelyno sense to rotate workers at the Indian site. With a cycle time of morethan an hour, operators have already a more complex work profiles thanmost of their counterparts in German plants. Job rotation under these cir-cumstances would seriously compromises product quality. For a similarreason, German quality assurance and self certification concepts are nottransferred. In MBI, it relies heavily on line-external quality inspectors.Although operators do have to certify their work, the company relies onexternal inspectors and a high frequency of product audits. Again, thestrategic distance, lower volumes and lower labour cost in India, rule outthe transfer of German quality practices:

Self-certification is generally being practised in Germany but not inIndia to the same extent. It is important to see why a practice has beenintroduced in the first place. The first intention was to change theemployees’ thinking and the second issue was cost reduction. Moreimportant, however, was the cost issue. But in this respect we haven’tgot such a great pressure. Cost doesn’t play a role here because ifyou employ one or two workers it doesn’t play a role due to low


labour cost. So self-certification here is more a question of awarenesscreation.

(MBI 3)

While the strategic distance is a main reason for not transferring theGerman group concept, the institutional distance also plays a criticalrole. The pronounced patriarchic-hierarchical orientations in India ren-der the implementation of egalitarian team-work concepts as practisedin MB’s home plants a highly difficult, if not impossible, endeavor (MBI3; German General Manager Production 1998).

What is more, not only do German managers refrain from transferringa home plant template, but they generally have little guidance how toconfigure the work organization and human resource profile in overseasoperations. Instead, the establishment of work organization is largelyleft to the experience of expatriate managers. The German head of thefactory states in this context:

Processes involving humans, their culture and behaviour are gener-ally not a part of the overall planning. I have seen that here and inYugoslavia. Those back home are not capable of planning work organ-ization and its prerequisites. This part is left to the expatriates who aresent abroad.

(MBI 1)

Overall, German managers interviewed appear to have little sense ofbeing on cultural mission and stress the need for local learning andobserving host context customs (MBI 1).

However, to state that German managers lack comprehensivelydefined package of work concepts, skills and basic work dispositionsfor transfer is not to say that they have no demands vis-à-vis the workorganization and human resource profile of the site. While Germanmanagers deliberately refrain from transferring a number of shopfloorrelated work concepts from the integrated home-plants and while theyhave at the time of initial establishment no defined CKD-template todraw on, it would be wrong to suggest that their home-plant back-ground does not serve as a strong conceptual frame of expectation andreference with regard to the developing MBI’s work organization andhuman resources profile. Based on their background expatriates havemore or less explicit concepts in mind how things ought to work. Itshould be added, that using a local template from the JV partner TELCOis also not an option. The German partner has the majority in theJV, introduces the vehicles and has the mandate to set up the workorganization as part of the whole production process. Above all, German


managers have to assure that the final product lives up to the foreignparent’s global quality standards of a luxury brand. Instead of havinga grand transfer plan, foreign/parent demands surfaced in the day-to-day Indo-German interaction. Specifically, apart from a few qualityand continuous improvement related formal concepts, German trans-fer intentions mainly emerge when and where German managers viewlocal behavioural patterns as inappropriate.

Misfit

Although hardly any formal concepts of work organization and humanresource profiles are transferred from home plants and although thereis no defined transfer template for CKD sites, there are still substan-tial foreign/parent demands. These demands for a recontextualizationof the local context emerge because the strategic context of the Indiansite is still similar enough not to let go quality standards and becausethere are institutional misfits between the German expatriate expecta-tions and the local behavioural patterns at the site. Most of the surfacingforeign/parent demands aim at overcoming local institutional condi-tions that are perceived as problematic in the view of producing aworld-class luxury vehicle. It emerges from interviews that the biggestmisfit are shopfloor-related and concern basic work dispositions. Spe-cific areas of concern are: the work roles/identities of supervisors andworkers, including their work relations; the taking of responsibility andcommunication practices; and the cleanliness and quality awareness.

In the first years of MBI’s establishment, work relations between Indiansupervisors and workers are seen by the German production manage-ment as one of the most crucial aspects of misfit. For German productionmanagers, supervisor–operator relations and supervisor work roles areof utmost importance in organizing production and ultimately produ-cing a quality product. Supervisors are expected to work cooperativelyin a team with operators, to train and coach them hands-on. It alsorequires them to be always close to the production line and able tostep in and personally demonstrate whenever manufacturing problemsemerge. Additionally, supervisors are seen as having a bridging func-tion between management and workers. However, there is a substantialdiscrepancy between German expectations and Indian behavioural pat-terns. These are related to the strong socio-professional demarcationsproduced by India’s social stratification and higher education/vocationaltraining system (Becker-Ritterspach, 2005). In contrast to German workconcepts and expectations, supervisors see themselves as managerialsuperiors to operators, defining the work relation as a clear-cut


superior-subordinate relationship, rather than cooperative teamwork.Supervisors have a ‘white-collar’ work identity and show reluctance tobeing close to the manufacturing process, let alone to be physicallyinvolved in it. Operators, in turn, exhibit low acceptance levels of theirsupervisors, as these are seen as lacking practical manufacturing compe-tence and skills. As a result, the potential bridging function of supervisorsis undermined from both the supervisors’ and the operators’ side. Incontrast to the working relationship envisioned by German managers,there is a substantial hierarchical demarcation between supervisors andoperators. The following shopfloor display (Figure 7.1) – to be signed bysupervisors – is an expression of both German expectations and theirprecarious fulfillment.

However, it is not only the supervisors who reject certain task profilesenvisioned by German production management. For German managers,building a world class quality product begins with a clean workplace.The Indian operators, for their part, similarly based on strong socio-professional demarcation consciousness, reject to get involved in clean-ing activities of the work place. For cleaning of factory floors is perceivedby operators as unacceptable, clearly not within the purview of their taskprofile.

This leads us to second complex of misfit. Especially in the begin-ning, lacking cleanliness and quality awareness of the Indian workforceis a big issue. German expatriates see a need for change in this respect.Thus, there is a great mismatch between expatriate expectations and localbehavioural realities. Here, supervisor and worker behaviours, which areseen as determining the product quality, are also a matter of concern.

Supervisor

• QUALITY is my first Priority.

• I stand on my line for 95% of the time.

• I give help and feedback to my operators.

• I take care of quality by coaching my operators.

• I coach my operators by showing them work with my own hands.

Supervisor

Source: copy from a shopfloor billboard (Mercedes-Benz India Private Ltd).

Figure 7.1 MBI’s ‘Clearly defined functions for our supervisors’


A third complex of misfit concerns expectations about taking of respon-sibility on the shopfloor and open feedback of the Indian employees. Acentral goal of German management is to define clear areas of responsi-bility, related work objectives and decision-making rights. A cornerstoneof the German leadership- and management-concept is a comprehen-sive delegation of production-related decisions to where they emerge.On the shopfloor this implies that a team, with a supervisor and a max-imum of 15 operators, is responsible for a certain line-section and hasto take all decisions directly related to the achievement of daily qualityand output targets. However, these seemingly simple modes of organiza-tion and management are difficult to implement with Indian managersin general and supervisors as well as operators in particular. Instead ofseeing a taking of responsibility for the assigned tasks, German man-agement complain about delays in task accomplishment, widespreadresponsibility-diffusion and an inability to work in a self-directed man-ner. It is also bemoaned that Indian employees are not willing or ableto speak up openly when and where problems occur. Decisions tend tobe permanently re-delegated upward with the effect that the simplestobjects-of-decision end up on the German production manager’s desk.Unlike the German concept of work relations between supervisors andoperators, Indian employees are not opposed to taking more responsi-bility. In fact, those interviewed embrace it as an improvement to whatthey had experienced in previous work relations (MBI 8, 9). At the sametime, a number of Indian employees stress that it is difficult to get usedto taking of responsibility, as this style is in stark contrast to what theyare used to.

However, it should also be noted that there are many areas whereGerman expectation and local institutional conditions fit each otherwell. For example, expatriates have no complaints about lacking skill-and discipline-levels of Indian workers. This also has to do with thevery site-specific fact that Daimler has a long-standing relationship withTELCO. DB first involvement with TELCO dates back to the 1950s(Grunow-Osswald, 2006). Along with licenses for manufacturing ofDaimler-Benz trucks, the German partner also introduced an appren-ticeship system at the time. Curiously, more that 30 year later, MBI isable to draw on this heritage. According to the German head of produc-tion, MBI is too small to establish its own apprenticeship and trainingsystem. Instead, TELCO provides MBI with workers whose skill profile isbroadly in line with MBI’s expatriate expectation. In contrast to workers,German managers are rather unhappy about the skill profile of produc-tion managers and engineers. In their view, this reflects the theory bias


of Indian higher education. Professional training of managerial ranksis seen as too remote from the practical realities of production (MBI 1;German General Manager Production, 1998).


Major adaptation of foreign/parent demands to the local/host contextExpatriates dispatched from Germany’s home plants lack a comprehen-sively and formally defined template to shape MBI’s work organizationand human resource profile. Related to the strategic distance betweenthe Indian and the home operations, German expatriates either refrainfrom transferring core home-plant work concepts or adapt them to thelocal/host strategic conditions.

Cases of the former are the non-replication of home plant group-workconcepts and qualification-levels. Examples of the latter, are adaptedwork concepts in the areas of quality assurance and product auditing.Quality inspection in Germany is largely integrated into the produc-tion line through self-inspection and random-based external audits. Thiscontrasts, with MBI, where almost every vehicle is externally inspectedand goes through a product audit. Thus, to ensure home-countryquality-standards, MBI adapts its quality assurance concepts to local/hoststrategic conditions of low volumes combined with low labour costs. Itshould also be mentioned that some work concepts are transferred thatare not directly concerning manufacturing. These involve mostly smallgroup or continuous improvement activities, such as quality circles. Inthis regard, there is no indication that these concepts are or have to beadapted to the local/host context.

Finally, while German expatriates are, overall, not very eager to trans-fer formal home plant concepts, they have a number of demands vis-à-visthe basic work dispositions of MBI employees. This is particularly con-cerns work dispositions that are seen to have a strong impact on productquality. Namely: the supervisor and operator work roles and their workrelations, the taking of responsibility as well as the cleanliness andquality awareness. While foreign/parent demands are uncompromising(not very resilient) with regard to the behavioural outcomes, they areutterly adaptive with respect to the work concepts to achieve them. Inthis latter respect foreign/parent demands are adapted to the local/hostinstitutional context as we will discuss below.

Major adaptation of the local/host context to foreign/parent demandsThe establishment of MBI’s work organization and human resource pro-file does not simply reflect a transfer restraint and an adaptation of


foreign/parent concepts and demands to the local/host context. Instead,there is also an adaptation of the local site context to foreign/parentdemands. The implementation of these demands involves a substan-tial adaptation effort of MBI’s work organization and human resourceprofile. There are two core mechanisms for the realization of Germandemands. One the one hand, changes of the local institutional con-ditions and demands are achieved through training and socializationefforts by expatriate transfer and on site training. On the other hand,adaptation of local institutional context to parent demands is achievedthrough host context selection, that is, by selecting a highly qualifiedand young workforce and by selectively drawing on host institutionalpatterns.

The corner stone of the establishment of MBI’s work organization andthe human resource profile is the transfer of German expatriates in thebeginning. When MBI is set up, 20 expatriates are delegated to the Indiansite, taking all major organizational positions in production. By the timeof the second visit in 2002, this number has come down to three expa-triates. However, the managing director and the heads of production arestill German. MBI does not engage in a large-scale transfer of host con-text personnel to the German parent plants. There is just some limitedtransfer of a selected few Indian managers – high potentials – transferredto adopt the foreign/parent or rather home country company standards.These Indian managers are hand picked and systematically prepared totake over key tasks as German expatriates withdraw. They are expected toapply German standards with the same rigor. Massive expatriate transferin the first years and their continued presence in core positions, func-tions as a major vehicle to bring basic work dispositions in line withforeign/parent demands. After all, it is the German side that providesthe product, is responsible for getting production up and running andhas from the beginning the majority in the JV. Thus, German productionmanagement has the mandate, control and takes the initiative to shapethings. Expatriates clearly initiate training and socializations measuresto create and change basic work dispositions of the Indian work-forceand to bring it in line with their own concepts and expectations. Forexample, together with the human resource department a range of work-shops on cleanliness and quality are organized. Similarly, young Indianengineers are sent to work on the production line, to acquire practicalexperience (German General Manager, 1998). While some of these effortsclearly involve changes to bring basic work dispositions in line with theforeign/parent standards, they do not aim at replicating formal workconcepts from the home plants. Instead, German managers seek an


implementation of basic work dispositions and product-related stand-ards, irrespective of the institutional origin of the conceptual means toachieve them. This implies flexibly in how to achieve the behaviouralexpectations and goals. There is a repeating pattern of achieving thedesired work dispositions by observing local institutional conditionsthrough selectively drawing on alternative host institutional templates.

Cases in point are the family model and a number of measures that arelinked to raising levels of cleanliness and quality awareness. The ‘familymodel’ is, for example, a team-concept for the shopfloor. Every produc-tion line comprises a number of teams called families. Like in a typicalIndian family, there is an ‘eldest son’ (selected by the ‘father’) who actsas the ‘deputy’ in the ‘father’s’ absence. The supervisor or the ‘father’ hasfar reaching administrative and operational responsibilities for his ‘chil-dren’. The core principles of the ‘family model’ are put up on shopfloorbillboards (see Figure 7.2).

There is evidence to suggest that that the ‘family concept’ mainlyserves to satisfy two basic work dispositional demands of the Germanexpatriates. First, it aims at ensuring high quality by instilling a sense ofresponsibility with those who are directly involved in production, mostof all the supervisors. The following citations from an interview with twodifferent German production managers suggest such an interpretation:

The family concept comes from the Indian culture, no doubt aboutthat, that’s from here. You know, the philosophy that someone has

Top 10 family organisation Principles

1. P ersonal cleanliness is as important as a clean house and a car body.2. R emember to inform your father about the discussion you had with any of the superior.3. I n the ‘Family’ the target of ‘Faults per car’ must be known to all.4. N umber of ‘Family members’ in a ‘Family’ should not exceed 15.5. C oaching by the ‘Family father’ to the ‘Family members’ is a must.

7. P lace of the meeting of the ‘Family’ is the ‘Information board’.8. L et us put the stickers on the cars to mark the defects.

10. S upervisor works like a ‘Father’ of a ‘Family’.

9. E very line fault is to be discussed with the concerned operator by the supervisor personally. Special care should be taken to avoid repeated mistakes.

6. I n the ‘Family’ the ‘Father’ is always there. In his absence the ‘Eldest son’ takes care.

Source: copy from a shopfloor billboard (Mercedes-Benz India Private Ltd).Figure 7.2 MBI’s ‘Family organization principles’


to be responsible for an area, you know. I mean a ‘self’-responsibilityyou know. I don’t see otherwise any other option to build such a highquality.

(German General Manager Production, 1998)

We also have our family principles. There we tried to take the Indianmentality into account. I think that it is very important for us to say,that is, the father figure, especially the supervisor on the line; well,it was very important, that the supervisor really is the father of thefamily and that, when he is not there that there must be someone –the eldest son for example – who looks after things. Well, that issomething they understand.

(German General Manager Quality Assurance, 1998)

The link between the ‘family concept’ and the taking of responsibilitybecomes even clearer if we bear in mind that the role of the father andthe eldest son are those positions in the Indian society that are mostintimately associated with the taking of responsibility (see Chapter 4).Secondly, it emerges from interviews that the family concept serves yetanother core demand. The interview with the German head of pro-duction indicates that the family concept is equally a tool to achievecloser team-like cooperation and bridge the socio-professional distancebetween the supervisors and operators:

There is a management level in India which I see very critical and thatis for me the Meister-level which doesn’t exist here. Here we have thesupervisors and there is a clear divide between the ones beneath andthe ones above. And back home in Germany we have the Meisterwho has a very, very high importance in managing things in thathe is a link between workers and management. And he is a man whounderstands both. And the interface here is a very dangerous one. Thatis, those below know how it works, they are just meant to work, andthe supervisor is already a studied man and walks around with a tie anda shirt, is another breed of human and also doesn’t want to dirty hishands. This is culturally a big topic and management has to pay a lotof attention here. Here is my closest attention. Therefore, I highlightespecially the supervisors. This is also why he is the family father onthe line and to lift him out and to call upon him to serve as a link andto make him personally demonstrate the work. In other words, that isvery crucial and there is a huge gap in Indian management and somehaven’t even recognized it but that’s the ways it is.

(MBI 1/German head of production, 1998)


In this context, the ‘family model’ – by means of allocating the ‘fatherrole’ to the supervisor – aims at creating the link that is commonlyformed in Germany by the ‘Meister’. Thus, an effort is made to bridgethe professional and social distance between supervisor and operatorsby drawing on an Indian institutional template, the father-son/-childrelationship.

Interestingly, the ‘family concept’ is not the only example where thefulfillment of foreign/parent demands is achieved by drawing on localinstitutional patterns. In the case of housekeeping a similar solution issought. To circumvent operator-resistance, particularly vis-à-vis clean-ing the shopfloor, German management imports cleaning machines.Using cleaning machines is in line with the institutionally founded work-identities of operators. The following citation of the German GeneralManager Production underlines this as follows:

Half a year later I said: Well, now everyone cleans his work place! AndI was well aware from colleagues that this was going to be a problembecause it is really the lowest to clean the floor. And in order to fore-stall any discussion, I organized beautiful Kärcher cleaning-machinesand said: You are not cleaning, you are operating a machine! It was abig fight but now we do it and it works.

(MBI 3)

Although the ‘family model’ is the most prominent solution, there areother examples where German demands are realized by drawing onlocally available templates. For example, a host of measures that aimedat raising cleanliness and quality standards depart from home companypractices. MBI uses, for example, a Q-graph to visualize the quality per-formance of each operator. This Q-graph has been adopted from a localJapanese supplier. It should be noted, again, that none of these measuresreplicate home country patterns. In fact, the use of Q-graphs would be inbreach of data privacy legislation in Germany and would trigger seriouswork council opposition.

Finally, a crucial enabling factor in creating MBI’s work organizationand human resource profile in line with parent demands is that the com-pany is a Greenfield operation with a young work-force. Besides, MBI’slocal JV partner has prior experience in automobile production. The oldrelationship with TELCO and the market liberalization of the 1990sallows MB to choose a JV partner that is not entirely inexperienced inautomobile manufacturing. At the same time, MBI managers do not haveto fight an old conflict-ridden Brownfield culture. MBI’s establishment


is set up afresh, in a new factory hall, with a mainly young workerswho have been either newly recruited or hand picked and trained inthe JV partner’s apprenticeship programme (MBI 1). This young work-force is quite open to demands posed by German expatriates. As manyof the young operators are ITI-graduates who have received appren-ticeship training at TELCO, MBI’s workforce not only features highformal qualification-levels but also decent levels of skill. German expa-triates, therefore, do not have to start from scratch as far as the humanresource profile and matching skill levels are concerned. In fact, Germanmanagers praise the skill levels and discipline of the workers inheritedfrom TELCO. A concern with inappropriate skill levels is mainly identi-fied in the case of young engineers and production managers who arenewly recruited. Here German managers try to institutionalize a differentbehaviour by training on-the-job and by acting as role models (GermanGeneral Manager Production, 1998).

In summary: The dominant recontextualization mode of MBI’s workorganization and human resource profile can be described as a set-up to meet foreign/parent demands, while respecting and drawing onlocal institutional demands and conditions. The recontextualizationinvolves both the adaptation of some foreign/parent concepts (resilientforeign/parent context) to local/host strategic and institutional con-text and an adaptation of local institutional conditions and demands(resilient local context) to foreign/parent demands. The adaptation ofthe local context to foreign/parent demands is enabled by the Green-field site’s contextual resilience and the resource mobilization of theforeign/parent expressed in a strong expatriate presence.

Outcome

The hybridization outcome of MBI’s work organization and humanresource profile is the combined result of on an absent transfer of for-mally defined templates, institutional and strategic misfits betweenforeign/parent demands and local institutional conditions and arecontextualization mode that mainly aims at meeting foreign/parentdemands by observing and drawing on institutional templates availablein the local/host institutional context.

While crucial aspects of MBI’s work organization and human resourceprofile are shaped to meet foreign/parent demands, this does not implyan imitation of German home plant work concepts and human resourceprofiles. After all, this is also ruled out by a substantial strategic distance.Yet, we cannot talk of localization, either, because the organizationalsolutions are no clear reflections of typical local work arrangements and


human resource profiles. The best way to describe MBI’s work organ-ization and corresponding work profile is probably between hybrid andcustomized/novel. The emerging family model is indicative of this. Thefamily concept aims at changing certain local work dispositions whichthe German management deems problematic with regard to the Indianworkforce. It is most of all a lack of co-operation between operators andsupervisors, the initial unwillingness of supervisors to engage in ‘blue-collar-activities’ and the general problem of allocating responsibility tolower organizational-levels. For the German management the family-concept is a very powerful metaphor to get certain things done theirway, while using a well-known host institutional template. The idea offamily and children allows bridging the professional and social gap thatexists between supervisors and operators and allows fostering the ideaof a team, a family with common goals. The father, like in a family isasked to be a role model. He has to be able to show the work with ‘hisown hands’ which is, if achieved, also a departure from a typical work-identity of an Indian supervisor. Moreover, the family metaphor helpsto allocate responsibility down onto the shopfloor by using the fatherfigure – a role most strongly associated with responsibility taking inIndian society. However, the hierarchical emphasis of the family-modelalso implies a compromise from the German side. A more equality basedgroup concept as promoted and introduced in MB’s home plants is noteven considered for MBI. German managers admit that the Indian team-work concept is a departure from the group-work concept as followedby MB in Germany. The Indian family-team is very much a hierarchicalconfiguration, with the supervisor being the undisputed leader. Thus,MBI’s work organization is hybrid in the sense that it draws on a typ-ical Indian patriarchal-hierarchical institutional pattern to further theimplementation of German demands.2 The family model is, at the sametime, customized or novel in that it responds to different contextualdemands and is neither a clear reflection of the shopfloor practice in theGerman parent company nor a reflection of what is typically found inIndia’s industrial work contexts. For on the German shopfloors no ‘fam-ily concept’ exists and the work organization has increasingly shiftedtowards autonomous group-work where hierarchies are less pronouncedand ‘Meisters’ take on more distanced advisory roles. In a typical Indianmanufacturing company, in turn, the demarcation between supervisorsand operators would be taken-for-granted (c.f. Ramaswamy, 1996) andhardly an object of change through a de-contextualized ‘family model’.

