Creating social capital in MNCs: the international human resource management challenge

• Author: Sully Taylor
• Published date: 01 November 2007
• DOI: http://doi.org/10.1111/j.1748-8583.2007.00049.x
• Date: 01 November 2007

Creating social capital in MNCs: the

international human resource management

challenge

Sully Taylor, School of Business Administration, Portland State University

Human Resource Management Journal, Vol 17, no 4, 2007, pages 336–354

Social capital has assumed a critical role in the successful implementation of global

strategy for multinational companies (MNCs). The article focuses on the ways in

which the international human resource management (IHRM) system and those

responsible for it influence the creation and utilisation of social capital in MNCs.

It examines the challenges posed to IHRM by the wide diversity of definitions and

manifestations of social capital found in the multiple cultural contexts of the global

business environment and provides a framework on how to approach the cultural

influences on the definitions and behavioural expressions of social capital. It also

critically assesses the recommendations that have been made regarding developing

social capital in MNCs, the competencies most critical to the ability to develop social

capital in multiple cultural settings, and provides a set of recommendations for

future research in this area.

Contact: Sully Taylor, School of Business Administration, Portland State

University, PO Box 751, Portland, OR 97207, USA. Email: sullyt@sba.pdx.edu

The field of international human resource management (IHRM) has developed

rapidly over the past decade, in tandem with the growing importance and

scope of multinational company (MNC) activity in the world (Keating and

Thompson, 2004). As structural solutions become less effective because of the

dynamism of the global environment and the dispersion of key assets (including

human) around the world, IHRM is seen as increasingly important to the successful

implementation of MNC strategy (Bartlett and Ghoshal, 1989; Sparrow et al., 1994;

Taylor et al., 1996; De Cieri and Dowling, 1999). In order to achieve the goal of

successful implementation, the IHRM system, and those functionally responsible for

designing it, have tried to meet the challenge of how to effectively manage