Not only is MBI’s central work concept a hybrid, but the correspond-ing human resources profile is as well. Both skill-levels and more so basic


work dispositions, departed from a typical Indian and foreign/parenthome plant set-up. According to German management, quality aware-ness and responsibility taking have substantially improved and departfrom typical local conditions. Factory discipline, in turn, is seen to evensurpass German standards. Moreover, the average Indian worker work-ing on MBI’s lines has a higher qualification than his counterpart on thehome production lines. On the other hand, while attitudes of hierarch-ical demarcation are seen to have been reduced and quality awarenessenhanced, German management is doubtful if the changes are so deeplyinternalized that they would stay without ongoing German presence.Taken together the human resource profile of MBI is a hybrid in thesense that some work dispositions and formal qualifications (related toorganizational position) remained institutionally Indian, while othersmove closer to the German ones.

Finally, while formal concepts are one-thing actual behavioural pat-terns are quite another. Formal concepts may be more often than notsuperimposed and actual informal practices may diverge from them.In MBI it appears that the family concept is the result of local on-sitedynamics, rather than an abstract concept designed and superimposedfrom anywhere else. This is not to suggest that there is always con-gruence between the concept’s behavioural underpinnings and actualbehaviour. However, according to German and Indian managers, themodel achieved its core goals in work dispositional terms (MBI 1, 3, 5,6). Supervisors are said to visit their operators privately and their resis-tance to co-operate with operators and their unwillingness to go downto the ‘dirty line’ is said to have faded over time. On the other hand, thelingering presence of documents presented above can also be seen as anindication that certain behavioural issues require ongoing attention.

All in all, the work organization and human resource profile is hybrid.They are hybrid in the sense that they reflected foreign/parent and hostcontext institutional elements. These elements from different contextualorigins are pieced together in a highly idiosyncratic way. Some of thework organization configuration simply reflected a specific response to acomplex set of different demands. As such the configuration also featureselements that are customized or novel.


Transfer scenario

As far as company industrial relations are concerned, there is neither atemplate nor are there specific demands German expatriates want to see


implemented. There is, for example, no intention to transfer Germanstyle works councils.

One of the main reasons for the transfer absence is the fact that com-pany industrial relations are under the purview of the human resourcedepartment which is staffed throughout MBI’s history by experiencedIndian human resource managers. In the first years, Indian managementhandles the human resource department because it is the Indian JV part-ner’s responsibility. However, even after DB/DC fully acquires MBI, thehuman resource department remains in the hands of Indian managers.In fact, the human resource department is the only function that remainsexclusively in Indian hands throughout the company’s existence. This isnot least the case because of the jungle and pitfalls of India’s labourlegislation and industrial relations system. The institutional distancebetween the German and Indian industrial relations scenario and thelacking familiarity of German managers with host context conditions inthis regard make them to rely on their Indian counterparts. So, next tothe fact that there is no defined template for transfer, the institutionaldistance between the home and the host context deters German manage-ment to seek a transfer. Besides, there are no indications that Germanmanagers find home modes of labour relations so advantageous as toseek their replication in India. This, in turn, allows Indian managers tobuild MBI’s industrial relations by drawing on a local/host template.

Misfit

There are no indications that German managers have specific demandsor problems with the way the Indian human resource managers handlescompany industrial relations. At least, there are no signs that Germanmanagers finds MBI’s labour relations implemented problematic. In fact,the opposite is the case; German managers praised the local disciplineof labour. Thus, while the institutional distance may have indirectlyinfluenced German managers not to transfer their home companyindustrial relations, there is no misfit between local/host template andforeign/parent demands. German expatriates either have no demands ortheir expectations vis-à-vis MBI industrial relations are not contradictedby local conditions. There are, however, changing local/host institu-tional demands at MBI to which the Indian human resource managersrespond to. In the early years, when MBI operates on TELCO’s com-pound, the company is shielded from the direct impact of host contextindustrial relations. This has to do with the circumstance that MBI isfrom an outsides perspective not perceived as an independent unit andfrom inside not perceived as a unit in its own right. Specifically, MBI


adopts, in the first years, the wage settlements which are negotiated byTELCO’s union. In this scenario, there is not much threat of the forma-tion of a much feared external union. However, when MBI is taken overby DB/DC and moves to a new location outside the premises of TELCO,union activist approach MBI employees and probe for possibilities ofcreating an external union. The change in equity and the followingshift to an outside location, change local/host institutional demandsand conditions for MBI with respect to its company industrial relations.


No adaptation of foreign/parent context to the local/host contextIn the absence of a foreign/parent template for MBI’s industrial rela-tions, no such template can be adapted. Similarly, there are either noforeign/parent demands or no contradictions between foreign/parentdemands the local/host set up of industrial relations. Either way, thereis no requirement for an adaptation of foreign/parent demands to thelocal/host context.

No adaptation of local/host template to the foreign/parent demands Asthe local/host context template faces no foreign/parent demands, thereare also no adaptation requirements. Instead, the host country managerswho respond to local/host institutional conditions and demands createMBI’s industrial relations in line with a modern host context template.Specifically, in the first years, they install a ‘coordination committee’which has the function of an ‘early warning system’ and addresses workergrievances (MBI 2). These efforts are mainly geared at assuring industrialpeace at the site. As MBI is shielded in the first years from institutionalpressures of the Indian industrial relation context, Indian managers arehappy to keep out any sort of union activity. Up until 2000, the site’sindustrial relations are mainly regulated through the ‘coordination com-mittee’ which is constituted by labour representatives and chaired bythe head of human resources (MBI 2). However, when MBI moves toits new location outside the premises of TELCO and outside activistsapproach the MBI employees, the Indian human resource managementtakes a proactive step and founds an internal company union. Accord-ing to the Indian head of human resources, any organization in Indiawould sooner or later have a union. But, to prevent the union frombeing externally linked and to prevent union radicalism from enteringthe company, MBI’s human resource managers pursue the foundation ofan internal union. In doing so, they draw on local/host context template


for industrial relations that is increasingly followed by modern com-panies in India. This option gives the company’s labour a stronger voice,a forum to raise grievances and wage demands. At the same time, it servesto keep Indian union radicalism out of the company. The union’s foun-dation by Indian management is a deliberate, pro-active step to selectthe most preferred institutional mode for company industrial relationsavailable within the framework of the Indian industrial relations sys-tem. It is probably the resilience of the local institutional context of theGreenfield site with a young workforce that allows the establishment ofsuch a non-contentious and modern mode of industrial relations.

Outcome

MBI’s industrial relations are neither impacted by a foreign/parent tem-plate nor by foreign/parent demands. Instead, industrial relations arecreated by host country human resource managers in response andin tune with local/host institutional conditions and demands. Theyrespond to these conditions by establishing a typical host template, aninternal unaffiliated union. This structure reflects a mode of industrialrelations followed in many modern companies in India. The interactionwith this new union is rated good although not as smooth as in theearly years. Although there is some minor tension with the union, at thetime of the second visit, due to wage negotiations, there is no threat ofstrike or any radical industrial action. Rather it is perceived as normalto have a bit of tension during wage negotiations. The head of humanresource, however, also stresses that he has a watchful eye on the situ-ation as the formation of a second union can never be ruled out (MBI 4).Nevertheless, employee relations are by and large described as smoothand peaceful. Another indication of this is that the site has low levelsof absenteeism and high levels of labour discipline. It is fair to say thatthe industrial relations of MBI reflect a typical local mode of industrialrelations.

Supplier relations

Transfer scenario

Regarding MBI’s supplier relations there is neither a comprehensivetransfer of home plant template nor a comprehensive replication effortof any existing CKD plant’s supplier relations. Yet, there is a loose refer-ence to the just-in-sequence (JIS) and supplier park concept practised atsome sites in Germany.

The main factor ruling out a transfer of home plant supplier relations –most notably the tiered supplier structure and JIT supply logistics – is the


strategic distance. Given the host strategic situation of low demand, itmakes no sense to build an integrated manufacturing unit. Instead ofan integrated plant, a low volume CKD set-up is chosen. This, in turn,means that it is for suppliers very unattractive to set up or invests incapital-intensive manufacturing facilities for MBI. As it is in the verynature of CKD sites to receive most parts and components from homeoperations, JIT supply logistics are rendered meaningless. In this scen-ario, inventory costs and times become less important cost variables.Cost minimization is mainly achieved through bulk container ship-ments, which comes at the cost of higher inventories (MBI 3). Thus,given that MBI mainly performs assembly activities and relies on thelong distance supply of CKD-kits, a number of supplier-related conceptsthat apply for integrated plants are entirely irrelevant for MBI.

While it is evident why there is no intention to replicate home-plantsupplier structures and supply logistics one could imagine that MBIwould adopt supplier relations similar to other CKD sites. This, however,is only partly possible because MB has no defined template for CKD sup-plier relations and because institutional demands in India, namely thelocal content requirements, force MBI to adopt supplier relations thatdiffer from other CKD sites. At the same time, there is also no intentionto use the local JV partner’s supplier relations as a template. This optionis ruled out by DB/DC’s control of the site, its global supplier policiesand its introduction of a premium product that has different quality andtechnology requirements compared to TELCO’s products.

Having said that hardly any templates are used is not to say thatthere are no local/host demands and foreign/parent with respect to MBI’ssupplier relations. Important demands from the local/host institutionalare the local content and other foreign direct investment requirements.Moreover, the supply and demand conditions define a strategic contextthe site’s supplier relations have to respond to. Additionally, there arealso foreign/parent demands affecting MBI’s supplier relations. Like otherinternational automobile companies, DB/DC formulates global policiesand concepts for its supplier chain. The most important ones are the‘tandem’ concept and the ‘follow sourcing’ policy as well as global qual-ity systems and processes (MBI 5). While the ‘tandem concept’ aims atestablishing cooperative relations with key/first tier suppliers, the ‘followsourcing’ concept envisions that key global suppliers provide their prod-ucts and services wherever DB/DC manufactures globally. Apart fromthese policies that are mainly concerned the contractual relations withsuppliers, there are worldwide quality polices DB/DC suppliers have toadhere to (MBI 6).


Misfit

Although there is practically no local/host or foreign/parent templateserving as a blueprint, there are different demands and conditionsimpacting the supplier relations. As far as the host context is concerned,there are institutional demands with the goal to develop India into asupplier base. Foreign exchange neutrality/export requirements, highimport tariffs and local content requirements are the principle tool toforce foreign companies to increase local value addition. For companieswith high volume demand scenarios and price sensitive customers,demands for high local value addition pose no problem. However, formanufacturers like MBI, facing a low demand scenario for high-segmentvehicles, local value addition, beyond a localization of labour intensiveproduction, steps is not economically viable. Given the low demand,these companies cannot invest in capital-intensive production stepswhich require high production volumes to amortize. By the same token,it is very difficult to convince international and local suppliers to set upmanufacturing units and accept low volume orders.

There is, thus, a substantial misfit between the local content demands,posed by the host institutional context and the strategic demand of prof-itable production on the part of the foreign/parent and its suppliers. Itis this principle dilemma MBI faces in the set up of its supplier relations.Without the pressure of local content requirements, MBI would prob-ably not even have considered to work with suppliers in India. However,given local content requirements, MBI chooses to work with local sup-pliers. Once the decision is made to work with suppliers in India, certainsupplier related policies apply. These policies are mainly the ‘tandem’,the ‘follow sourcing’ and quality policies. Given the strategic and insti-tutional conditions in India – low volumes and lower quality standardsof suppliers – the application of the concepts is not an easy task andtranslates into change pressures on local suppliers.


Little adaptation of foreign/parent templates and demands to the local/hostcontext As there is hardly any template transfer, there are also few pos-sible adaptations of such a template to the local/host context. Those con-cepts mentioned are the JIS and supplier park concept. These home plantconcepts are not or only marginally applied due to the strategic distancebetween the home plant and local/host context. For example, intervie-wees suggested that, instead of JIT, just-in-sequence (JIS) was transferredto shape supply logistics. However, there are strong indications that


even JIS is not implemented as in the integrated plants at home. Withcomponent deliveries three days in advance – though in the right vehiclesequence – India’s supply flow is a far cry from time-critical pull-systemswhich both JIS and JIT essentially are. Naturally, the ‘real’ transfer ofthese practises is no option as supply logistics in CKD set-ups follow adifferent logic compared to integrated plants. Similarly, there is also noimplementation of the supplier park concept as practised in the A-classproduction in Raststatt, Germany. While MBI’s systems are located nearthe plant, there is no supplier park as such where all the suppliers arelocated.

While there is hardly any supplier template transfer, there areforeign/parent demands that can be potentially adapted to the local/hostcontext. One indication of such an adaptation of the foreign/parentdemands to the local/host context is the condition that MBI works withlocal suppliers despite being a CKD site. To satisfy local/host institutionalrequirements for local content, MBI establishes supplier relations withsix ‘module’ or ‘system suppliers’ (MBI 5). Specifically, some of the CKDcomponents are separated out and shipped directly to ‘module or systemsuppliers’ in India. These suppliers assemble the components (such asseats, axles and cockpits etc.) at nearby sites in Pune and supply them toMBI. As the systems and components supplied by these suppliers countas local content, no matter how much of their value is created abroad,MBI is able to achieve a ‘deemed local content’ of about 60 per cent(MD, 1998). Thus, in supplier structural terms, to fulfil India’s FDI policy,MBI develops a small supplier base in India. While, MBI formally fulfilslocal/host demands, the ‘real local content’ remains under 20 per cent. Inthis perspective, we could also view MBI’s supplier set up a partial adap-tation of local/ host institutional demands (host context resilience) toforeign/parent strategic demands for profitable operation (non-resilienceof foreign/parent).

Regarding DB/DC’s supplier related policies there is no sign of adap-tation to the local/host context. Among the most important are the‘follow sourcing’, the ‘tandem’ and quality policies. As we shall see next,this requires some adaptation – creation and change – of the local/hostsupplier context.

Some adaptation of local/host context to foreign/parent demandsOnce the decision is made to work with suppliers in India, DB/DCsupplier policies apply. This, in turn, requires some adaptation of thelocal/host context to satisfy MBI’s requirements in the establishment ofsupplier relations. Specifically, out of MBI’s six system suppliers in India


(SM Auto/Eberpaecher, TELCO, Dana Spicer India, Tata Johnson, BajajTempo, Draexlmaier-Motherson Sumi), four are long-standing DB/DCsuppliers serving the company already in other parts of the world. InIndia these suppliers form local JVs and take charge of MBI’s the sub-component assembly (MBI 5). Similarly, in line with the tandem policysuppliers are treated as closely integrated business partners, ‘extendedArms’ of the corporation (MBI 5). Particularly, in the case of the newlydeveloped local suppliers the company provides support. In some cases,MBI delegates employees and even expatriates to the sites of system sup-pliers. MBI also actively assists suppliers to adopt quality standards andpolices. Without such close cooperation and the involvement of globalsuppliers, MBI could not achieve the required quality-levels. Such assist-ance is not simply a formal requirement in line with the ‘tandem policy’but a necessity in the face of adverse institutional/strategic conditionsin an emerging market automobile sector. Thus, in contractual terms,the establishment of supplier relations in India is based on an adap-tation of the local/host supplier context to meet foreign/parent policydemands.

To conclude: MBI’s supplier relations are mainly created to integrateand respond simultaneously to foreign/parent as well as host contextstrategic and institutional demands and conditions . In structural termsthey reflect host institutional demands; in contractual terms the sitelargely reflects foreign/parent policy demands; in terms of supply logisticthe site reflects the local/host strategic context of low demand and thecorresponding task profile of a low volume site (low volumes and a strongreliance on long distance supplies for CKD kits).

Outcome

MBI’s supplier relations are not based on any template transfer. Thestrategic distance, between the local/host strategic context and the homestrategic context, rules out the transfer of home plant supplier relations.In addition, no supplier relations template is defined for CKD sites, atleast not at the time when MBI’s supplier relations are established. Simplyusing the local JV partner’s existing supplier relations as a template is alsoruled out by a number of factors including: strategic distance betweenthe JV partner’s task profile, a technology gap, DB/DC’s product intro-duction and majority in the JV as well as its global supplier policies.While no template is used or transferred, there are foreign/parent andlocal/host institutional and strategic conditions that have to be factoredinto MBI’s supplier relations. These different conditions and demandsare partly contradictory and are resolved with a pro-forma compliance

211

Table 7.2 Summary of MBI’s hybridization profile

Firm > PS Dimension MBI

Functional Transfer: Foreign/parent strategic demands and local/host institutional demands and strategicdifferentiation conditions to be met

Fit/Misfit: No misfit between different demands and conditions, need for their accommodationMode of Recontextualization: Adaptation (i.e. creation of functional set-up) of local context to meetdifferent demands and conditions

Outcome: Customization

Hierarchical Transfer: Use of local templatedifferentiation Fit/Misfit: Increasing institutional misfit between local template and parent/foreign demands

Mode of Recontextualization: Some local template adaptation; some foreign/parent demandadaptation (rejection/limitation) to local template

Outcome: Hybridization (coexistence)

Technical Transfer: Only selective and increasingly less transfer of technical configuration; mainly foreign/ parentconfiguration strategic demands plus the pressure to meet host strategic conditions and institutional demands

Fit/Misfit: Host context institutional and foreign/parent strategic demands partly contradictoryMode of Recontextualization: Adaptation (i.e. creation) of local context to meet foreign/parent demandsand host demands

Outcome: Mainly customization

(Continued)

212

Table 7.2 Continued

Firm > PS Dimension MBI

Work organization/ Transfer: Foreign/ parent demands and local/host conditions and demands to be metHR profile Fit/Misfit: Misfit between foreign/parent strategic/institutional demands and local/host institutional

demands and conditionsMode of Recontextualization: Adaptation (i.e. creation) of local site to integrate foreign/parentdemands and local/host demands; little adaptation of foreign/parent demands; adaptation of localcontext by rejecting local demands; yet, drawing on a de-contextualized host-context template

Outcome: Between hybridization and customization

Industrial Transfer: Local/host template in userelations Fit/Misfit: No misfit between local/host template and foreign/parent demands

Mode of Recontextualization: Creation of company industrial relations in response to local/hostinstitutional demands and conditions

Outcome: Localization

Supplier Transfer: Foreign/parent strategic/institutional demands and host institutional/strategicrelations demands and conditions to be met

Fit/Misfit: Some misfits between the local/host and foreign/parent strategic/institutional demandsand conditions

Mode of Recontextualization: Only little adaptation of foreign/parent demands; some rejection ofhost context demands; for the most part adaptation creation/customization of supplier relationsto integrate foreign/parent and local/host demands and conditions



of MBI supplier relations with local/host institutional demands and anactual compliance with foreign/parent demands and policies. All in all,the site’s supplier relations are creation or customized solutions to meetforeign/parent policies under the specific strategic conditions of a lowvolumes, long distance CKD supplies, and FDI regulations in India’s insti-tutional context. The result can be best captured as a customization (seeTable 7.2 for a summary of MBI’s hybridization profile).

8The Case of Skoda Auto India

Introduction

VW’s internationalization in the passenger car segment starts early com-pared to other German auto manufacturers. In the 1950s VW opens itsfirst CKD-operations in Brazil (1953), Mexico (1954) and South Africa(1956). Responding to stringent protectionism in the respective coun-tries, these plants soon develop into fully integrated production sites(Eckardt et al., 2000). The internationalization pattern of setting upproduction sites for ‘mature products’ in peripheral markets continuesthroughout the 1970s and 1980s and involves the establishment of newsites in Nigeria (1975), Argentina (1980), Egypt (1981) and China (start-ing in 1983). This development is paralleled by VW’s Europe-centredinternationalization (Eckardt et al., 2000).

In 1982, VW starts cooperation with SEAT, which leads to SEAT’stakeover in 1986. According to Eckardt et al. (2000), the 1980s herald aqualitative change in VW’s internationalization strategy towards ‘trans-nationalization’. As a result, the international division of labour becomesmore integrated, involving more exchange of parts and componentsbetween different international production sites. In addition, the centre–periphery imbalance with regard to strategic roles and product mandatesbegins to crumble. A number of foreign plants are no longer mandatedto exclusively build outdated models for peripheral markets but areassuming product mandates for new, core market-models. A case in pointis the New Beetle built at VW’s Mexican Puebla plant. In addition tothis qualitative shift, the 1990s bring a quantitative boost in VW’s inter-nationalization. Among the most important developments are probably:the establishment of the JV with China’s First Automobile Works, the

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takeover of Skoda and the foundation/renewal of a number of productionsite in Eastern Europe and Latin America.

The establishment of SAI has to be seen within the context of VW’sglobal product strategy: that is, using the Skoda brand to cater toCentral/Eastern European and Asian markets. It remains unclear, how-ever, whether the establishment of Skoda India is a strategy-driven andcoordinated effort by the Volkswagen group, or rather a subsidiary ini-tiative that grows out of Skoda itself. In any case, while the involvementof Skoda in India may have been the result of a central decision by VW,SAI’s establishment, at least at the time of research, is very much left toSkoda. It appears (SAI 1) to be an internationalization effort driven bythe Skoda subsidiary, rather than by the VW group. Nevertheless, the siteserves as bridgehead for the VW-group to venture into India. As such thesite has an important strategic role for the future. Moreover, Skoda’s carsmeet a comparatively good initial reception in the Indian market.

With regard to the strategic distance, the Indian site is, in productionvolume and product variety terms, strategically very distant from Skoda’shome plants in the Czech Republic, Mlada Boleslaw (2001/350,000 cars),Vrchlabí (2001/70,000 cars) and Kvasiny (2001/12,000 cars). At the sametime, the strategic distance to home operations is in the Skoda India caseis less dramatic than in the MBI case. After all, Skoda’s home operationsare also based on a ‘high-labour and low-investment approach’ and relyheavily on suppliers (Kochan, 2001). Strategically, the Indian operationis probably closest to Skoda Auto’s Eastern European CKD-assembly oper-ations, namely in Sarajevo (Bosnia & Herzegovina), Poznan, (Poland),Solomonovo (the Ukraine) as well as in Kaluga (Russia) and in Ust’Kamenogorsk (Kazakhstan), where the Skoda vehicles are assembled(Skoda, 2008).


Drawing on Porter’s (1980) generic strategies, VW’s overall global productstrategy can be best described as combining a differentiation and costleadership strategy. Along similar lines, Boyer labels VW’s profit strategya ‘diversity and volume’ strategy (Boyer and Freyssenet, 2003; Freyssenet,2000). In the 1990s, the differentiation aspect of the product strategysees a strengthening and is expressed by an ‘upward opening’ of VW’sproduct portfolio to new luxury brands and the upward extension toluxury segments within the VW brand itself (Pries, 1999).

The Volkswagen brand group – comprising the Volkswagen PassengerCars, Skoda, Bentley and Bugatti brands – offers products ranging from


the small sub-compact cars to luxury saloons. The aim of the brand isto set class-beating standards in all its products from the sub-compactLupo through to the Phaeton luxury saloon. Skoda, with its Fabia,Octavia and Superb models, offers a range of products extending upto the mid-class segment which above all deliver outstanding valuefor money.

(Volkswagen AG, 2005)

VW follows from relatively early on different product strategies fordifferent regional markets. This mainly involves introducing older,specifically customized or even outdated models to peripheral marketsin Latin America, Africa or China and state-of-the-art models to thedeveloped triad markets. While this disparity narrows in the 1990s, VWstill differentiates its product offerings according to different markets orworld regions. For example, in contrast to VW’s overall product strategy,the product strategy of the Skoda brand rests more on the cost-leadershiporientation, targeting mainly Central Eastern Europe and Asia. In 2005,Winfried Vahland, Vice Chairman of Board of Management Commer-cial Affairs of Skoda Auto, defines ‘[e]stablishing of a CKD-Strategy toconquer other markets in Eastern Europe and Asia, incl. China’ as a cor-ner stone of Skoda’s future strategy (Vahland, 2005). In fact, Skoda’smarket success in Western Europe is originally not intended and has can-nibalizing effects for the VW brand. Despite different regional productstrategies, VW increasingly integrates its product strategy by developingshared platforms for its four main passenger car brands: VW, Audi, Seatand Skoda. This even allows establishing production sites that are capableof producing a mix of the different car brands (Eckardt et al., 2000).


SAI is founded as a wholly owned Greenfield subsidiary in the year 2000.A press interview with Skoda India’s managing director suggests thatSkoda/VW chooses a wholly owned Greenfield as the entry mode becauseit wants to build up the site in line with VW/Skoda operational standards.

Q: Coming to your manufacturing plans, it seems strange that in thismarket, which has excess capacity, you are adding to it. Wouldn’t ithave made sense to use some of the existing capacity, especially sinceyou will be starting with an assembly operation?A: That’s right. But existing capacity doesn’t mean that it is really suit-able capacity for us. New capacity at the same time does not attributeto over-capacity. It’s the question whether the capacity that has been


invested for is being accepted finally by the customer. What we wantto do is have our own little thing which we can build up from scratchwith our way of doing things of manufacturing and of quality man-agement. That’s the most important part for us. We have decided tolocate in Maharashtra because the quality labour and the infrastruc-ture is there. Also, Mumbai port is on the right side of India for ourshipments from Europe.

(Autocar India, 2001)

In contrast to other international automobile companies, the VW-groupis a late comer in the Indian market. Unlike in China, the VW-group hasbeen undecided for some time about whether, when and how to enterthe Indian market. Already in 1996, the VW-group is considering to enterthe Indian market. In 1997, Posth, the President of VW Asia-Pacific Lim-ited is asked in a press interview about the size of investment in India. Hestates that VW is considering a US$130–190 million operation. Produc-tion volumes are not decided, but are intended to be at least 20,000 unitsper year. Concerning the brand-choice, Skoda is mentioned among oth-ers brands (Mukherjee, 1997). The principle dilemma that the VW-groupfaces in India is that the volume segments A and B are in the firm grip offirst movers, mainly MSI and Hyundai. At the same time, VW has seenMBI’s difficulties in offering premium-segment cars in India. Therefore,VW is careful about introducing a high-segment brand such as Audi.However, offering a low-segment car is equally risky. Like many otherforeign car manufactures that have entered earlier, VW/Skoda comes torealize that the Indian market demand is weaker than originally pro-jected. Instead of the bigger investment plans, the company has earlier,a careful look-and-see approach is adopted (SAI, 2; Mukerji, 2002). Thus,as a latecomer in a slow market growth scenario, VW/Skoda scales downits initial project. Ultimately, the choice is made to enter the Indianmarket within the format of a small SKD-operation and with the Skodabrand. The brand is seen to cater to a specific market-niche between theC and D segment which is identified as vacant.

In 2000, Skoda Auto signs the MoU and founds SAI. SAI is set up asa wholly owned subsidiary. This equity situation is still unchanged, in2003. The choice of entry is structured by the following conditions: First,Skoda wants to build its ‘own little thing’. The easiest way to do this isa wholly owned Greenfield site. Probably Skoda has also observed thatmost auto JVs in India are beset with JV partner problems which generallytriggered a continuous equity shifts in favour of the foreign partner; sec-ondly, neither VW nor Skoda has a long-standing history in the Indian


market. Therefore, no specific Indian partner suggests himself; thirdly,when Skoda enters in 2000, India’s FDI regime has substantially changed,rendering a market entry in the format of a wholly owned subsidiarymuch easier.


Skoda’s first assembly facility is located in an industrial area near thecity of Aurangabad (State of Maharashtra). The facility commences as alow-investment project in the format of a SKD-facility. Skoda’s assemblyactivity takes place in a leased building on the compound of a SiemensSwitchgear factory. In early 2003, SAI assembles only one model, theOctavia in two basic variants (1.9 litre turbo diesel/2.0 litre petrol avail-able in six colours) (SAI 2). The site has an installed capacity of 10,000SKD units per year. When the site is visited, the daily output is at 35–40vehicles on a double shift basis. Manufacturing activities are character-ized by pure assembly of SKD-kits. The company has already moved onfrom an initial SKD 00 status to an SKD 0 status, implying slightly morelocal assembly activity. Moreover, the site is preparing the commence-ment of CKD production at another location. This means that the carwill arrive in a more disintegrated manner requiring more local assem-bly. In addition to its CKD site in Aurangabad, VW is planning a newproduction facility in India by 2010. The goal is to have an integratedproduction unit in Pune.

In terms of segmentation Skoda enters the Indian market with thelower-D-segment Octavia which is produced in two basic variants (1.9litre turbo diesel/2.0 litre petrol available in six colours). Given theOctavia’s positioning in the Indian market, between the upper C andlower D segment, the car is well received and is considered locally a lux-ury vehicle at a low price. Following the positive market response anda new import duty structure SAI plans in 2003 to move to a new site,shifting operations from SKD to CKD assembly. However, when SAI isresearched, its operation is still a SKD facility, assembling one car modelonly. The site has an installed capacity of 10,000 units/SKD-kits p.a. andhas about 230 employees.

Skoda realizes in 2002, in its first year of full operation, sales of around4400 units. In 2003, Skoda has a sales target of 8500 cars but has tolower it to 4500 units. The downscaling of the sales targets is not causedby sluggish demand but by a slowdown in production, related to shiftingoperations from a SKD- to a CKD-assembly set-up. In 2006, the Indianplant manufactures a total of 12,599 vehicles and sells 12,105 vehicles.This is 35.2 per cent more than in 2005 (SIAM, 2006). In 2006, the plantemployed 378 people and has production capacity of around 28,000


vehicles per annum. Whether Skoda can be called a big success is tooearly to say. However, by Indian standards, the market entry is a success.Compared to MBI, Skoda’s market entry is a run away success. After a lit-tle more than one year of full operation, Skoda achieves in 2003 a salesvolume of 4656 units (The Hindu, 2005) and in 2004–2005 a market shareof close to 1 per cent (SIAM, 2006). This market share is four times biggerthan MBI’s, which operates already ten years in the Indian market.


The global transfer scenario

Interviews at SAI reveal that the company does not draw on any com-prehensively defined production template (SAI 1, 2). While the parentplants, at which the Octavia is manufactured, do serve as a compe-tence pool, particularly in matters of product specifications and assemblyexpertise, there is neither a specific home country plant nor any otherSKD/CKD site that serves as a defined blueprint for the Indian site’sset-up. Very similar to MBI, the officially planned transfer effort isrestricted to documentation and planning of the technical side of theorganization of the production process: documentation of assemblysequences, systems and procedures for manufacturing and quality assur-ance. While there is no comprehensively defined template for the Indianoperation, there is a selective transfer-intent. This mainly involves theimplementation of VW’s global quality and auditing system as well asthe Skoda Production System (SPS). The latter defines circumscribedaspects of shopfloor work organization, including a number of tools andparameters to control quality and work-force performance. The Czechinterviewee summarizes the aspects to be implemented in the Indiansubsidiary as follows:

The product, the systems, the parameters for regulation have to be thesame. The methods have to be the same. We have to audit with thesame scores which is direct pass ratios.

(SAI 1)

The transfer intent centres on the implementation of two parent com-pany systems defining a limited range of aspects for the shopfloor workorganization. These are, for the most part, outcome monitoring systems,tracking performance by means of various numerical indicators. Howthese systems are implemented and embedded in day-to-day interactionis largely left to Indian managers who receive a brief training in the par-ent plants. Apart from the core-system implementation, the Indian and


the Czech interviewee state that there are no intentions to imbibe anysort of foreign work culture (SAI 1, 2). To the contrary, the Czech inter-viewee stresses that he has to learn from his Indian colleagues how thingsgo and emphasizes that he has no ambitions to change many things asthey belong to ‘their own habits’ (SAI 1). However, he repeats that thecore-systems have to be implemented. This he considers his main taskas an expatriate. Along similar lines, the Indian interviewee stresses thatwhile certain technical systems are transferred, various cultural aspectshave to be Indian (SAI 2).

Interestingly, the limited or selected transfer intent is also reflected inan utterly polycentric staffing approach. There are only two expatriatesat the site, a German managing director (a Pakistan-born Non-ResidentIndian), with a marketing background, and a Czech expatriate, with aquality assurance background responsible for production. In fact, theCzech expatriate complains that more expatriates and more personnelexchange would be required. Given the tight budget of the start-up thisis not possible, however. He is sure that had the start-up been a VWproject, it would have received more resources, including a higher rateof expatriate presence.


Transfer scenario

SAI functional differentiation is not based on defined foreign/parent tem-plate or a local/host template. The fact that no local/host template isbeing used is related to the site’s entry mode. As the site is a wholly ownedGreenfield subsidiary, the use of existing template or using a templatefrom a local JV partner is already ruled out.

Apart from the fact that the foreign/parent provides no template forSAI’s functional differentiation, the strategic distance in the task pro-file and demand market conditions between the home strategic contextand the local/host strategic context explain why there is no effort toreplicate Skoda’s home functional differentiation. Yet, while the trans-fer of Skoda’s home site’s functional set-up is ruled out by the strategicdistance, the replication of other – strategically closer – CKD/SKD site’sfunctional set-ups would have been an option. However, at the time ofSAI’s establishment, no such template is available or defined for the set-up of SKD/CKD sites, at least not for Skoda (SAI 1). Although SAI hasno defined template to draw on for its functional differentiation, thesite has to respond to some degree to its foreign/parent and local/hostconditions and demands.


Misfit

As neither a foreign nor local/host parent template is transferred or used,there is no recontextualization pressure on any template. There is also noindication that local/host demands and conditions and foreign/parentdemands are outright contradictory. Yet, there are different contex-tual demands and conditions that call for an accommodation in thenewly established functional differentiation of SAI. The foreign/parentdemands involve the implementation of global policies. For example, inline with VW’s global quality policy, SAI is obliged to have an indepen-dent quality auditing department. What is more, as the task environmentis with regard to the product and its quality not much different from thevehicles built at the Czech home sites, there are strategic demands toset up specific functions and processes in a similar way. However, giventhe low presence of expatriates at the site, there are only few specificfunctional structural demands other than those global standards or poli-cies related to assembly process and product quality (SAI 1). Conversely,those few foreign/parent demands that are defined with regard to thefunctional differentiation meet only little if any local resistance. Thisis related to the condition that: the site is a Greenfield site, the work-force is young and most of the Indian managers have worked for otherinternational automobile companies in India before. There are few func-tional demands in the first place and those foreign demands present, arenot in conflict with local/host strategic or institutional conditions anddemands. SAI’s the functional differentiation has to respond to the strate-gic requirements of producing a specific foreign/parent car model underspecific local/host strategic and institutional conditions and demands.The latter are characterized by moderate demand levels for medium tohigh segment cars and local content and import tariff demands from thehost institutional context.


No adaptation of foreign/parent templates or demands to the local/hostcontext? Since no use is made of any template, there is also norecontextualization pressure on any template. However, there are someforeign/parent demands with regard to the functional differentiation.These demands are met without much deviation.

Adaptation of local/host template, demands or conditions to the foreign/parent context The dominant (re-)contextualization mode shaping SAIfunctional differentiation is a creation to meet different demands and


conditions from the foreign/parent and local/host strategic and institu-tional context. With regard to foreign/parent context demands, the siteestablishes a quality department in line with global quality policies. VW’sglobal quality system calls for the function of a quality auditor who hasto report to a global quality department of VW. By the same token, theproduct requires some manufacturing operations and functions similarto those of the home plants. For the most part, however, the functionalset-up is customized to the specific local/host strategic context of the site.In other words, the operation’s functional set-up is mainly customizedto a specific task environment that differs from the parent operationsin terms of vertical integration (much less), supply logistics (long dis-tance) and with respect to product variants (much less) and volumes(much lower). Moreover, the small operation takes care of a whole rangeof functions that are not directly related to production (e.g. sales andmarketing, service and spares) and are not part of the task profile ofa home operation. Finally, the site responds functionally to demandsfrom India’s institutional context. These demands are connected to SAI’scomprehensive import of parts and components (SKD/CKD kits).

We can, therefore, conclude the dominant (re)contextualization moderegarding SAI’s functional differentiation is a creation in line with differ-ent demands and conditions from the host and foreign/parent context.Low levels of misfit and a high resilience of the site’s Greenfield contextprovide an enabling context for such a (re)contextualization mode.

Outcome

SAI’s functional differentiation is a customized solution responding todifferent contextual demands and conditions. The functional differenti-ation is not based on any foreign/parent template. The reason for this isthat the parent company has not defined a template matching the strate-gic context (and task profile) of SKD/CKD sites. As far as foreign/parentoperations are concerned, a transfer is not an option due to the substan-tial strategic distance to the local/host strategic context. The site is alsonot based on a local/host template which is mainly due to the fact thatthe site is a wholly owned Greenfield operation. The sites functional setup rather reflects foreign/parent demands about the manufacturing of avehicle that needs to meet technical and quality specification with regardto the product and production process and at the same time produc-ing such a product profitably under local/host conditions. The latter aredefined by a low volume demand scenario related to the model choiceand time of operation in the local market as well as requirements for


certain levels of local value addition. SAI’s functional differentiation can,therefore, be best described as customization.


Transfer scenario

SAI’s hierarchical differentiation does not draw on a foreign/parent tem-plate. This is on the one hand related to the absence of a suitable templateand on the other to the site’s staffing pattern. While there is no foreign/parent SKD/CKD template available for transfer, the transfer of Skoda’shome plant’s hierarchical differentiation is not considered an option,either. Both the Czech expatriate and his Indian counterpart, share theconviction that such a transfer would be incompatible with the Indianinstitutional context. The Indian head of production comments in thiscontext:

Q: The six (seven) levels you mentioned you have oriented yourselfon the Czech hierarchical levels?A: No it was not. Not Czech hierarchical levels. It is Indian levels. InCR we don’t have these levels. They are totally different and neitherhave we tried to adopt that. The supervisor is at the top level there. InIndia supervisor is the lowest level of management. So there is a bigdifference and we have never tried to adopt this.Q: So they have only two levels. Operators and supervisors?A: No they have different levels of course. But when I say supervisor heis of a managerial level of the whole set-up and he is a very powerfulperson. Whereas in the Indian culture, the supervisor belongs to thelowest level of management. So it is a totally different scenario. Inbetween they have, between operators and the supervisor levels, theyhave again levels, which are different from what we have in India.In India again the qualification, his experience, all comes into thepicture. We have diplomas, we have engineering graduates, and theybegin with different levels, so it is a different kind of structure hereand there.

(SAI 2)

From the Indian manager’s perspective the transfer is ruled out bythe different professional-education structure and qualification-relatedentry-points to specific organizational levels. He also stresses the roleof status differentials of managerial positions in the home and the hostcontext.


However, while the site doesn’t follow a foreign/parent template, thereis also no existing template or a locally defined template. Given that thesite is a wholly owned Greenfield start-up, there is neither an existinghierarchical differentiation nor a local JV partner pressing for the imple-mentation of a particular local template. Yet, Skoda’s polycentric staffingapproach implies that the development of SAI’s hierarchical differenti-ation is in the hands of Indian managers. Moreover, the expatriates onsite display a hands-off attitude in all areas but those that are related totheir immediate task or responsibility. The Czech expatriate propagates,for example, a non-intervention policy and explains this approach withhis minority status and his conviction that there is no reason to change‘local habits’ as long as basic performance parameters are met (SAI 1).Thus, as there is no foreign/parent template transfer, little foreign/parentdemands and no locally existing template, the shaping of the site’s hier-archical differentiation mainly faces demands voiced by the local/hostmanagement.

Misfit

SAI’s hierarchical differentiation is not based on a foreign/parent tem-plate or demand and faces, therefore, no local/host misfit and recontex-tualization pattern.

Being mainly set up by host context managers and responding tolocal/host institutional demands, the site rather comes to reflect a typi-cal local/host pattern of hierarchical differentiation. It is a pattern thatIndian management, considers lean and flat, very much in line withother modern enterprises in India (SAI 2).

While the foreign/parent management does not quite understand andapprove of this local/host pattern, it also poses no demands for change ormodification. For example, the Czech expatriate is not happy with anddoes not understand the need for up to eight hierarchical designationsfor an operation of SAI’s size. Yet, he induces no recontextualizationpressure (although he does question, whether this tendency of exces-sive levels of designations would be financially sustainable in the longrun). The absent recontextualization pressure, despite a perceived insti-tutional and strategic misfit by foreign/parent management, is due to theforeign/parent’s polycentric staffing approach as well as the utter hands-off attitude of the Czech expatriate. The fact that the Czech expatriateand his Indian managerial counterpart are hierarchically more or lessat the same level, also add to the difficulty demanding a change in thehierarchical set up.



No adaptation of foreign/parent templates or to the local/host context Asno foreign/parent template is transferred and hardly any foreign/parentdemands vis-à-vis SAI’s hierarchical differentiation are voiced, there isalso no adaptations to the local/host context.

No adaptation of local/host templates or demands to the foreign/parent context Conversely, as there are no meaningful foreign/parentdemands with regard to SAI’s hierarchical differentiation, it does nothave to be adapted to the foreign/parent context. Instead, SAI’s hier-archical differentiation is created in line with local/host institutionaldemands of the Indian management on site. Thus, given the absenceof foreign/parent template transfers or demands, and given the polycen-tric staffing approach at SAI, the dominant (re-)contextualization modeis a creation of the local context, in line with local/host institutionaldemands and conditions.

Outcome

The hierarchical differentiation of the site is newly created in line withlocal/host institutional demands, that is, in line with the institutionalconcepts of Indian managers who have the task to set up the organiza-tion’s hierarchical differentiation. Specifically, there are between sevento eight hierarchical designations from top to bottom excluding oper-ators. In the hierarchical order the designations at SAI are: ManagingDirector, Director, General Manager, Senior Managers, Managers, Assis-tant Managers, Senior Officers, Officers, (probably also Junior Officers)and Operators. Given these many hierarchical designations for so smalla company (130 employees out of which 90 are operators), the ques-tion arises whether real task profiles are linked to the many designations.While the functional heads (i.e. general managers) are responsible for thecore functions of SAI: technical, sales & marketing, production, service &spares and finance, it is less clear to what extent the other designationsdenote real task profiles or levels of responsibility. The link between hier-archical designations and task profiles or levels of responsibility remainsunclear (SAI 1, 2). It appears that SAI decouples, just as other companiesin India, responsibility levels and designations.

In summary: The absence of a foreign/parent template or demands anda polycentric staffing approach leave the development of SAI’s hierarchi-cal set-up to host context managers. Moreover, a perceived institutionaldistance between the parent company hierarchical structure and thelocal/host institutional conditions as well as the hands-off approach


of foreign/parent management in many areas, all favour SAI’s strongresponse to local/host institutional demands and, thereby, the adoptionof a typical local/host context solution. We can, therefore, describe SAI’shierarchical differentiation as localization.


Transfer scenario

Neither a home plant nor a CKD/SKD site or model served as a templatefor SAI’s factory layout, process design and technical hardware configu-ration. This is remarkable because VW has a long experience in settingup international operations, including CKD/SKD sites. The strategic dis-tance between the host and the home country context, is the main factorruling out the transfer of a home plant set-up. While SAI, with its mediumto high segment vehicle, has a better market response than MBI, it facesa similar situation of contrasting demand conditions and task environ-ments between the home and host context environment. The Indiantask profile, involving the assembly of around 40 vehicles per day, con-trasts with Skoda’s home plants Mlada Boleslav and Vrchlabi where thesame model is built at the volume of around 500 and 150 units per day(Kimberley, 2001). In fact, fearing a low demand scenario in India is amain reason why the VW group has been hesitant to enter the market.However, SAI’s task profile not only contrasts with home operations interms of production volumes but also in terms of model variety. The SAIoperation produces only one base model in a very limited number ofvariants. Thus, in comparison to Skoda’s home operation its small facil-ity in India features a low base model variety in very limited variants.The difference in model variety adds to the strategic distance that resultsfrom different production volumes. In addition to the strategic distanceregarding market demand, there is a supply-side strategic distance thatrules out the transfer of the home plant’s technical hardware configura-tions. Difference in labour costs also have to be factored in to the set-up.This equally rules out the replication of home plant technical hardwareconfigurations, which are already less automated than comparable VWplants in Germany.

While there is no foreign/parent template transfer, there is also nolocal/host template use. After all VW/Skoda wants to build its own thingfrom scratch, which is facilitated by the condition that SAI is a whollyowned Greenfield subsidiary. However, although no specific template istransferred, the main plant Mlada Boslav in the Czech Republic, serves asa limited point of reference for the Czech-Indian team responsible for theinitial establishment. Apart from foreign/parent demands regarding the


production requirements of a specific model, the factory layout and pro-cess design and technical hardware configuration has to respond to spe-cific strategic conditions and institutional demands in the host context.

Misfit

While the strategic distance rules out a home plant transfer, the site hasto respond to foreign/parent and local/host strategic and institutionaldemands and conditions. First, SAI’s vertical integration, factory layout,process design and technical hardware configuration has to respond toparent strategic demands. Despite the strategic distance in productionvolume and variety, the model to be produced is still the same as theone manufactured in the home plants. It requires similar final assemblyactivities and the same quality levels. Secondly, SAI’s vertical integration,factory layout, process design and technical hardware configuration haveto respond to the specific host strategic conditions of low volumes on thedemand side and low labour costs on the supply side. Thirdly, SAI’s fac-tory layout, process design and technical hardware configuration wouldhave to respond to host institutional demands. Like all other foreigncompanies, SAI signs a MoU in 1999 and is required to fulfil an indige-nization schedule involving increasing local content rates. SAI also hasto observe specific import tariffs for imported parts and components. Itis particularly the institutional demand for increasing local content ratesthat prove very problematic for SAI, given the modest market demandand the corresponding production volumes. SAI’s low volumes renderthe set-up of capital intensive up-stream manufacturing steps, especiallyin the initial market entry phase, uneconomical. There is, therefore, amisfit between host institutional demands for increasing local contentand the foreign/parent demands for profitable production under lowdemand conditions.


No adaptation of the foreign/parent demands to the local/host contextGiven the early market entry stage, given the strategic distance and giventhat there is no defined template for SKD/CKD sites, there is also noadaptation of a foreign/parent template to the local/host context. Sim-ilarly, there is also no indication that Skoda’s foreign/parent demandsvis-à-vis the technical configuration of the production process sees anysubstantial adaptation to the local/host context.

Adaptation of local/host demands and conditions to foreign/parent contextSAI is based on neither a foreign/parent nor on local/host template. Thisimplies that there is also no adaptation of local/template to foreign/


parent demands and conditions. Instead, SAI’s factory layout, processdesign and technical hardware configuration is created to meet strate-gic demands of the foreign/parent and the strategic conditions andinstitutional demands in the local/host context in India. The site’s estab-lishment mode implies that the factory layout, process design and thetechnical hardware configuration have to be newly established. A tech-nical support team of expatriates from a foreign parent plant realizes theinitial site establishment. Specifically, the site is set up by a group of sixexpatriates who are transferred at beginning for a short period of time:

We had expatriates and, as I said, the basic focus has been on settingup the shop, the production line. This is basically a technical supportfunction. How to do it? How to produce this? How to incorporatesystems and procedures? This is where their support came in. Andonce this is taken up and learnt by our people, than this team wentaway. We had a good number of people here, I think six people, it wasin the initial phase, once it was stabilized and everything is OK, thanthey were off.

(SAI 2)

Lacking a transfer template this creation expresses a customized responseto foreign/parent and local/host context demands and conditions. Thefactory layout, process design is designed to meet the quality and assem-bly requirements of the selected model that is similar to those in theparent plants in the Czech Republic. While basic quality processes andfinal assembly steps are principally the same, the set-up team has tocustomize the site to substantially lower volumes. Furthermore, withregard to the site’s technical hardware configuration, there are alsocustomized responses to foreign/parent demands and host context con-ditions. Low volumes and low labour costs rule out the transfer ofcapital-intensive process steps and technology such as transfer presses,paint shop technology or welding technology.

It should be emphasized, however, that SAI is at an early stage of entry.SAI’s factory layout, process design and technical hardware configurationare first and foremost specific responses to host institutional demands.That is, responses to qualify as a SKD venture. Only if the site can provea minimal amount of local value addition, is Skoda permitted to importparts and components at substantially lower rates than for full vehiclesimports. The process design essentially reflects the effort of importing acompleted vehicle at the lowest possible import tariff. Moreover, giventhe early stage of entry, SAI has not yet shifted its site to CKD operations


and does not procure parts from India. Against this background, internallogistics processes are entirely customized to long distance deliveries ofSKD-kits from parent plants in the Czech Republic.

Over all, the dominant (re-)contextualizatuion mode of SAI’s techni-cal configuration is a creation to meet foreign/parent and host contextdemands and conditions. The Greenfield nature of the site implies aresilient local context for set up such a (re-)contextualizatuion mode.

Outcome

SAI’s basic factory layout, process design and technical hardware config-uration can be best described as customized solutions. These customizedsolutions are the result of an absent template transfer – neither foreignnor local – yet customized responses to foreign/parent and local/hoststrategic as well as institutional demands and conditions. The set-upof the site is institutionally triggered by India’s FDI policy. For with-out the policy, the low volumes in the Indian market would probablyhave implied a preference for an import strategy. Skoda’s lacking trans-fer intent has largely to do with its careful market entry approach, withthe fact that the Indian site is strategically very distant from the Skoda’shome sites (at least at this early stage) and the condition that no templatehas been defined for SKD operations. However, while there is no directtransfer, there are foreign/parent demands as well as local/host strate-gic and institutional demands/conditions to which the factory layout,process design and technical hardware responds.

Specifically, to qualify as a SKD site, SAI receives SKD-kits which con-sist of completed vehicles, apart from a few components separated outfor local assembly (SAI 2). Accordingly, the site’s process has a very lowvertical integration, not comparable to any of Skoda’s home sites. SAI’sprocess design is such that complete car-bodies (including interiors) aremanually pushed into a garage-like hall. In the hall the transmission,the engine, the front- and rear-suspension are mounted onto the vehicleon a central lever (SAI 3). Apart from this main station, there are onlytwo or three additional stations. These comprise of minor final assemblyactivities (e.g. door-sealing), paint check and repair in light-tunnels. Thecar finally comes to life with a software upload, testing and fuelling. Theproduct flow is discontinuous and has a workshop character. SAI’s lowvolumes and the high level of vehicle completion upon arrival imply alow vertical integration. Low volumes and a small number of remain-ing assembly tasks mean that SAI features a fraction of the home plantsassembly stations. The few assembly tasks are clubbed in a small num-ber of stations translating into high cycle times of about 40 minutes.


Internal logistics as practices at home sites have no relevance for SAI,either, as the cars arrived almost completed.

Similarly, SAI’s technical hardware configuration is also a customizedsolution. It responds to foreign parent context manufacturing require-ments and the local/host institutional demands and strategic contextconditions, manifested in local content requirements, low demand andlow labour cost conditions. The resulting technical hardware configu-ration comprises of little more than simple hand tools and some finaltesting equipment. Compared to the home plants, SAI’s technical hard-ware profile shows no automation and hardly any mechanization. Apartfrom one lever for under-body assembly, simple hand tools, some fix-tures and testing-equipment, there is no technical equipment on site.What is more, the technical hardware used is mainly sourced from ven-dors in India. There is only some critical equipment, such as fixtures,which are directly transferred from the parent.

In summary: The production process is a customization to integrateforeign/parent strategic demands related to the production of a partic-ular model within a particular host country strategic and institutionalcontext, marked by low volumes, low labour costs and a specific FDIpolicy, pushing for local production.


Transfer scenario

SAI work organization and human resource profile sees some selectiveforeign/parent transfer (SAI 1, 2). Referred to by the interviewees as‘quality’ and ‘technical systems’, the Skoda Production System (SPS) andVW’s global quality systems are two defined templates that aim at struc-turing circumscribed areas of work organization and human resources.Originally derived from a VW-group production system, SPS involves awork concept for the shopfloor level. It defines a shopfloor team con-cept including an average team-size, team-responsibilities, training anddevelopment targets and a number of visual tools to monitor worker per-formance. These include charts for monitoring attendance, production,quality, cost and safety targets as well as 5S (Mudd, 2000). The Indianhead of production describes SPS as follows:

[SPS] talks mainly about, team working, more responsibilities for theoperators, better organizing his work and his team members, trainingand developing his team members, ensuring better productivity andbetter quality, implement security. So it is more focused on first lineoperation. . . . So that is what it focuses on. Another major difference


was a focus on absenteeism. This seems to be very good in this pro-duction system. Than control on quality this monitoring, tracing outthe problems and getting direct reactions is very good.

(SAI 2)

SPS covers formal structural aspects of the work organization as well astools to monitor performance outcomes on the shopfloor. With respectto the human resource profile, SPS rests on polyvalent workers, skilledenough to work at different stations. It relies to a certain degree on highinvolvement work dispositions. Workers are responsible for quality basedon integrated self-certification and also some degree of maintenancebased on housekeeping activities. In a way, it implies a non-Tayloristconcept of work organization combined with tight work-force control.

The second template transferred is VW’s global quality system. UnlikeSPS, this system is a standard template implemented worldwide in theVW group. The system only marginally touches the work organizationand is essentially a separate monitoring unit that reports directly to VW.Its main task is to randomly check the product quality. As far as VW’sglobal quality system and SPS are concerned, there is no reported strate-gic or institutional misfit that leads to an up-front transfer restraint.However, SPS only covers a limited range of the work organizationdirectly related to the shopfloor. Above this level, Skoda’s home plant’swork organization is not considered for transfer because of the combinedeffect of strategic and institutional distance. Apart from the fact that thepolycentric staffing policy and low resource endowment make a com-prehensive transfer home plant work organization and human resourceprofile difficult, the institutional and strategic distance seem to rule out acomprehensive transfer effort. Both the Indian production manager andthe Czech expatriate share the conviction that above all institutionalincompatibilities rule out a replication of the work roles as found on thehome plant’s shopfloors. The Czech expatriate sees a big gap or mismatchwith regard to the supervisor work roles. In the home plants, supervisorsgovern high respect and have about 50 to 60 people reporting to them.In India, a supervisor is generally a young man, ‘a beginner who knowsalmost nothing’ (SAI 1). Apparently, key work roles of the home plant’swork organization such as the supervisor role required a specific humanresource profile in terms of qualifications and status expectations, whichare either not available or incompatible with the Indian institutionalcontext. However, the transfer restraint not only follows from the sheerfact of institutional incompatibility between home and host context. Inaddition to the institutional distance, the strategic context of the Indian


site also rule out investments to replicate the elaborate home-plantschooling and training standards Skoda is renowned for in the CzechRepublic (Lyle, 2002). The modest volumes and the size of the operation,at least at the initial stage, do not allow the establishment of comprehen-sive three-year schooling and vocational training programmes as Skodapractices at home (SAI 1). Thus, the absence of a comprehensive transfereffort also has to do with a combination of both institutional and strate-gic distance ruling out a comprehensive replication of home country thework organization and the corresponding human resource profiles.

Thus, while VW’s global quality system and the SPS aims at structur-ing certain aspects of the work organization with implications for thehuman resource profile and while SAI’s mother plant in Mlada Bosleslawserves as a limited point of reference – especially for personnel transfersfrom India – there is no holistic or comprehensive replication effort ofany foreign/parent plant’s work organization and human resource pro-file. Instead, the main focus of the transfer is to set up the two core workconcepts, that is, putting their formal structure and monitoring toolsin place to be able to track performance levels. The Czech expatriatefrankly admits that his transfer ambitions and ability doesn’t go any fur-ther and repeatedly states that the human resources profiles and ‘habits’cannot be changed to those in the Czech Republic or in Germany (SAI 1).Comments by his Indian counterpart also confirm this set up scenario:

We have one production General Manager here, so basically he is hereto support guide and see everything is happening well. But ultimatelythe interaction on the shopfloor, the culture, it has to be set by theIndians.

(SAI 2)

An important explanation of the transfer restraint is Skoda/VW’s poly-centric staffing approach. Given the low presence of expatriates, theset-up of the SAI’s work organization and human resource profile islargely left to Indian management. Although SAI officially declares that ithas chosen a Greenfield site to build up its ‘own little thing’ and althoughSAI is from the outset a wholly owned subsidiary, SAI relies most exten-sively on host country nationals for the establishment of the site’s workorganization and human resource profile.

Misfit

The set up of SAI’s work organization and human resource pro-file involves two sources of misfit. The first potential source is the


institutional misfit between the limited foreign/parent template and thelocal/host context. The second source is the institutional misfit betweenthe local/host work organization and human resource profile establishedby Indian managers and the foreign/parent context.

Regarding the latter, it should be noted that Czech expatriate is highlycritical about a number of local/Indian work dispositions. This, how-ever, does not trigger any transfer ambitions or demands for change.For example, the enormous hierarchical distance between manageriallevels, particularly between supervisors and workers/operators is criti-cally reflected and attributed it to the caste system (SAI 1). In this context,the Czech expatriate mentions that in the beginning when everythinghad to get started quickly, he personally helped building the cars. How-ever, this physical involvement met the disapproval of his fellow Indianengineers. They were appalled by it and found it unsuitable. Moreover,the Czech expatriate complains about low productivity levels amongthe least educated, a missing identification with the company amongemployees and the tendency of his Indian counterparts to overstaff theoperation. He also stresses the narrow professional focuses and demarca-tion consciousness among different staff which make personnel transfersacross departments difficult (SAI 1). However, although he finds a num-ber of ‘local habits’ problematic, he has no intention to change themfor two reasons. First, he accepts them as ‘Indian habits’, habits that arerooted in the host context and not for him to interfere with. Secondly,he has to run the whole production set-up on a very tight budget (SAI 1).This implies limited resources for personnel transfers for further train-ing or expatriate involvement. After all, he is the only expatriate on siteresponsible for production and is busy with getting basic systems imple-mented and monitored. As a sheer matter of necessity, he has to leavesubstantial aspects of organization building in the hands of his Indiancounterparts.

While the Czech expatriate makes no effort to transfer a compre-hensive home plant work organization and human resource profiles,he does have the mission to implement a basic shopfloor work tem-plate and related performance monitoring mechanisms. Although thereis no reported strategic distance hindering transfer and implementa-tion of SPS, there are some perceived institutional misfits. First, theskill levels of the newly recruited ITI graduates are rated as insufficient.This is a deficiency shared by the Indian General Manager (SAI 2) andattributed to the weak components of practical training in the Indianvocational or industrial training system. Moreover, as the operators arenewly recruited, they have not worked for another company and are


not familiar with the operation of systems such as SPS. At the sametime, Skoda’s home vocational training programme is also not availablefor training. However, apart from these skill deficiencies, the operators’work dispositions, mainly ‘attitudes and discipline’ are rated good (SAI1). Second, in contrast to workers who mainly lack practical training andskills, the managerial ranks and particularly the lower managerial levelsare seen to lack motivation and proper adherence to the SPS. From theCzech expatriate’s point of view, ‘work attitudes’ of lower manageriallevels, most notably ‘officers’ are poor. He sees officers more concernedwith salary and status matters than with the work. He is also highly crit-ical about their employment history marked by frequent ‘job-hopping’.Apart from motivational problems there is another problem related tothe fact that many of the officers have worked for other auto companiesbefore. According to the Czech expatriate the implementation of SPSis particularly difficult because officers are used to other systems whichwere ‘deeper under their skin’ (SAI 1).

However, these reported misfits can also be read in a different light.No one of the newly recruited employees has come from a traditionalobstructive local/host working culture. The recruited workers are newlyrecruited and the managers are familiar with systems typically prac-tised in international automobile companies. Working with experiencedIndian managers implies a comparatively lower institutional distancewith regard to work dispositions such as the taking of responsibilityor quality assurance issues. This may explain why the Czech expatriatecomplains comparatively little about such problems.


No adaptation of foreign/parent template to the local/host context SAI’stransfer effort is limited with regard to the work organization and thehuman resource profile. It is largely restricted to the implementation ofthe SPS and VW’s global quality systems. Apart from the implementa-tion of these systems, that see little adaptation to the local/host context,Skoda’s polycentric staffing policy implies that there are not manyforeign/parent demands that can be adapted because there are hardlyany expatriates to pose such demands. Although the expatriate in thearea of production is critical about certain ‘Indian habits’ or work dispo-sitions, he sees this misfit as a matter of personal opinion, rather thana reason for change or intervention. In addition, he is hierarchicallymore or less on an equal footing with his Indian managerial colleagues.So, again, there are few foreign/parent demands that can be adapted tothe local/host context. As far as the implementation of the SPS work


concept and the VW quality system is concerned, the Czech expatriateis determined to implement it without deviation.

Adaptation of local/host context to the foreign/parent template In thoselimited areas where a foreign/parent transfer is sought, the local contextof the site is adapted to the template’s requirements. This adaptation isachieved through a selection and creation. The selection involves therecruitment of specific human resources in the host context. In addi-tion, it is based on limited personnel transfer in focus areas and usingexperienced Indian managers as trainers. But let us take a closer look.

As far as managerial levels are concerned, SAI makes an effort toheadhunt and recruit Indian managers who have worked for other inter-national auto manufacturers before. Although, the Czech expatriatecomplains about the recruited manager’s deep-seated familiarity withother international auto manufacturer’s systems, the Indian GeneralManager of production is convinced that the recruitment strategy hasfacilitated the transfer of SPS (SAI 2). Similarly, although both the Czechexpatriate and Indian manager identify skill deficits and training require-ments regarding the newly recruited ITI-qualified workers, their generalattitude and discipline are rated conducive to establishing SPS.

Ours being a new plant, we had no problems of adaptation becauseit was new. The operators were new, though we have the managingpeople, the engineers, managers, and assistant managers they alsowere exposed to such concepts. Like we have people from Daewoo,we have people from Ford, so they are also exposed to this type ofproduction systems. Maybe there is some slight fine tuning required,which is not a major problem. So the operators being totally new, sowe began with these systems, so we not had any resistance. In mypast experience I have seen this resistance coming through becauseI was in my 15 years, my old company, a 30 to 35 years old plant,there was tremendous resistance for these changes. I would say, therewas a different work culture. Totally, Indian work culture, where therewere no controls, no systems, proper system set-ups. Now, when newconcepts then come in there comes in a lot of resistance for change. . ..In our case nothing of this type, because it was all-fresh. We beganwith this thing so there was nothing.

(SAI 2)

A second corner stone of implementing transferred systems is a limitedtransfer of personnel. The personnel transfer scenario comprises of twobuilding blocs. Before the actual set-up of SAI, an Indian start-up team is


transferred to the home country for training at Skoda’s mother plantin Mlada Boleslav. This initial team comprises 20 Indians, includingoperators/workers and officers. For the site set up, the Indian teamreturns to India together with a Czech team. The two teams’responsibility is to kick off the production in cooperation with theirIndian counterparts. The Czech team’s involvement is restricted to arelatively short time-frame, however. After the Czech team leaves, theongoing establishment of SPS is left to the Indian start-up team and theremaining Czech expatriate in production (SAI 2). Thus, after this initialtransfer only one expatriate remains at the site. His restricted, but focusedrole, is to monitor the implementation of core systems most important ofwhich the SPS. A similar focused transfer takes place with regard to VW’sglobal quality system. In this regard, an Indian quality specialist – whosejob is to establish and conduct the global quality control – is transferredto Germany for training on VW’s global quality system.

Yes we do have an audit which is like a global audit. This person istrained in Germany. He is tuned or calibrated, I should say, to thesame level of knowledge and ability to identify defects in line withthe VW auditors and this person picks up a vehicle at random everyday and audits it. And then he gives the feedback and that gives us afeeling of what exactly we are producing.

(SAI 2)

While SAI sees regular personnel transfers to establish the home plant’sproduction system and to align the local human resource profile with itscore requirements, there is some sense of frustration on the part of theCzech expatriate. He complains about too few personnel exchanges andblames it on the tight budget for SAI’s set-up. He even argues that had thesite been a VW venture, there would have been more resources available,more technical personnel exchanges and more expatriates transferred.Referring to himself, he states, ‘one man here is not enough’ (SAI 1).

In the absence of more intensive expatriate transfer, SAI strongly relieson host country nationals who are briefly trained at Skoda Mlada Boleslavand/or have worked before for another international auto company inIndia. Thus, in the absence of expatriates and home plant training facil-ities, operators are mainly trained on-the-job and familiarized with SPSthrough Indian officers and managers. In addition to training on-the-job,there is also some on-site-classroom training on ‘professional habits’ inthe areas of safety, protection, technical aspects (SAI 1).

While there is some limited foreign/parent transfer effort targeting cer-tain aspects of SAI’s work organization and human resource profile, most


aspects of the work organization and human resource profile are createdin line with local/host context institutional demands and conditions.Clearly, as far as SPS’s formal structure and measurable aspects of therequired work behaviour are concerned, the local site follows the for-eign/parent template. At the same time, most behavioural patterns andwork dispositions remain local/host context specific. Their structurationis entirely in the hands of Indian managers, involving little expatriateinterference. Such an assessment is also suggested by the interview withthe Indian General Manager of production:

Rules, discipline or the shopfloor procedures etc. are all decided byIndians and the day-to-day interaction is among Indian officers orengineers. So I would say it is basically an Indian culture with thesupport of broad guidelines from Czech as to how certain things haveto happen. We have the Skoda Production System, quality systemsthese are technical systems or the way how to produce which theseguidelines tell. But incorporating and developing a culture, it has tobe a local culture; it cannot be a foreign culture at al. But there arecertain good things, which have to be incorporated and they havebeen taken care of, all the good aspects have been incorporated.

(SAI 2)

Initial personnel transfers, training and some limited change effort by theexpatriate in day-to-day interaction apart; there is no massive effort tobring local skill levels and basic work dispositions of the workforce in linewith parent company standards. On the one hand, this has to do with thefact that there are hardly any expatriates involved on a day-to-day basis,trying to reshape basic work dispositions of the Indian human resources.On the other hand, the selection of Indian managers who worked forother auto multinationals before, imply less of an institutional distanceand socialization need as compared to what the early movers into theIndian market have felt. Thus, the possibility to recruit Indian managerswith prior work experience in an auto multinational probably renderspersonnel transfers and large scale training and socialization efforts aless pressing requirement.

We can therefore conclude that there are two modes of recontextualiza-tion: Adaptation (creation) of the work organization and human resourceprofile to meet the foreign/parent template plus an adaptation (creation)of the work organization and human resource in line with local/hostdemands and conditions. The adaptation of the local context to theforeign/parent template is facilitated by resilient conditions that are


constituted by the Greenfield nature and the selective recruitment ofexperienced local human resources.

Outcome

In the case of SAI’s work organization and hybridization profile it makessense to differentiate the ‘hybridization outcome’. Indications are thatSAI succeeds in transferring the SPS and its global quality system withoutmuch deviation. According to the Czech expatriates and Indian manager,SPS as well as the global quality system are implemented.

Yes, our engineers have been trained there. They do understand theadvantages of this and they like to adopt it without any alternationfrom there because this is the base system. And of course there ismonitoring how it is going. (SAI 2)

Although the Czech interviewee states that it is at times difficult to getthe new systems established with managers and engineers who workedfor other Auto MNE before, a factory-visit confirms that SPS’s main struc-tural features and the global auditing systems are implemented (SAI 3).For example, in line with the SPS, SAI follows a team concept on theshopfloor with seven to eight operators making up team. One of the teammembers is a team leader taking care of ‘moment-to-moment problems’.As far as the integration of indirect tasks is concerned, housekeeping(5S), self-certification and quality audits are implemented in line with theSPS and VW quality system template. Worker flexibility charts indicateefforts to achieve a polyvalent skill profiles. Thus, the limited transferintent comprising a few of Skoda/VW systems, their moderate local mis-fit in the local/host institutional environment and the adaptation of thelocal human resource profile to the foreign/parent template facilitate thisimitation. Focusing mainly on quantitatively measurable practices andoutcomes, their formal implementation is relatively easy to track andachieve.

However, while the formal systemic features of SPS are transferred andimitated, other aspects of the work organization and human resourceprofile, follow typical local/host patterns. For example, there are noindications that Skoda transfers its home plant supervisor–worker rela-tions. There are strong indications that basic behavioural patterns onthe shopfloor mirror typical Indian patterns characterized by strong pro-fessional and social distance. The only mediating factor is the fact thatmany of SAI’s managers and officers worked for international companiesbefore. It should also be emphasized that SPS covers only a limited range


of the company’s work organization. The remaining aspects are definedand structured by the Indian managers who organize operation with-out major interference from the parent. For example, when the IndianGeneral Manager Production is asked if he could imagine an operator tobe promoted to being an officer he rules out such an option.

Q: And would somebody who is an operator be able to graduate tobeing an officer at some point?A: No, I don’t think so. Generally operators would not be thatequipped with to move into an officers’ category. The managementrequirements are different. Seldom would you find an operator whocan take up these responsibilities. I have seen officers who were takenand promoted to officer levels from operators. But you would find abig difference in their approach. It is not so easy; I have seen this per-sonally with these people managing the shopfloor. Their perspectiveof management is different.Q: So you rather would not do that?A: No, I don’t think so. (SAI 2)

This occupational compartmentalization contrasts with the parentplants in the Czech Republic. According to the Czech interviewee, work-ers at home have the opportunity to graduate into supervisor levels andbeyond (SAI 1). In other words, it is convincing when the Indian managerstates that apart from broad structural-guidelines, the work organiza-tion and human resource profile is culturally Indian because day-to-dayinteractions take place among Indians with little foreign/parent inter-ference. By the same token, the Czech expatriate’s observations suggestthe prevalence of Indian work dispositions in many respects. These arework dispositions he does not want to interfere with, as long as the mainsystems are implemented and measurable results are satisfactory.

The work organization and human resource profile at SAI reflects twoorigins: a foreign/parent (imitation) and a host contextual one (local-ization). Taken together, we may call the result hybridization. However,the two aspects don’t seem to be tightly integrated. Related to the trans-fer of SPS, some formal work organizational aspects on the shopflooras well as some related work disposition reflect the narrowly circum-scribed templates of the parent companies VW and Skoda withoutmuch deviation. Most other work organizational and human resourcerelated aspects reflect local/host context patterns, however. To say thatmany work organizational and human resource related issues follow alocal/host pattern, calls for some specification. On the one hand, theIndian managers worked for other auto MNE before. Their socialization


is, therefore, not ‘typically Indian’. On the other hand, is not easyto define ‘typically Indian’ patterns of work organization and humanresource profiles in the SAI case. For at the time of Skoda’s market entry,the Indian economy is marked, by substantial differences between ‘old’and ‘modern’ companies (SAI 2).


Transfer scenario

When SAI is visited in 2003, there is neither the intent to transfer a for-eign/parent industrial relations template nor are there any foreign/parentdemands in this regard. Given the Greenfield nature of the site, there isalso no existing configuration of local industrial relations. The early stageand small size of the set-up mean that there is not even a human resourcedepartment in operation which handles such matters. At the same time,the Czech expatriate at the site is busy with getting basic manufacturingsystems in place and is not concerned with the organization industrialrelations of the young company. The Czech expatriate also stresses thathe is not familiar with human resource matters in the Indian context(SAI 1). The polycentric staffing policy and the knowledge required aboutindustrial relations implies that SAI’s human resource management andindustrial relations matters are left to the Indian managers. They, in turn,do not feel the immediate requirement to take the initiative of establish-ing a formal industrial relations structure at SAI. At this early stage of thesite, company industrial relations are not an issue, neither for the Czechexpatriate nor for the Indian managers. However, the Czech expatriate iswell aware of a substantial institutional distance between India and hishome country in labour and human resource related matters.

Misfit

Without a foreign/parent template for transfer and without for-eign/parent demands, there is also no strategic or institutional misfitbetween a transferred template and the local/host institutional context.Conversely, without an existing local/host company industrial rela-tions template and local/host demands, there is also no misfit betweena local/host template and foreign/parent demands. Labour relationsare calm and there is no (re)contextualization pressure from any side.Although there is some institutional distance between Skoda’s homeindustrial relations and SAI’s company industrial relations, there is noperceived misfit on the part of the Czech expatriate triggering demandsfor change. After all, the local site has no labour representation anddoes not experience any industrial conflict. As the site is small, new


and located on the premises of a Siemens factory, there are also noexternal institutional demands or needs to respond to pressures fromany particular industrial relations actor. Also, the location and the sizeof the operation do not make it particularly visible and attractive forexternal union activists to approach it. However, the Indian managerinterviewed is well aware that eventually such local/host institutionaldemands can arise from within or outside the company. The Indianmanagement expects that at some point there will be some institutionalmisfit as the company grows. SAI’s informal industrial relations will comeunder recontextualization pressure as the site grows in size, gets olderand employees align with the local/host institutional conditions anddemands (SAI 2).


No adaptation of foreign/parent templates or demands to local/hostcontext? As neither foreign/parent templates are transferred norforeign/parent demands posed, there is also no contextual misfit, recon-textualization pressure and adaptation to the local/host context.

No adaptation of local/host template or demands and conditions toforeign/parent context At the time of research, SAI has not formalizedits industrial relations set up. Matters that fall into the area of industrialrelations are dealt with in an informal way. This mode of industrial rela-tions largely reflects the young age and small size of the operation. Theindustrial relation set up sees no mismatch with foreign/parent demandscalling for an adaptation. There is, however, some awareness that thestatus quo of SAI’s company industrial relations is likely to face at somepoint local/host institutional demands for change. While no pro-activesteps are taken to meet prospective local/host institutional demands –either by SAI’s own labour or outside union activist – there are indi-cations that the company management will, in the long run, take aninitiative to form an internal union. The Indian manager interviewedenvisions such a path, common to modern Indian enterprises in theformal sectors. Unsurprisingly, the creation of an internal non-affiliatedunion is favoured. Such an internal union would not only help to reducethe risk of an intrusion of an external union and but would also serve astool for internal communication and to deal with labour grievances in aformal way.

Q: Do you have a union here?A: No we don’t have a union as of now.


Q: This is a policy, you have a non-union policy?A: No, this is a new company; we would not like to have a non-union policy because a union is necessary. A union is necessary fromworker’s point of view because, because as a bargainable category ofpeople they need to have some voice. But not only that, there wouldbe certain things where operators would not feel free to come directlyto management, so that’s where the union comes into the picture. Wedefinitely,Q: Sooner or laterA: Definitely, I think it will come into the picture.Q: The only thing is, whether it will be a non-affiliated union?A: Yes, yes, we hope so. A union has to be there and it has to be agood union. That’s what one would expect because management alsoprefers a union.Q: I mean some companies in India, they have taken the initiativeas management and said we are starting a union for you and therebythey were able to control the whole thing?A: Yes, yes it is essential. If you have people from outside, they wouldnot understand the full objective of business. And they would havetheir own personal objectives, which will clash with the businessobjective and there are all sorts of problems. And ultimately bothsides end up suffering, it is not just one side, both will get affected.

(SAI 2)

Given the polycentric staffing policy at SAI, the Czech expatriate’s lack-ing familiarity with industrial relations management in India and theexpected emergence of local/host institutional demands as the site growsbigger and older, it is very likely that industrial relations will eventu-ally follow a typical local/host institutional pattern. The Indian managerindicates that the site will probably use a common Indian template ofindustrial relations, namely a non-affiliated internal union. Applyingthis template will be enabled by the Greenfield nature of the site.

Outcome

When SAI is researched, the company does not pay much attention tothe establishment of company industrial relations. There is neither a for-eign/parent template to be transferred nor are there parent demands forchange. SAI’s expatriate management also shows no ambition to changethe local scenario or implement home company practices. However, atypical host context template is not established, either. The site basicallylacks a formal industrial relations structure and labour representation.


In addition, it has experienced no labour unrest so far. This status is nei-ther a reflection of a non-union policy on the part of the parent Skodanor a reflection of a local management strategy. It rather has to do withthe fact that the site is at an infant stage, small in size and relativelyhidden on the Siemens compound. Local/host institutional demandshave not yet been voiced, demanding a particular solution or changeto the status quo. However, indications are that the formation of for-mal industrial relations will be left to the Indian management and willsooner or later take on a typical host context form. Specifically, the formof a non-affiliated internal union, as it has become common in modernindustrial enterprises in India. We can, therefore, call the outcome as cus-tomized to SAI’s infant condition with a high potential for localization,however.

Supplier relations

Transfer scenario

Apart from the supply of some consumables (i.e. fuel and other liquids),SAI has not established any supplier relations in India. The SKD site reliesat the time of research entirely on the import of SKD-kits from Skoda’sparent plant, Mladá Boleslav. Because of its early stage, the site has notset up any local supplier relations (SAI 2). What is more, there is neithera local/host nor a foreign/parent template defined for the site’s prospec-tive supplier relations. A transfer of Skoda’s home plant supplier relations(marked by modular manufacturing concepts, involving: integrated sup-pliers, a tiered supplier structures, and JIT supply logistics) is ruled outby the strategic distance between what home supplier relations requirein terms of production volumes and what the host strategic context hasto offer in the first years of operation. Against the background of modestdemand in India, SAI decides to start carefully with a SKD set-up to beturned into a CKD facility. As volumes are low, most parts and compo-nents are received in a knocked down fashion from home. This means, inturn, that local/host suppliers play a marginal role. For as long as produc-tion volumes are low, the preference is on importing knocked-down-kits.From a pure economic point of view, it makes no sense to develop anelaborate local/host supplier base for SKD/CKD sites. Also for potentialsuppliers, unless they are already in India, it is unattractive to set up localmanufacturing facilities for low volumes. And this is even more so thecase for SAI. SAI is a late comer in the Indian market, many internationalauto MNEs have already brought their suppliers. Most of these interna-tional suppliers in India are eying orders from other auto MNEs, as they


are suffering from low capacity utilization. Thus, as long as the strategicdistance in market demand and production volume terms remains, it isvery unlikely that SAI is to develop a tiered supplier structure in India.Similarly, SAI’s modest volumes and long distances supplies ruled outthe implementation of home plant JIT supply logistics. SAI’s productionvolumes imply that the site is mainly performing assembly activities andrelies on long distance supplies. This suggests that a number of supplierrelated concepts that apply for integrated plants are irrelevant for theIndian site. While the strategic distance rules out the transfer of homesupplier relations, the lacking definition of a template for SKD/CKD sitesalso means that SAI has no defined template for implementation.

Yet, while there is no template transfer, there are host context andforeign/parent demands and conditions that structure the set up of a SAIsupplier relations. Among the most important demands are those posedby the host institutional context. Although local content requirementsare lifted in 2002, SAI still faces import tariffs that create an incentiveto localize production. Besides, when SAI is established in 2000 localcontent requirements are still in place and put the company under pres-sure to establish a local supplier base. At the same time, Skoda/VWalso has demands vis-à-vis prospective supplier relations in India. Par-ticularly, the parent VW formulates global policies with regard supplierrelations. These global policies involve among other things selection cri-teria for suppliers and the definition of contractual modes with suppliers.They also included quality polices and standards, prospective VW/Skoda-suppliers have to adhere to. In this respect, VW suppliers have to live upto specific quality standards as well as to specific audit and certificationsystems. Next to host institutional and foreign/parent demands, SAI’ssupplier relations have to respond to host context strategic conditions.Although the company meets a good initial reception in the Indian mar-ket and considers localizing some production to bring down cost, it willhave to tailor its supplier relations to a low-scale production scenario.

Misfit

Although there is no defined transfer template for the site’s supplier rela-tions, there are different supplier related demands from the local/hostenvironment and the foreign parent. The host institutional context posesdemands in the form of local content requirements and high import tar-iffs, putting the company under pressure to explore potential suppliersin India. Yet, the set up of local supplier relations is difficult under hoststrategic demand conditions. For under conditions of modest demandfor middle to high-segment vehicles, an increased local value addition,


beyond the localization of labour intensive assembly activities, is uneco-nomical. As long as SAI produces exclusively for the host market, it willbe very difficult to convince international and local suppliers to set upmanufacturing units or accept orders for low volume jobs. It is this princi-ple misfit between local institutional context demand and foreign/parentstrategic demand for profitable production that impact the developmentof SAI’s supplier relations.

At the same time, any localization effort means that VW’s global sup-plier policies apply. Among the most important policy requirements isthe demand that suppliers in India have to be either existing ‘globalsuppliers’ or have to qualify to become such suppliers. Both options arenot easy to realize for SAI. Drawing VW’s global suppliers to India is noteasy, unless these suppliers are already in India. For the low volumesoffered by SAI make ‘follow sourcing’ very unattractive. Qualifying as anew VW global supplier is not easy, either, because of VW’s ‘one sourcepolicy’. This meant that any prospective global supplier in India wouldhave to outperform existing global suppliers in price and quality. Therealization of these VW policies and demands do not fit the host contextdemand conditions. However, compared to other manufacturers, SAI hasthe advantage of an established local ancillary sector when it enteredIndia. Many international suppliers who followed other auto MNE arein principle capable of living up VW’s global quality standards andsystems.


No adaptation of foreign/parent templates and/or demands to thelocal/host context As no supplier relations template is defined for trans-fer, there is also no adaptation of such a template. However, when SAI isestablished in 2000, the development of local/host supplier relations isstill a must, due to host institutional demands.

At the time of research, VW/Skoda responds to these demands andexplores possibilities for local production. The potential local suppliers,in turn, have to meet VW’s stringent global supplier policies. Despitedifficulties in establishing a local/host supplier structure, SAI showed lit-tle signs to move away from these stringent policies (low foreign/parentresilience). Simply spoken, SAI has two options: Either it asks globalsupplies to establish operations in India to supply locally or it takesof other suppliers already in India – Indian or international suppliers.The first option is hardly realistic, unless these suppliers are already inIndia. This leaves the company to look more closely into the secondoption of developing some suppliers in India to become global suppliers.


However, as far as this option is concerned, the company seems to havefaced difficulties due to VW’s one source policy and its stringent qualityand price demands. MD Hassen states, for example, in 2001:

Skoda India intends to have a “real localization” level of about 18 percent in the Octavia by end-2002. Mr Hassen maintained that indi-genization continued to be a challenge, as for some reason Indianvendors even as they succeed in meeting quality norms lose out onthe pricing front. (The Hindu Business Line, 2001)

When SAI is researched, the company has not achieved its localizationgoal because it is not willing to adapt its foreign/parent demands to thelocal/host context. Although VW is, as a latecomer, in the comfortableposition of coming into a market where many auto multinationals haveeither brought their suppliers or have local JVs, VW/Skoda appears slowin taking advantage of them. However, of late, VW engages in talks withpotential suppliers in India, including international suppliers such as:Goodyear, Johnson Controls and MICO. As the following abstract sug-gests, that there are efforts to work with suppliers in India who couldqualify as global suppliers:

While the list of vendors is not yet finalised, Skoda is in talks withGoodyear for supply of tyres, and with Johnson Controls for sourcingseating systems. Further, cockpit instrument panels and wheels areother components that are under consideration, company executivessaid. Sourcing of components from India will also ensure localisa-tion of SkodaAuto’s offerings in India. Currently, all the parts of theOctavia that is sold in India are imported. Imran Hassen, managingdirector, SkodaAuto India said, “We are looking to localise compo-nents used in our cars. However, it does not make sense for us tosource components just for the Indian operations in isolation. Sko-daAuto is interested in sourcing components from vendors who meetits stringent quality and cost requirements. Indian vendors will haveto compete with those in China and South America.” Globally, Skodasources all components for a particular car from the same vendor as itcreates economies of scale for its vendors, which in turn gives thema cost advantage. Further, it also ensures the same quality of partsanywhere in the world, as the source is common.

(Business Standard, 2003)

The press report may be seen as an indication that VW/Soda gives upits ‘one source policy’ at least in India and considered working with

247

Table 8.1 Summary of SAI’s hybridization profile

Firm SAIPS dimension

Functional Transfer: Foreign/parent strategic demands and local/host institutional demands and strategicdifferentiation conditions to be met

Fit/Misfit: No misfit between different strategic demands and conditions, need for their accommodationMode of Recontextualization: Adaptation of local context (i.e. creation of functional set-up) to meet differentdemands and conditions


Hierarchical Transfer: No foreign/parent template transfer, local/host institutional demands poseddifferentiation Fit/Misfit: Minor institutional misfit between foreign/parent demands and local/host context demands

Mode of Recontextualization: Adaptation/rejection of weak foreign parent demands; set-up of local site inline with local/host institutional demands

Outcome: Localization

Technical Transfer: Foreign/parent strategic demands and conditions as well as local/host strategic conditions andconfiguration institutional demands (local content and import tariffs) to be met

Fit/Misfit: Minor misfit between foreign/parent strategic and local/host institutional demandsMode of Recontextualization: Adaptation of local context – creation – to meet foreign/parent demands andthe host strategic conditions and institutional demands Outcome: Mainly customization

(Continued)

248

Table 8.1 Continued

Firm SAIPS dimension

Work Transfer: Selective transfer of foreign template; little foreign/parent demands otherwiseorganization/ Fit/Misfit: Some misfit between foreign/parent template and local/host institutional demandsHR profile Mode of Recontextualization: No adaptation foreign parent template transferred; some adaptation –

selection and creation – of local context in line with template; for the rest set-up responds to local/hostinstitutional context and demands

Outcome: Between localization and hybridization (imitation coexists with local solutions)

Industrial Transfer: No local/host or foreign/parent demands or templatesrelations Fit/Misfit: No misfit

Mode of Recontextualization: Absent company industrial relations reflect early stage, size and the Greenfieldsite. Yet, likely development is adaptation – change/creation – of local site company industrial relationsto meet local/host institutional demands as they arise

Outcome: Customization most likely to develop into localization

Supplier Transfer: Foreign/parent and host context demands and conditionsrelations Fit/Misfit: Misfits between the local/host strategic context, foreign/parent strategic demands

and local/host institutional demandsMode of Recontextualization: Not entirely clear; possible adaptation of foreign/parent policy demands;possibly also some adaptation/rejection of local/host institutional demands; most likely adaptation(creation) of local/host supplier relations in line with different foreign /parent strategic/institutionaldemands as well as local/host institutional demands and local/host context strategic conditions.

Outcome: Most likely customization


suppliers which do not qualify as global suppliers. Overall, there are fewsigns, however, that VW/Skoda is willing to adapt its global supplierpolicy demands to host country demands and conditions.

Little adaptation of local/host context to the foreign/parent contextThere is no indication that SAI can reject host context institutionaldemands with respect to local content requirements or import tariffs.While local content requirements are dropped in 2002, SAI responds tothe host institutional demands and starts to establish supplier relationsin India. In this respect the local context is not very resilient for change.As regards the cooperation with local/host suppliers or suppliers in India,SAI will find it much less necessary than the early movers to adapt thelocal supplier relations to its standards and policies. By the time SAIenters India, the Indian supplier base is developed and well aware ofglobal cost, technology and quality standards.

Outcome

The organization of supplier relations is a reflection of the early entrystage of the site. No local suppliers are established and the supply logis-tics are largely customized to respond to host strategic conditions of lowdemand with a corresponding low volume task profile. Consequently,there is a strong reliance on long distance supplies of SKD/CKD kits fromthe Czech home plant. As long as SAI remains a SKD/CKD site, the trans-fer of home plant supply-logistic concepts, such as JIT, remains meaning-less. Rather than being based on a defined transfer template for SKD/CKDsites, SAI’s supplier relations are most likely to develop into a customizedresponse to specific host and foreign/parent context demands and con-ditions. Although supplier relations are not fully established, indicationsare that they will be a customized response to the interplay of VW/Skoda’sglobal supplier policies, the demand market conditions for Skoda’s carsin India, the supply market conditions in India’s supplier sector andthe demands of the liberalizing institutional context. The result of suchcomplex responses to different contextual demands and conditions willmost likely be customized or novel solutions rather than imitations. Atthe time of research, however, Skoda’s supplier relations were most ofall a reflection of its start-up phase and its task profile as a SKD site (seeTable 8.1 for a summary of SAI hybridization profile).

9Discussion

The goal of this project is to identify the hybridization profile of theproduction systems of four automobile MNEs’ subsidiaries in Indiaand to explore whether and how possible variations in these pro-files can be related to both institutional and strategic distance as wellas to the systematic variation in strategic choices on the corporateand subsidiary level. Derived from earlier research different hybridiza-tion outcomes are conceptualized as the combined effect of differenttransfer scenarios, (mis)fits/recontextualization pressures and recontext-ualization modes.

The first crucial addition to hybridization research is to considerthe effect of both strategic and institutional distance on transfer scen-arios and (mis)fits/recontextualization requirements and thereby onhybridization outcomes. Key questions for exploration are therefore:Are both strategic and institutional distance relevant for hybridizationoutcomes? Are institutional and strategic distances, respectively, morerelevant for the hybridization outcomes on certain dimensions of aproduction system?

The second crucial addition to hybridization research is related tothe question how different strategic choices – at the corporate and thesubsidiary level – impact hybridization outcomes. Specifically, what isthe link between strategic choices and the triad of transfer scenario,(mis)fit/recontextualization pressure and recontextualization mode andconsequently the hybridization outcomes? And, whether and howspecific strategic choices – the generic strategy of the MNE as wellas establishment and equity modes – interact with transfer scenarios,institutional and strategic misfits induced recontextualization pres-sures as well as recontextualization modes to constitute hybridizationoutcomes?

250


Core findings – similarities and differences mappedand explained

Hybridization outcomes compared across dimension and cases

The comparison of the hybridization profile across different produc-tion system dimensions reveals the following pattern. The productionsystem dimensions: industrial relations and hierarchical differentiationhave the strongest tendency towards localization outcomes. In contrast,the dimensions of functional differentiation, technical configurationand supplier relations feature the least amount of localization outcomes.Specifically, while the dimensions of technical configuration and sup-plier relations have a high incidence of customization solutions, thedimension of functional differentiation have a more moderate incidenceof customization. Compared to all other dimensions the dimension ofwork organization and HR-profile features the highest occurrence ofhybridization outcomes (see Table 9.1).

Looking at the outcome patterns across cases reveals the following dif-ferences. While MSI and FI show a high incidence of imitation, MBI andSAI feature much less imitation outcomes and instead much more cus-tomization solutions. The biggest difference can be identified betweenMSI and SAI. The MSI case has come closest to imitation. This contrastswith SAI which has come closest to localization solutions as an overalloutcome.

Institutional and strategic distance and differenthybridization outcomes

The analysis of the four cases’ hybridization profile (Chapters 5–8) showsthat both institutional and strategic distance have a distinct explanatoryvalue for understanding hybridization outcomes of the internationalautomobile companies’ production subsidiaries in India. The study sug-gests that strategic distance – different task profiles and different supplyand demand market conditions in different contexts – as well as institu-tional distance – different institutional conditions and demands have asubstantial impact on the hybridization outcomes.

The case studies suggest that the strategic distance or proximitybetween different MNEs’ sites is associated with the definition or devel-opment of templates, their transfer and the recontextualization pressurethey face. For example, both SMC and Fiat develop and define transfertemplates as the modest strategic distance between different sites createsa strong incentive to do so. At the same time, in both cases the strategicdistance in local/host supply market conditions is too pronounced to

252

Table 9.1 Hybridization outcomes of all four cases compared

Dimension/case MSI FI MBI SAI

Functional differentiation Imitation Imitation Customization Customization

Hierarchical differentiation Localization Imitation Hybridization Localization

Technical configuration Between imitation and Between customization Customization Customizationcustomization and imitation

Work organization & Between imitation and Hybridization Between hybridization Between localizationHR-profile hybridization and customization and hybridization

Industrial relations Between hybridization Localization Localization Localizationand localization

Supplier relations Between hybridization/ Between customization Customization Customizationcustomization to and imitationincreasingly imitation


transfer all aspects of the foreign/parent templates. Low labour costs inIndia – and in the FI case additionally lower market demands – prohibita full transfer of templates and suggest, instead, a transfer restraint, anadaptation of the original template or customized solutions (e.g. withregard to the sites’ technical configuration).

Likewise, institutional distance proves to have an important explana-tory value for understanding the hybridization outcomes. Institutionaldistance impacts transfer scenarios and (mis)fits/recontextualizationpressures. In the MSI case, for example, the institutional distance is a corereason why SMC is invited and even pressed to transfer its template. Forhost institutional conditions in India are rated as so obstructive that a for-eign/parent template transfer is sought as a deliberate alternative to hostcontext conditions. Cases in point are transfers of the work organizationand labour relations. However, in the very same company and on thesame dimension of the production system, some institutional patternsbetween the home and the host context are so distant that the transferof certain concepts fails, or is not even pursued. An example is SMC’sconsensual approach to decision making, which is ruled out by extremehierarchical socio-professional demarcations in India. Conversely, inthe MBI case, institutional distance induces a recontextualization pres-sure from the foreign/parent side on the local/host template, therebyimpacting the hybridization outcome.

In contrast to the assumption posited, the research shows that context-ual distance not necessarily implies a transfer restraint with regard to thetransfer scenario. The opposite may also be the case. A foreign/parentcompany may decide to transfer a template because the local/hoststrategic conditions are so adverse that there is no way to work withthem as they are. Contextual distance can, therefore, lead to both, atriggering of foreign/parent transfer or demands, where no transfers ordemands are initially intended and a transfer restraint, where a trans-fer is initially intended. An example for the former is the MBI case,where German expatriates find local institutional patterns in the workorganization unacceptable and pose demands for change. The latter wesee in FI, where adverse local institutional conditions prevent Fiat fromtransferring high involvement elements of the work organization. Inline with the proposition posited, the cases presented show that bothinstitutional and strategic distances impacts transfer scenarios or lead to(mis)fits/recontextualization pressures thereby impacting hybridizationoutcomes.

The study also shows that recontextualization pressures induced bycontextual distance can operate in different directions. For instance,


just as foreign/parent templates and demands in subsidiaries can comeunder recontextualization pressures, if distant and incompatible withlocal/host context (as we see in FI and even MSI), so can local/hosttemplates initially used in subsidiaries (as we see in MBI) come underrecontextualization pressure, if too distant from or incompatible withforeign/parent context demands and conditions. This finding is verymuch in line with the work of New Institutionalists (e.g. Kostova andRoth, 2002) who have stressed the double embeddedness of subsidiariesin foreign/parent and local/host institutional contexts. The findings add,however, to insights from New Institutionalism that in addition to theimpact of institutional distance we need to look at the impact of strategicdistance on transfer processes in MNEs. Broadly speaking this sug-gests adopting a more complex perspective of subsidiary embeddedness,placing them in institutional and strategic contexts as well as in parentcompany and host country contexts.

The case analysis also suggests that some dimensions of a productionsystem are more severely affected by institutional distance and othersmore by strategic distance. For instance, the high incidence of local-ization outcomes on the dimensions hierarchical differentiation andindustrial relations can be related to entrenched institutional patterns inthe host context that penetrate deeply into the companies, irrespective ofgeneric or internationalization strategy and experience related templateavailability and transfer. Similarly, the high incidence of hybridizationoutcomes on the dimension of work organization and HR-profile isstrongly related to the interplay of whatever is being transferred fromor demanded by the foreign/parent and local/host institutional con-text. Regarding the latter, it is most notably the strong socio-professionaldemarcation produced by the Indian social stratification and educationsystem that pulls transfers towards hybridization solutions. In fact, in nocase in the research sample – no matter how strong the foreign/parent’stransfer intent or demand for an alternative work pattern – is the foreignparent able to overcome this institutional or societal effect.

Regarding the functional differentiation, the technical configurationand supplier relations host/local institutional demands or misfit arecomparatively less relevant than local/host strategic conditions for theoutcome. On these latter production system dimensions, the host coun-try demand and supply market conditions and their strategic distanceto home or third country operations, are causing a high incidence ofcustomization outcomes.

Thus, while the outcomes of functional differentiation and tech-nical configuration appear to be more affected by strategic distance;


hierarchical differentiation, labour/industrial relations and certainaspects of work organization appear to be more affected by institutionaldistance. It is important to note, however, that although some dimen-sions (and even some aspects within certain dimension) appear to bemore ‘institutional-context-sensitive’ and others more ‘strategic-context-sensitive’, it would be wrong to suggest that strategic and institutionaldistance can be neatly separated in their effect on specific productionsystem dimension as has been suggested by some (e.g. Pil and McDuffie,1999). Indications are that both of them almost always play a role orplay together in affecting hybridization outcomes.

A case in point is the establishment of MBI’s work organization. Inthis case, it is essentially the strategic distance – lower volumes andlabour costs – that deter the transfer of a home plant group-work conceptbecause its application only financially paid off in a high volume and ahigh wage context. Simultaneously, the much more pronounced socio-professional demarcation in India renders the transfer of the very samegroup concept – implying substantial equality among group members –not a viable option. Similarly, in the SAI case the Czech expatriate per-ceives a problematic institutional distance between the qualificationsand skills of human resources available in India and those he is usedto from the home context. Yet, given the low volumes of the Indiansite, the strategic distance to the home plant context, there is no pos-sibility to set up an alternative training programme and to adapt thelocal human resources to foreign/parent institutional standards. Thus,no matter whether there is an institutional fit or misfit, if there isa strategic misfit; it may be simply not possible to transfer a certaintemplate. Conversely, there may be some strategic fit to transfer a tem-plate, but institutional conditions may be too adverse to transfer it. Theresearch evidence suggests that both contexts need to be considered incombination. While one may take the prominence over the other andmay be more relevant on certain dimensions the other context in thebackground always matters.

It should be noted that institutional and strategic contexts, while ana-lytically distinct, may be to some extent two sides of the same coin. Forexample, lacking or weak supplier relations can be seen as a distant oran un-conducive institutional context (if we look, for example at typ-ical patterns in structural or contractual terms). At the same time, theycan be seen as a distant or un-conducive strategic context in terms ofsupply market conditions (supply market conditions that are not able toprovide the right quality, quantity and price of input factors). The sameholds true for other input factors, such as human resources. Based on


institutional conditions, such as education and industrial training sys-tems, human resources are equipped with specific qualifications, skillsand work dispositions. At the same time, these institutional conditionsplay a crucial role in constituting markets for human resources, i.e. thequality, quantity, and price at which human resources are available. Orlooked at the other way around, market conditions, for example demandfor specific human resources, shape to some degree specific institutionalprofiles of the education systems.

Finally, what contextual distance (be it institutional or strategic) can-not explain, or at least only partly predict, is in what direction itwill impact transfer scenarios, misfit/recontextualization pressures andwhy a certain recontextualization mode kicks in. Clearly, when thecontextual distance is low or absent there is little misfit and recontext-ualization pressure and no recontextualization is required in the firstplace. However, strategic and institutional distance in isolation, with-out considering the constraining and enabling conditions of specificfirms’ contexts and strategic orientations, on the one hand, and theconstraining and enabling conditions of a specific local/host contextconditions, on the other, cannot explain: When contextual distanceleads to a transfer restraint? Under which conditions contextual distancetranslates into misfit? When a perceived misfit translates into recontex-tualization pressure? And finally, by what mode of recontextualization amisfit/recontextualization pressure is resolved.

As posited these questions can only be answered by looking at will-ingness and ability of the foreign/parent to invest resources and thenature and resilience of the receiving local/host context. While the for-mer aspect is crucially related to strategic choices at the corporation andsubsidiary level (see next paragraph), the latter appears to be relatedto the level of embeddedness of local/host demands and conditions.It appears that the more adaptations threaten fundamental local/hostidentities, norms and resources the less resilient the local/host contextand the more resource intensive the adaptation. A case in point is thesocio-professional demarcation in India proving not very adaptable toforeign/parent demands or templates. Here, the most comprehensiveadaptations where achieved by MSI which massively invested resourcesto adapt local/host patterns to foreign/parent templates and demands.

Strategic choices and different hybridization outcomes

The second mayor research objective of this study involves the question:Whether and how strategic choices – the generic strategy of the MNEas well as entry modes – are related to transfer scenarios, contextual


(mis)fits/recontextualization pressures, modes of recontextualizationand consequently hybridization outcomes?

See Table 9.2 for an overview of the strategic choices of the four MNEs.

Generic strategies

With regard to generic or global product strategies it is expected that par-ticularly the cases featuring cost focus strategies – such as SMC and Fiat inemerging markets – are more likely to define and transfer a foreign/parenttemplates, to face comparatively less strategic misfit and recontextual-ization pressure, to be more determined to adapt the local/host contextto the foreign template and to feature, as a result, higher degrees ofimitation. Conversely, it is expected that cases with a differentiationstrategy or strategies that contain uniqueness or wide segment scope ele-ments – such as MB and Skoda – are more likely to face strategic distancebetween different sites, less likely to define and transfer a foreign/parenttemplate, more likely to experience strategic misfit induced recontextu-alization pressure and, should a transfer occur, more flexible with regardto adapting their templates or demands to the local/host context. Inshort, these firms were expected to feature higher degrees of localization,hybridization or customization outcomes.

A first analysis of the empirical material confirms this proposition. MSIwith its cost focus strategy has the highest degree of imitation. SMC hasa foreign/parent template and seeks to transfer it. SMC’s template alsomeets low levels of strategic misfit and strategic context related recon-textualization pressure. Moreover, the company invests more than theother companies resources to adapt the local/host context to the for-eign/parent template. Similarly, Fiat has a foreign/parent template andtransfers it to the Indian site.

However, despite having designed a template for similar – developingcountry environments – Fiat experiences a substantial strategic mis-fit as the company underestimates the strategic distance between itsIndian and other World Car operations. Given this strategic distance,Fiat decides to adapt – deselect – some aspects of its template to make itfit with the site’s extant Brownfield set up and the Indian strategic con-text of low demand and low labour cost market conditions. In contrast tothe proposition posited, Fiat faces a substantial degree of strategic misfitand is less willing and able than SMC to invest and adapt the local/hostcontext to its foreign/parent template. Here, the generic strategy onlypartly predicts the transfer scenario, misfit and recontextualization modebecause other factors come into force such as the Brownfield entry modeand Fiat’s modest market success in India.

258

Table 9.2 Overview of strategic choices of the four MNEs

MSI FI MBI SAI

Strategic choices at corporate levelGeneric SMC is between cost Fiat combines cost MB features differentiation VW combinesstrategy focus & cost leadership leadership & differentiation differentiation & cost

leadership

SMC’s emerging market Fiat’s emerging market MB’s emerging market VW’s emerging marketstrategy rests more strategy rests more on cost strategy rests more on strategy with Skodaon cost focus focus (world car project) differentiation focus rests more on cost leadership

Strategic choices at subsidiary levelEntry time 1982 1997 1994 2000

Establishment Greenfield Brownfield Greenfield Greenfieldmode

Equity mode Joint Venture Joint Venture > wholly Joint Venture > wholly Wholly ownedowned owned

(From minority to (From majority JV to (From majority JV (Wholly owned frommajority JV) wholly owned) to wholly owned) the outset)


Thus, while there is evidence to suggest that SMC’s and Fiat’s avail-ability and transfer of a foreign/parent template is related to these firms’cost focus strategies and the expected low strategic distance betweentheir different global operations, the generic strategy seems to be a weakpredictor for the actual strategic fit/recontextualization pressures andmodes. The FI case shows that even templates that are devised specif-ically for developing countries may not strategically fit all developingcountries’ conditions. The FI case disconfirms the Japanization litera-ture’s Lean Production wing in a particular convincing way because itshows that ‘best practises’, even those customized for specific businessenvironments, run the risk of facing a high recontextualization pressures.

By the same token, the cases of MBI and SAI show that the genericstrategy alone, without an additional attention to MNE international-ization experiences and internationalization strategies do not suffice toexplain foreign/ parent template availability and transfer. Mercedes-Benzand VW have a differentiation and a differentiation and cost leadershipstrategy, respectively. At first glance, these firms’ overall product strate-gies, with their element of differentiation, seem to predict their sites’hybridization outcomes. Both companies neither define/develop nortransfer foreign/parent templates to their Indian sites. They also abstainfrom transferring their home site set-ups due to a vast strategic distance.They also appear to be flexible to adapt their production systems to thedemands and conditions of the local/host strategic context, featuring asa result low degrees of imitations as outcomes. However, a closer look attheir generic strategies for emerging markets suggests that it is not self-explanatory why these two cases come to so few imitation outcomes.After all, both companies feature no pure differentiation strategy andalso have – with their focus (MBI in emerging markets) and cost (Skoda)element in their strategies – some incentive to develop templates. Par-ticularly, Mercedes-Benz’s focus element in the strategy and its recentstrategic reorientation towards Asian markets involves the set-up of anumber of Asian CKD sites, with similar task profiles, suggesting strategicproximity and some incentive to develop and transfer a foreign/parenttemplate. Interestingly, such a template is, at the time of research, even inthe making. However, as MBI is established as one of the first of the inter-national CKD sites, Mercedes-Benz has not yet defined such a templateand probably lacks the experience to do so. In other words, when MBIis established the strategic shift is at an early stage and no such templateexists. Instead, there is a vast strategic distance to home operations, noother foreign/parent template available or transferred and consequentlylittle strategic (mis)fit/recontextualization pressure resulting from such


a transfer. Similarly, in the Skoda case one could have expected atemplate transfer to SAI. Such an expectation is even more justifiedgiven VW’s substantial internationalization experience and a portfolioof lower cost vehicles for emerging economies. Specifically, Skoda, withits cost-leadership orientation has the strategic task of exploring emerg-ing markets in the format of CKD operations. However, Skoda is actingrather independently in setting up the Indian site and doesn’t have theexperience or corporate pressure to develop and transfer a comprehensivetemplate to its infant SKD site. Skoda, like Mercedes-Benz, has no specifictemplate to transfer, has no defined transfer intent and faces a vast strate-gic distance between its home and host operation, ruling out the use ofhome plants as templates. Instead of using a foreign/parent template,those dimensions strongly dependent on strategic contexts conditionsare adapted to the specific strategic demands of the foreign/parent andlocal/host context resulting in high degrees of customizations.

The cases only partly confirm that generic strategies are relevant for thequestion as to whether templates are defined/developed and transferredor not (see Table 9.3).

The findings support that there is an association between companieswith a cost focus strategy and the development and transfer of organi-zational templates. Clearly, the development and transfer of templatesincreases the likelihood of coming to imitation outcomes. For, withouttransfers or demands from the foreign/parent context, there is also nochance of coming to imitations as outcomes. Generic strategies of MNEsplay an important explanatory building bloc in understanding hybridiza-tion outcomes. However, even the isolated aspect of whether templatesare defined/developed or transferred depends on the interplay with othercrucial factors such as: internationalization experience, whether devel-oped or developing markets have been mainly served in the past (i.e. arethere import restrictions), unexpected strategic misfits and institutionalmisfits as well as the relevance of other strategic choices at the subsidiarylevel.

Moreover, generic strategies do not suffice to explain the differenceacross different dimensions of a production system within a particularcase. The case discussions above show that a cost focus strategy do notautomatically mean that a template covers all dimensions of a produc-tion system, that there is the intent or possibility to transfer all aspectsof a template, that there are no strategic (or other) recontextualizationpressures and that the adaptation of the local/host context will always bethe dominant recontextualization mode. First, even if there is a templatefor transfer, actual transfer may be very selective, given other intervening

261

Table 9.3 Generic strategy, internationalization experience and template availability for transfer

MSI FI MBI SAI

Generic strategy in Cost focus Cost focus Differentiation Cost leadershipemerging markets focus

Strategic distance Moderate between home High between home High between home High between home andbetween units and Indian operation and Indian operation; and Indian operation; Indian operation;

and also a number of low between World low between emerging low between emergingother integrated Car operations market operations market operationsforeign operations

Internationalization High High Moderate Moderateexperience

Comprehensive Yes Yes No (but in Notemplate availability the making)and transfer


and interacting factors such as entry mode choices and/or institutionalconstraints and opportunities in the local/host context. There may be,for instance as in the case of FI, templates from the local/host contextor from a local JV partner competing with the foreign/parent tem-plate. Second, even if there is a transfer of templates, they still maynot perfectly fit with the local/host strategic and institutional contextconditions. These misfits, in turn, call for recontextualization that caninvolve as much adaptations of the local/host context or templates asadaptations of the foreign/parent context or templates. Third, althoughthere are indications that companies in which the foreign/parent com-pany defines and seeks to transfer a template are also more willing toadapt the local/host context, there are other crucial intervening factors.Thus, while a cost focus strategy does not automatically imply templateavailability and comprehensive transfer, low strategic distance and fitacross all dimensions and local/host context adaptation as the exclusiverecontextualization mode; a differentiation strategy, especially when itis not a pure one (as we find in MB), does not automatically mean anabsent foreign/parent transfer intent or demands, large strategic distanceand misfit across all dimensions and the adaptation of foreign/ parenttemplates or demands as the exclusive recontextualization mode.

For example, even if a foreign/parent lacks a comprehensive templateor decides not to transfer certain aspects of a template, there still maybe organizational demands vis-à-vis the local site’s production system.Such demands can be part of globally defined corporate policies or directforeign/parent reactions to local/host institutional or strategic condi-tions channeled through expatriates. Strategic and institutional distancemay trigger foreign/parent transfers or demands like in the case MBI,although there was initially no defined transfer intent. A locally existingtemplate may also not be in line with foreign/parent context expect-ations and standards. To what extent such foreign/parent demands areraised, strongly depends on the formulation of global policies and onthe presence of expatriates on site, which is related to the overall staffingpolicy. Moreover, like in the case of a foreign/parent template transfer,foreign/parent demands may be more or less distant or contradictory tothe local/host strategic and institutional context. In the empirical studywe see in MBI and SAI different recontextualization modes in responseto such demands. One possibility is the adaptation of the local/hostconditions or the rejection of local/host context demands. The otherpossibility is an adaptation of foreign/parent context or a rejection offoreign/parent demands. Whether one, the other, or both recontextual-ization modes become active, depends, as we shall see next, not only on


generic strategies but among other factors on the establishment moderelated resilience of a local context, wider host context resilience as wellas the equity mode related ability to induce changes and the willing-ness to mobilize and invest resources on the part of the foreign/parentcompany. Finally, the findings confirm that looking at an MNE’s overallgeneric strategy is misleading in understanding hybridization outcomes.Instead we need to look at the strategy of specific brands for specificworld regions.

Entry modes – establishment and equity modes

This study posits that establishment modes impact all three compo-nents constituting hybridization outcome, that is, transfer scenarios,contextual (mis)fits/recontextualization pressures and recontextualiza-tion modes. First, it is assumed that Greenfield sites are much more likelyto receive foreign/parent templates than Brownfield sites because theylack an existing configuration and because contextual distance is lowerin comparison. Second, it is proposed that Greenfield sites either reduceor mediate contextual distance, which reduces the misfit and the cor-responding recontextualization pressure in the case of a foreign/ parenttransfer. Third, related to the second point, it is assumed that Greenfieldsites render an adaptation of the local context to distant foreign/parenttemplates and demands easier because of lower levels of institutionaliza-tion. As a result, it is expected that Greenfield sites feature higher levelsof imitation than Brownfield sites.

With respect to equity modes it is also suggested that they impact allcomponents constituting hybridization outcomes. The argument is herethat the equity mode has an influence on whose management controlsthe company and whose management can decide: What is or can betransferred or demanded? What is rated as an unacceptable contextualdistance or misfit? And to what extent the foreign/parent template andcontexts or local/host templates and contexts have to be responded to orcan be rejected? It is proposed that the higher the foreign/parent equity,the more likely are we to see the transfer of foreign/parent templates orthe influence of foreign/parent demands, the higher the level of misfit/recontextualization pressures and the more likely an adaptation of thelocal/host context to foreign/parent templates, demands and conditionswill be the dominant recontextualization mode.

Combining the two entry mode related propositions, it is suggestedthat we can expect wholly owned Greenfield sites to feature the highestand Brownfield JVs, the lowest degree of imitation. Applied to the fourcases of this study these propositions suggest SAI and MBI to have the


highest incidence of imitation; and FI and MSI to have the lowest inci-dence of imitation. Surprisingly the opposite is empirically found. Howcan we explain this? One important explanation is the generic strategyrelated difference in the availability and transfer of a foreign/parent tem-plate in the cases MSI and FI. But there are other factors that play a crucialrole as we shall discuss below.

Establishment modes

With regard to establishment modes the assumption is that the Brown-field site FI – in comparison to SAI, MBI, MSI – sees less of a templatetransfer, faces higher levels of misfit in the case of foreign/parent tem-plate transfer and finds it more difficult to adapt the local context toforeign/parent templates and shows, as a result, higher degrees of local-ization outcomes. Interestingly, this proposition is only partly confirmedby the empirical results. Largely related to its generic strategy FI – togetherwith MSI – belongs to the only two companies in the sample that trans-fers a comprehensive foreign/parent template and has a high incidenceof imitation. At the same time, the comparison of MSI and FI confirmsthat FI faces more local contextual misfit and more difficulties to adaptthe local context to the foreign/parent template, due to its establishmentmode. But let us take a closer look if and how the establishment modeimpacts the hybridization outcomes.

The case comparison shows that the establishment mode has animpact on the transfer scenario because it implies, first of all, the presenceor absence of an existing local template (see Table 9.4).

We see this in the FI case, the only Brownfield site in the sample, withan extant local template. At the same time, the case comparison alsoshows that the establishment mode, viewed in isolation, is only a weekpredictor for the transfer scenario. MSI, MBI and SAI are all Greenfieldsites, yet, out of these, it is only SMC that transfers a comprehensive for-eign/parent template. FI in contrast, the only Brownfield site, does seea foreign/parent template transfer. The findings indicate that althougha Greenfield site implies a need for establishment, this configurationmust not necessarily be based on a foreign/parent template transfer orbe subject to strong foreign/parent demands. Instead, indications are

Table 9.4 Entry mode and local template availability

MSI FI MBI SAI

Establishment mode Green Brown Green GreenLocal template at site No Yes No No


that whether a Greenfield site is shaped by a foreign/parent templateor subject to strong foreign/parent demands crucially depends on:(1) Whether a foreign/parent template is available and which productionsystem dimensions it covers?; (2) Whether the foreign/parent templatefits the local/host strategic and institutional context?; (3) Who (foreignpartner vs. local partner; expatriates vs. host context nationals) has theconfiguration mandate on a specific dimension of a production system?For example, Skoda has practically no transfer template for its IndianGreenfield operation. Skoda has not defined a template for SKD sites andthe home plants are strategically too distant to be used as templates. If atall, the Skoda Production System is a very narrowly circumscribed tem-plate, which covers only a very limited range of the production system.Most importantly, due to its polycentric staffing approach, the config-uration of the site is in the hands of host country nationals who shapemany production system dimensions in line with local/host conditionsand demands.

However, the establishment mode is not only proposed to impact thetransfer scenario but also to mediate contextual distance and to havean influence on the recontextualization mode. In contrast to the estab-lishment mode’s proposed impact on transfer scenarios, there is moreempirical evidence to support the latter two assumptions. Indicationsare that the transfer of foreign/parent templates or the realization of for-eign/parent demands are substantially easier at the Greenfield sites SAI,MBI, MSI as compared to the Brownfield site FI. Employees at the Green-field sites have less preconceived notions working against foreign/parenttemplate elements or demands, which contribute to lower levels of mis-fit. And even where host context notions are in contradiction withforeign/parent demands or templates, the local context proves to be moreadaptable to them. This condition can be nicely seen in the compari-son of MSI and FI. Both subsidiaries receive a foreign/parent template,however, the institutional misfit is more pronounced in FI than in MSI,which is crucially related to FI’s Brownfield heritage. More importantly,although institutional misfit occurs in both cases, it proves easier to adaptthe local context to the foreign/parent template in MSI as the greefieldsite is largely constituted by a young workforce.

Thus, there is evidence to suggest that Greenfield operations ren-der it substantially easier to adapt a local context to foreign templates/demands as compared to Brownfield sites. These findings confirm ear-lier work that has shown the relation between establishment modes andtransfer successes (e.g. Sharpe, 1997). It should be noted, however, thatwhile the establishment mode has an impact on a local site’s contextual


resilience, there are other factors that play into the question, whichrecontextualization mode unfolds. For instance, whether a contextualdistance is rated positively or negatively, the foreign/parent’s ability andwillingness to invest resources and put through its demands and tem-plates as well as the wider host context constraints penetrating into thelocal context are crucial.

The establishment mode alone is hardly sufficient to explain recontex-tualization modes, as the local context of a site is embedded in the widerhost contexts. In such a perspective even Greenfield contexts are onlypartly resilient as we see in the case of MSI, where the foreign/parentdoes not fully succeed to adapt the local context to the foreign/parenttemplate. Despite substantial resource mobilizations, the local adaptabil-ity is constrained by the limited resilience of host institutional contextshading into the local context of the site.

Equity modes

Following our proposition about the impact of equity modes onhybridization outcomes, the expectation is that MSI features the high-est incidence of localization and SAI the lowest. The basic rationalebehind this is that the equity mode directly impacts whose manage-ment is in control and thereby the transfer scenario, the (mis)fit/recontextualization pressure and mode. However, the empirical analy-sis of the cases shows that the opposite is the case as SAI has a higherincidence of localization outcomes than MSI. While the configurationmandate plays an important role in explaining this outcome, the pro-posed connection between configuration mandate and equity mode isonly a weak one.

The case comparison shows that the equity mode influences the trans-fer scenario by having first of all an impact on the potential availabilityof a local template. In the sample, MSI, MBI and FI have a local JV partnerand thereby the opportunity or constraint to draw on their local partner’stemplate or aspects thereof (see Table 9.5).

Table 9.5 Equity mode and local template availability

MUL FI DCI SAI

Equity mode Minority JV > Majority JV > Majority JV > Wholly ownedMajority JV Wholly owned Wholly owned

Local template Yes, partially Yes, partially Yes, partially Noavailable fromlocal partner


In contrast, SAI, the only wholly owned operation from the start, hasno such opportunity. The case comparison shows that the equity modenot only impacts the availability of local/host templates, but more gener-ally, the use/transfer of available local/host or foreign/parent templates.The equity mode has an impact on the transfer scenario because it hasan influence on the question who has the configuration mandate for theproduction system set up (local parent vs foreign parent; host countrynationals vs expatriates)?

For example, Fiat is very quick to turn its JV into a wholly ownedsubsidiary. With this move the company is free to unilaterally decide totransfer crucial aspects of its World Car template. For MBI and MSI this isnot possible to the same extent. SMC, which is for a long time a minoritypartner in the JV, faces some transfer limitations on certain dimensions ofthe production system. These limitations are rooted in the equity modeand the corresponding division of configuration mandates among theJV partners across different dimensions of the production system. Thisis also the case in MBI, which has put the configuration of a number oforganizational aspects in the hands of its Indian JV partner (and laterhost country nationals) who uses a host/local parent template for thehierarchical differentiation of the site. Thus, there is empirical evidenceto suggest that the equity mode has an impact on the question whosemanagement is responsible and has the mandate to configure a certaindimension of a production system and, as a result, whose templates ordemands are more likely to be used/transferred or have a weight.

However, the empirical material equally suggests that the equity modeis neither sufficient to explain whose templates or demands are morelikely to be used/transferred, nor is the equity mode as such sufficientto fully explain who has the configuration mandate (on certain dimen-sions of a production system). Even if a foreign/parent company holds asite’s entire equity and even if it has a defined foreign/parent template,it may still decide not to transfer such an available template or all ofits parts because of strategic or institutional distance in the local/hostcontext. What is more, the cases show that even if a host or foreigncompany holds the majority of a site’s equity; this does not necessarilyimply that the majority partner assumes the configuration mandate. Theequity mode is simply not enough to determine who has the configur-ation mandate for setting up a production system’s different dimensions.While the equity mode influences the configuration mandate, there areother influencing factors. These factors include: the product ownership,the local/host context capabilities (and their development over time),the capabilities of the respective partners on certain production systemdimensions as well as the staffing policy.


In this respect, MSI and SAI are two telling cases. The equity mode ofthese two cases suggest for SAI the most comprehensive configurationmandate and in MSI the least comprehensive configuration mandate forthe foreign partner and its expatriates. However, the opposite is the case.In SAI this is mostly related to Skoda’s polycentric staffing policy, whichimplies that most configuration work is delegated to experienced hostcountry management. It is equally linked to the host context capability –i.e. capable host country managers – which is available by the time Skodaenters the Indian market. Interestingly, such an availability of local/hostcapability is connected to Skoda’s late market entry, allowing the com-pany to head-hunt experienced Indian managers from other interna-tional Automobile companies, an option the early movers do not have.In MSI, in turn, local/host context capability – or rather its absence –plays a key role in explaining SMC’s comprehensive configuration man-date, despite being the junior partner in the JV. Given the lacking localcompetence – particularly in ailing Maruti – as well as in other Indianautomobile companies in the 1980s, the Japanese partner is asked orinvited to assume the configuration mandate on most dimensions of theproduction system. In other words, despite being in the minority equityposition, SMC’s capability and product ownership earns it the compre-hensive configuration mandate for most production related dimensionof the production system. This allows SMC to transfer its foreign/parenttemplate rather comprehensively. Similarly, in MBI the local capabilityplays a crucial role for staffing its HR-function (throughout the com-pany existence) with Indian managers, giving them the configurationmandate on core HR-issues. While with the equity shift all top manage-ment positions are staffed with Germans, HR is the only function wherethe host country management remains in charge. This is related to theIndian managers’ intimate knowledge with regard to recruitment, reten-tion, redundancy procedures and industrial relations in India – capabilityGerman managers do not have or cannot acquire at short notice.

Now, the equity mode is not only proposed to impact the transfer sce-nario, but also the occurrence of misfits/recontextualization pressuresand to influence recontextualization modes. Clearly, to the extent thatan equity shift in favour of the foreign/parent leads to increased pres-ence of foreign/parent management at the foreign site the chances formisfit/recontextualization pressure increases. A case in point is MBI. Asequity shifts, German managers replace Indian managers in a num-ber of areas and find certain local practices inappropriate and to bechanged to foreign/parent demands. Yet, there is again only limitedevidence to suggest that the equity mode alone impacts contextual


misfit/recontextualization pressure between the foreign/parent tem-plates or demands and local/host contexts and vice versa. Rather thanequity modes, the configuration mandates have more explanatorypower. Despite a foreign/parent majority, the host country managementmay have the configuration mandate on certain dimensions of a produc-tion system. Under such a condition the misfit and recontextualizationpressure is lower because of a lower incidence of foreign/parent templatetransfer or demands. Moreover, even if there is a foreign/parent tem-plate transfer from a distant context, the distance will be mediated bylocal/host country management, which may also defuse the misfit.

A case in point is SAI. Despite being a wholly owned subsidiary fromthe start, the local set-up of the site does not involve much recontextual-ization pressure from the foreign/parent side. There is only a very limitedforeign/parent template transfer and the largely indigenously designedset up of the site – although it is institutionally very distant from thehome configuration – does not trigger much recontextualization pressurefrom the foreign/parent. In this case the absence of foreign/parent tem-plate transfer, misfit perception and recontextualization pressure haveto do with the staffing policy, translating into a dominant configurationmandate for host country managers. Thus, although the equity mode isnot without influence on the configuration mandate – i.e. what kind ofmanagement is in control of or influences a site – and, thereby, on mis-fit perceptions and the inducement recontextualization pressures, theequity mode does not determine it.

By the same token, the equity mode has some influence on the recon-textualization mode because it influences the configuration mandate andthe question which side has the motivation, power and legal right topush for adaptations. For instance, SMC management in MSI is probablynot very happy about the company’s excessive hierarchical differenti-ation, which is very different from its own in Japan. This aspect ofthe production system is, however, difficult to change as long as SMCis the junior partner. Thus, the equity mode plays an important partin enabling and constraining the involvement and ability of differentparties to adapt foreign/parent and/or local/host templates, demandsor conditions. Yet, the equity mode is only one factor among manyothers to impact the mode of adaptation. Although a foreign/parentcompany in a majority position may wish to adapt the local/host con-text to its template, it may lack the resources to do so or may face alocal/host context that is very distant and not very resilient for change.Moreover, despite a foreign/parent majority ownership, some organiza-tional aspects may remain in the hands of a local/host partner, depriving


the foreign/parent side of the ability to induce a recontextualizationpressure and an adaptation of the local/host context.

We can summarize that equity modes impact transfer scenarios,the occurrence of contextual misfits/recontextualization pressures andrecontextualization modes. However, we have to look at how theyinteract with other factors discussed earlier to explain hybridization out-comes. Above all, we need to look at the distribution of configurationmandates across the different dimensions of production systems that areonly partly linked to equity modes.

Conclusion

Summary of findings

This work, in line with the basic proposition posited, shows thathybridization outcomes are impacted by strategic and institutional dis-tance. Their primary influence on hybridization outcomes rest withtheir effect on transfer scenarios and inducing contextual misfit relatedrecontextualization pressure. Moreover, it is found that while strategicand institutional contexts form distinct influences and take on differentprominence in affecting certain dimensions of a production system, theyshould always be considered as interacting influences on any productionsystem dimension. It would be erroneous to state that the hybridizationof some dimensions of a production system only depends on strategic orinstitutional context and distance. Both contexts generally matter, albeitto different degrees.

Secondly, this work shows that strategic choices at the corporateand subsidiary level have a substantial impact on hybridization out-comes. Generic product strategies, for example, play an important rolefor the availability and transfer propensity of foreign/parent templates,for the strategic misfit/recontextualization pressure and even affect therecontextualization mode, although this last aspect requires furtherexploration. Similarly, this work shows in the four cases researched thatstrategic choices at the level of the subsidiary affect transfer scenarios,misfits/recontextualization pressures, recontextualization modes andthereby hybridization outcomes.

The work also offers some refinement with regard to the impact ofstrategic choices on hybridization outcomes. While generic strategiesappear to have an important impact on the availability and transferof foreign/parent templates, other factors are required to explain suchtemplate development and transfer. The findings suggest that inter-nationalization experience and internationalization strategies of MNEs


may be of crucial relevance. Similarly, while establishment and equitymodes seem to impact transfer scenarios, misfits/recontextualizationpressures and recontextualization modes, they need to be consideredin interaction with other factors. Both establishment mode and equitymode do not suffice to explain transfer scenarios, misfits and recontextu-alization modes. It emerges in this context that configuration mandates –involving the question whether host country nationals or expatriates;local parent or foreign parent management is in control – plays aparamount role to understand hybridization outcomes. Although equitymodes have an important impact on such configuration mandates, theydo not determine them.

Thirdly, the study shows that there are important interactions betweenstrategic choices and contextual distance that impact hybridizationoutcomes. For example, companies with a cost focus strategy face alower degree of strategic distance between their operations which cre-ates incentives to develop and transfer templates. Another example arethe establishment modes that mediate the contextual distance betweenpotential transfer origins and destinations.

Apart from its specific contribution for our understanding of hybridiza-tion processes in MNE, this study shows that a quasi-experimentalresearch design involving rich array of cases, with great variation of com-binations, allow us, if studied interactively in a procedural perspective,to establish refined patterns. The strength of such an approach is that itsensitizes us for complex interactions of factors that constitute processesand outcomes in MNE

Contribution to current debates

This study shows that hybridization research has much scope for thecross fertilization of different fields.

In contrast, to the normative and stylized models of production sys-tems in the Japanization literature (see also Elger and Smith, 2005,2006), this study offers an alternative perspective on production systemhybridization by functionally defining their core dimensions and ask-ing how they are contextually constituted. Such an approach avoids theassumption that MNEs generally define and seek the transfer of compre-hensive templates to their subsidiaries. It stresses that firms do not alwaysundertake the transfer of clearly defined production templates and arevery selective (see also Meardi and Toth, 2006) with regard to whatthey transfer, depending on particular strategic choices and strategic andinstitutional contexts of their subsidiaries. Similarly, foreign/parents arenot the only transfer drivers in MNEs. Partners in local/host context,


particularly in emerging market JVs, may ask for transfers due to resourceand capability gaps or poor institutional conditions (see also Meardi andToth, 2006).

While this study, adds to the Japanization literature, it equally con-tributes to hybridization and cross-border transfer research in the fieldof IB and Institutionalism, by synergizing the strength of differentapproaches. The study adds to hybridization research from EuropeanInstitutionalism a strategic or contingency perspective. It does so bydrawing on IB and conceptualizing the MNE as a special kind or organiza-tion with an increasing strategic role differentiation and an internationaldivision of labour (see also Edwards and Kuruvilla, 2005). Conversely,the study adds to the IB research on transfers in MNEs, by introducing ahybridization perspective and how institutional contexts and their differ-ence across countries and sites impact transfer intents and transferabilityof production systems.

Finally, in contrast to most studies contributing to the wider field ofhybridization research, the study is not only open to different startingpoints of production system hybridization and different kinds of con-textual misfits, but also to the condition that hybridization outcomescan be affected by different modes of recontextualization. Specifically,firms can react to or act on local/host misfits in different ways. Depend-ing on the local/host context resilience and their ability and willingnessto mobilize resources, they can react by adapting their systems anddemands to the local/host context or be pro-active by adapting thelocal/host context to their systems and demands.

Limitations and outlook

While this work makes a contribution to hybridization research bybringing together the insight from three crucial research streams, somepoints still remain unclear and some limitations of this work need tobe addressed. First, the biggest remaining question of this work is whatfactors interact and determine a specific recontextualization mode in thecase of a contextual misfit. While certainly the ability and willingnessof the foreign/parent as well as the resilience of the local/host contextprovide a first answer, we need to develop a better understanding whatfactors determine foreign/parent ability and willingness, what factorsdetermine the local/host context resilience as well as how the formerand the latter interact. Some of the relevant factors have been discussedhere such as strategic choices and contextual distance but their interplayremains still elusive.


The study also invites to explore in more detail the relationshipbetween configuration mandates and hybridization profiles. Specifically,the question how and why local/host or foreign/parent management isselected to set up different dimensions of a production system. Whileequity modes, product ownership, know-how and capabilities offer animportant starting point, there needs to be a better understanding howstaffing policies impact hybridization outcomes.

The cases discussed also show that contextual constitution of a produc-tion system, its hybridization profile, is a highly dynamic phenomenon.As time unfolds the cases feature different outcomes on the differentdimensions of their production systems. This profile change goes hand inhand with firm-specific changes at the corporate and subsidiary level (e.g.equity or ownership change, build up of local know how) and the devel-opment of local/host context (build up capability, changes in legislation).Thus, a more fine grained longitudinal perspective on the hybridizationdynamic of individual cases would be an important further contribution,which is beyond the scope of this study.

A final challenge this work is not able to address is the question howhybridization processes unfold at the micro-level between specific actorsthat are embedded in or originate form different strategic and institu-tional context. It involves asking: How specific hybridization outcomeshave come about by taking a closer look at how actors are differentlyaffected and able to shape such processes based on their systemic pos-itioning in corporate and societal contexts? How hybridization processesare socio-politically constituted? What kinds of decision making pro-cesses constitute hybridization processes? Whether we should considertransfer processes as ‘translation processes’ or ‘dialectical transformation’(Becker-Ritterspach, 2006)? As these questions require an embedded –ideally an ethnographic – micro-perspective for their exploration, theyare beyond the theoretical scope and empirical access conditions ofthis work.

Notes

2 Transfer and Hybridization in MNEs

1. Some authors take a middle ground. Wilkinson et al. (1995), for example, arecritical about the emancipatory potential of Japanese production system butsee their transfer as generally feasible.

2. It is also interesting to note that a number of authors in this body ofresearch have increasingly combined American and European Institutional-ism to understand the constitution of HRM practices in MNEs (e.g. Ferner andQuintanilla, 1998; Tempel et al., 2006).

3. While institutional context have found only little attention, there are a fewcontributions that focus on the impact of cultural context (e.g. Bahgat et al.,2002; Subramaniam and Venkatraman, 2001; Chini, 2004; Cui et al., 2006).

4. It should be noted, however, that an increasing number of approaches in thearea of Strategic International Human Resource Management – which couldbe viewed as a subfield of IB – have integrated New Institutionalist or Culturalperspectives into their models (e.g. Schuler et al., 1993; Taylor et al., 1996;Schuler et al., 2002).

5 The Case of Maruti–Suzuki India

1. Price who researched SMC’s production system in Japan points in the samedirection and states ‘the absence of job descriptions for workers meant thatSMC employees had no specific job assignment or classification and could berotated or transferred relatively easily’ (Price, 1997, p. 165).

2. MSI prides itself to have implemented ‘a flat organisational structure’ with‘only three levels of responsibilities ranging from the Board of Directors,Division Heads to Department Heads’ (Maruti, 2003).

3. These three work dispositional transfer goals can also be read as problem areasthat require particular focus in the beginning.

6 The Case of Fiat India

1. Camuffo describes the corner stones of the Fabbrica Integrata concept as fol-lows: ‘This model, named Fabbrica Integrata, is an Italian, adapted version oflean manufacturing developed in the early ’90s and fully implemented in thehighly successful greenfield plant in Melfi, South Italy. Following ‘lean’ prin-ciples, the main features (Camuffo and Volpato, 1995) of Fabbrica Integrataare: advanced and flexible production technology, the adoption of lean man-ufacturing concepts (just in time, synchronous kanban, kaizen, job rotation,management by sight, quality tracking, etc.), key partner suppliers located

274

Notes 275

close to the assembly plant, a ‘flat’ organizational structure, organizationalunits based on process logic and linked to client-supplier logic, decentralisa-tion of responsibilities and functions, focus on skills and human resources asperformance drivers.’ (Camuffo, 2000/2001, p. 42).

7 The Case of Mercedes-Benz India

1. The higher the segment of vehicles, the bigger the profit margins and the lowerthe price sensitivity of customers and the lower the volumes – making scaleeconomies difficult – the more attractive it becomes, to import non-labourintensive parts and components despite penalizing import tariffs.

2. See the parallels between MBI’s family model and J.B.P Sinha’s (1990a) conceptof a ‘nurturant task leader’, which D. Sinha (1999) has called a ‘blend of exoge-nous and indogenous’, i.e. a blend between foreign and Indian managementpractices.

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Index

Active adaptation 11, 12Adaptation modes 11, 20, 22, 35, 39,

42see also recontextualization modes

Adaptation requirements 11, 16, 25,33, 205

Adoption 14, 18, 19, 33, 38, 109, 125,226

patterns of 19American Institutionalism 17–18, 22,

39, 45see also Neo-Institutionalism

Application–Adaptation Dilemma 11Audi 91, 92, 216, 217Aurangabad 70, 93, 168, 218Automotive Components

Manufactures Association(ACMA) xv, 71, 91, 96, 97, 130

Balance of payment (BOP) crisis 88Bangalore, Karnataka 93, 168Best practice 11, 15, 122BMW 91–2Brazil 136–7, 142, 151, 156, 168–9,

214Broad-banding 88–90Business system 22, 23

national business system approach22

Capability 104, 110, 112, 130, 131,143, 145

gap 104, 143, 145, 272of local/host context 114, 267–8

Capacity 88, 90, 97, 101, 140, 141,148, 152, 165, 175, 176, 216, 218,244

Capitalism 15, 17, 22Capital–labour relations 14Capitalist social relations 14Case study 9, 13, 63–7, 72–4, 78, 119Caste 80–1, 83, 233

Ceremonial adoption 108Challenge 3, 33, 86, 97, 126, 131,

144, 246, 273‘Challenge 50’ 112of transfer 3

Charterdefinition of 31–2of subsidiary 31–2

Chennai (former Madras) 92, 93, 168China 5, 65, 99, 100, 137, 173, 214,

216, 217, 246Citroën 137Company union 86–7, 125–9, 205Completely knocked down (CKD) kits

259, 260Fiat 138Mercedes-Benz India 173–8, 180,

186–9, 192–3, 206–7, 209–10,213

Skoda 214–16, 218–20, 222–3,226–8, 243–4, 249

see also Semi knocked down (SKD)kits

Components 25–6, 44, 60–1, 73, 97,263, 275

Fiat 166, 168–9,Maruti–Suzuki 129–33Mercedes-Benz India 188, 207, 209,Skoda 214, 222, 227–9, 233, 243,

246Conditions

institutional context conditions 26,146, 262

strategic context conditions 7, 34,77, 114, 116, 120, 152, 179, 186,230

Configuration mandate 129, 149,154, 165, 178, 265–9

Consumers, Indian 91consumer electronics 11consumer goods 87consumer industries 88consumer preferences 30

296

Index 297

Contextbusiness context 3, 5, 7, 11, 40, 77,see institutional context; strategic

contextwork context 78, 82–3, 118, 155,

190, 202Context free 15Contextual constitution 4, 16, 18, 22,

23, 28, 30–2, 35, 36, 38–40, 45–6,106, 273

Contextual distance 4, 7, 41, 51, 54,58, 60

Contextual misfits 36, 54, 58, 270,270

see also misfitsContingencies 15, 21, 28–9, 40, 42,

272see also strategic context

Continuous improvement 116, 117,123, 153–7, 193, 196

see also KaizenControl

cost control 58, 115quality control 154, 156, 157, 236

Convergenceconvergence of consumer

preference 30global convergence 22

Coordination 29, 30, 205Culture xi, 10, 12, 36, 86, 100, 103,

115, 116, 119, 121, 124Customization 6, 46–7, 50–2, 100,

106, 113–15, 134, 152, 171, 172,187, 189, 211–13, 223, 230,247–8,

core findings 251–2, 254, 257,259–60

Czech Republic 215, 226, 228–9, 232,239

Daewoo 92, 235Daimler-Benz (DB) 66, 173–8, 195,

205–10DaimlerChrysler (DC) 66, 174–6, 204,

205, 207–10Data analysis 72–4Data collection 67–72, 74

method of 67, 74

DCM 92Demand market conditions 55–7, 89,

104, 133, 172, 177, 185, 190, 221,249, 251

compare supply market conditionsDifferentiated network 31, 33, 40, 55

see also transnationalDominance effects 15

Economic reform 87–8Economies of scale 30, 246Education 77, 78–83

educational systems 54, 72, 223,254, 256

caste, stratification principles 80,81, 107, 118, 155, 193

higher education 79, 83, 97–8, 196,223

Ethnocentrism 32Eicher 71Embeddedness 63

social 12, 18of subsidiary 4, 18, 23–5, 28, 37–9,

54, 57, 254, 256Emulation 14Entry mode 57, 60, 61, 64, 143, 181,

216, 220, 259, 262–4definition of 59–60of Fiat India 138–9of Maruti–Suzuki 100–1of Mercedes-Benz India 174–5of Skoda Auto India 216–18see also establishment and equity

modeEnvironment

selection, creation, change 49Environment Strategy Structure

perspective/paradigm 38Environmental forces 29–31Environmental pressures 29–31Equity mode 59–61, 66, 68, 100, 101,

106, 108, 109, 138, 139, 172, 174,175, 180, 216, 217, 250

see also entry modeEstablishment mode 11, 59–61, 66,

68, 85, 100, 104, 138, 174, 216,228, 250, 258, 263–5, 270–1

see also entry mode

298 Index

European Institutionalism 17, 22,272, 274

Exportexport requirements 90, 208production for 58, 136, 175,

Fabbrica Integrata 141, 145, 149, 161,274

Family 77, 81, 198Fiat 136–72

Fiat India (FI) 92, 136–72,250–73

India Auto Limited (IAL) 66, 139Ford 90, 94, 95, 137, 235Ford India 92, 94, 95Foreign Direct Investment (FDI) 3, 8,

9, 88, 90, 101, 129, 186, 207, 209,213, 218, 229, 230

Foreign Exchange Regulation Act(FERA) 88, 90

Foreign ownership development 69

Gandhi, Indira 65Gandhi, Rajiv 88Gandhi, Sanjay 66, 100General Motors (GM) 92Generic product strategies 5, 28, 42,

270see also generic strategies and global

product strategiesGeneric Strategies 5, 28, 42, 65, 57–8,

100, 137–8, 174, 215–16, 250,254, 257–63, 270

definition of 57–8see also global product strategy

Germany 174, 177, 181, 185, 187–91,196, 199–202, 206, 209, 226, 232,236

Global efficiency 30Global integration 29–30Global product strategy 57–8, 100,

137–8, 174, 215–16see also generic strategies

Gujarat 92Gurgaon, Haryana 70, 71, 93, 113,

126, 128

Halol, Gujarat 92Haryana 70, 93, 101Hindustan Motors (HM) 92Heavy Commercial Vehicle (HCV) 96Honda Motors 92–3Honda-Siel 92–3Hosur, Karnataka 92Human resources (Indian automobile

industry) 97, 98, 103, 116–17,141, 153–62, 192, 202, 205,230–8, 255–6

Hybridizationbreadth of process 25–6definition of 5, 45–7modes of 25nature of process 25–6of production system 44–7ratios of 12trajectories of 26–7

Hybridization outcomesdefinition of 45–7

Hybridization profilecompared 251–2definition of 5explained 251–70Fiat India’s 140–72Maruti–Suzuki’s 102–35Mercedes-Benz India’s 176–213Skoda Auto India’s 219–49

Hybridization research 3–5, 14–16,65, 250, 271–2

definition of 3Hybridization theory 4Hyundai Motors 87, 93–5

Igatpuri, Maharashtra 92Import tariffs 90–1, 129, 149, 168,

189, 208, 227, 244, 247, 249, 275Incentive system 123, 126–8India

automobile industry 87–98business context 77–98FDI regime 88–95

Indian Automobile industrymajor players 92–3suppliers 95, 97

Indian Institute of Technology (IIT)97

Index 299

Indian passenger car marketdevelopment of 91, 94, 95by manufacturer 92–3market share 94, 95by segment 96

Indore, Madhya Pradesh 92Industrial Disputes Act 83Industrial Relations (IR)

Fiat India’s 160–5India’s 82–7Maruti–Suzuki’s 125–9Mercedes-Benz India’s 203–6Skoda Auto India’s 240–3

Industrial Training Institute (ITI) 79,83, 109, 122, 158, 201, 233, 235

Institutional context 51–4, 99–249,250–73

constraints and opportunities 26–7definition of 54India’s 77–87

Institutional distance 7, 8, 14, 18, 19,41, 47–54, 104, 117, 125–8, 143,147, 163, 190, 192, 204, 225, 231,234, 237, 240, 251–6

Institutional duality 17–19Institutionalist approaches 16–28Integration-responsiveness framework

28–9, 39–40Internationalization experience 173,

260–1, 270Internationalization strategies 29–31,

40, 259, 270Inventories 97, 113, 135, 165, 168,

207Italy 136, 138–41, 146, 151–3,

158–69, 274Isomorphism 17–20

Japan 12, 13 20, 21, 99–135, 269Japanese production system 9–14Japanization literature 8–16Jati 81Just in sequence (JIS) 206, 208Just in time (JIT) 129, 165, 274

Kaizen 117, 124, 274,Kirloskar 93Knowledge flow perspective 33–6, 41

Kosai plant 102–14

Labour relationssee industrial relations

Labour Process perspective 13–16Labour unrest 116, 161–2Lean Production perspective 9–13Learning cycle model 35Level of analysis 9, 13, 18, 23, 28, 29,

33, 64Light commercial vehicles (LCV) 96Local content 47, 89–92, 129, 149,

166–70, 178–9, 186–9, 207–9,221, 227, 230, 244–9

Local differentiation 30see also environmental forces

Local responsiveness 29–30see also environmental forces

Logistics 97, 113, 129, 130, 133,167–8, 179, 188, 206–9, 222,229–30, 243–4, 249

Madhya Pradesh 71Maharashtra 70, 92–3, 138–40, 152Mahindra & Mahindra 93

Mahindra Renault 93Management by objectives 78Manufacturers

in India 92–3Manesar, Haryana 93, 101Market reform 174

see also economic reformMarket segmentation 91Market share

Fiat’s 139–40By manufacturer 94–5Maruti–Suzuki’s 102Mercedes-Benz India’s 175–6By segment 96Skoda Auto India’s 218–19

Maruti Udyog Ltd. 93, 99–100, 113,126–7, 132, 135,

Maruti Production System 113Maruti–Suzuki India (MSI) 7, 65–73,

93, 99–135, 137, 159, 170, 182–3,186, 217

Mass production 190of peoples’ car 102

300 Index

Mazda 90Memorandum of Understanding

(MoU) 90–1Mercedes-Benz (MB) 66–7, 68, 173–6Mercedes-Benz India (MBI) 7, 65–73,

69, 84, 93, 173–213, 215, 219,226, 251–68

Mercedes-Benz Production System177

Middle class 102Misfits 6, 10, 21–2, 35–6, 42, 47–63,

104–34, 143–71, 178–212,221–48, 254–72

kinds of 6, 47–57see also recontextualization pressure

Mitsubishi 90, 93, 173Model diffusion 25Monopolies and Restrictive Trade

Practices Act (MRTP) 89–90Multinational enterprises

Strategies of 29–31Structures of 29–31

Multi Utility Vehicles (MUVs) 92, 96Mumbai (formerly Bombay) 92–4,

138–9, 148, 152, 168

Nashik, Maharashtra 92New Delhi 71, 82, 168New Institutionalism 17–18, 20, 254,

see also American InstitutionalismNoida, Uttar Pradesh 92North America 9, 11

Opel 92Organization structure 44, 46, 103,

106, 142, 145, 177, 180, 220Organizational relations 45–6

inter-organizational relations 45–6Outright application 11Outsourcing 129, 131, 133, 141, 165,

169, 188Overcapacity 95, 216Ownership development 69

Passive adaptation 11–12Peugeot 93

Phased Manufacturing Program (PMP)89–90

see also Local contentPithampur, Madhya Pradesh 71,

92Polytechnics 79, 83Public Sector Undertakings (PSUs)

100, 106–11, 124Premier Automobiles Ltd. (PAL) 66,

91–4, 136, 138, 146, 163Process organization 44, 46, 103, 140,

189Profit strategy 27, 137, 215

see also generic strategy and globalproduct strategy

Production location 92–3Fiat’s 139–40Maruti–Suzuki’s 101–2Mercedes-Benz India’s 175–6Skoda Auto India’s 218–19

Product ownership 143–5, 172,267–8, 273

Production model 26Production system

definition of 44–5Functional differentiation 44,

103–6, 142–5, 177–80, 220–3,251–4

Hierarchical differentiation 44,106–10, 145–7, 180–5, 223–6,251–4

Industrial relations 45, 125–9,160–5, 203–6, 240–3, 251–4

Supplier relations 45, 129–35,165–72, 206–13, 243–9, 251–4

Technical configuration 44–5,110–15, 147–52, 185–90, 226–30,251–4

Work organization and humanresource profile 45, 115–25,152–60, 190–203, 230–40, 251–4

Production template 43, 47, 102–3,140–2

definition of 47Productive model 25

requirements 26Productivity 89, 112, 114–16, 118,

123, 132, 230, 233

Index 301

QualityQuality circle 117, 119, 124, 155,

196Quality system 222, 231–2, 235–6,

238

Recontextualizationkinds of 36, 47–51see also recontextualization pressurecompare transfer scenarios;

recontextualization modesRecontextualization mode 6, 36, 42,

49, 51–4, 57, 58, 60, 61, 63,104–34, 143–71, 178–212,221–48, 254–72

Recontextualization pressure 6, 35,47–51, 104–34, 143–71, 178–212,221–48, 254–72

see also misfitRelational context 19–20, 39Research gap 3, 7Research traditions 4, 9, 14, 17, 51Resources and capabilities 31–2, 60Responsibility

taking of 77–8, 82–3, 117, 119, 156,193, 195–204, 234

Revised application 11–12Russia 215

SEAT 214, 216Semi knocked down (SKD) kits 260,

265Mercedes-Benz India 173–4, 176,

178, 180, 186Skoda 217–20, 222–3, 226–9,

243–4, 249Skoda 215–16Skoda Auto India (SAI) 65, 67, 69–73,

93, 214–49, 251–69Skoda Production System 219, 230–7,

265Socialization 77–8, 83, 121, 124,

157–60, 197, 237, 239Social constitution

of organizations 16–17Societal effect (approach) 22, 54, 254Society for Indian Automobile

Manufactures (SIAM) 71, 95–7,130, 176, 218, 219

Social stratification 80–2Socio-professional

distance/demarcationStaffing policy 231, 234, 240, 242,

262, 267–9Standard Motors Products of India

Ltd. (SMPIL) 91Strategic choices 4–7, 57–63

corporate level 58–9Fiat’s 137–9Maruti–Suzuki’s 66, 68, 100–1Mercedes-Benz India’s 66, 68,

174–5Skoda Auto India’s 66, 68,

215–18subsidiary level 59–63

Strategic context 7, 28, 34, 54–7, 77,87, 99–249, 255–9

definition of 57Strategic distance 7, 33, 41, 51–9,

144–5, 154, 172, 174–80, 185–7,191–2, 196, 201, 207–10, 174,177–80, 185–7, 190–2, 196, 201,207–10, 215, 220, 222, 226–7,231–3, 243–4, 250–62

Strategic role perspective 28, 31–3,41, 55, 173, 215, 272

see also subsidiary roleStrikes 84, 126–7, 139, 162–5, 206Subsidiary evolution 31

Definition of 31see also strategic rolecharter 31–2, 57

Subsidiary role 31, 34, 39–41, 55Subsidiary production system 7

see also production systemSupply market conditions 95–8,

104–5, 116, 133, 166, 249, 251,254–5

Surajpur, Uttar Pradesh 92Suzuki Motors Corp. (SMC) 66, 99,

103System imperatives

of capitalism 55

Talegaon, Maharashtra 92Task environment 11, 37, 177, 179,

221, 222

302 Index

Tata Motors 66, 92–5, 137, 139see also TELCO

Tata Nano 93, 102Technical configuration 46, 110, 134,

147, 171, 185, 226, 252TELCO 66, 174–6, 181–2, 189, 192,

195, 200–1, 204–5, 207, 209see also Tata

Templateavailability 254, 259–66see production template

Theoretical foundations 1, 5, 7, 8–42Theoretical sampling 64–5, 68Tierization

of suppliers 130, 166–7, 207Toyota 95, 93Toyota Kirloskar 93Trade unions

see unionsTraining

Vocational and technical in India79, 83, 107, 119–22, 124, 133,153–64, 190–7, 201, 219, 230–7,255–6

Transfercapability of 15content 10, 24cross-national 9,failure 26intent 28, 103, 130, 140, 143, 145,

147, 165–6, 182, 219–20, 229,238, 254, 260–2

of knowledge 30of organizational forms and

practices 15–16, 21, 38, 260of production systems 9, 11, 13propensity of 11, 13, 15, 32, 36–7,

65–2, 270of templates 6, 36, 47–8, 53,

57–61,102, 106, 110–15, 126,143–4, 149, 165, 171–2, 180–1,189, 208–10, 224, 226, 229, 244,247, 253, 260–4, 269

Transferability question 17Transfer outcomes

complex view 41definition of 45–7dichotomous views 41see also Hybridization outcomes

Transfer scenarios 53, 56compare misfits; recontextualization

pressure; recontextualizationmodes

Transnational (corporation andstrategy) 29–33, 38–40

Transportation 30, 86, 97, 124, 134,166–8, 172

Unions 82–7, 111, 125–33, 159–65,205–6, 241–3

United States 9, 12, 173Universities 79UTE 142, 143, 145, 152–60Utility Vehicles 102Uttar Pradesh 92, 93Uttarpara, West Bengal 92

Vadodara, Gujarat 92Varieties of Capitalism (VoC) 17, 22Varna 81Vertical Integration 104–5, 150, 179,

187–9, 222, 227, 229Volkswagen (VW) 67, 68, 93, 215–16,

Work discipline 77, 86, 117–19, 124,195, 201, 203–6, 234–5, 237

World car 68, 136–8, 140–2, 258, 267Fiat’s world car project 136, 138,

140–2, 145Worldwide diffusion 30

Zaheerabad, Andhra Pradesh 93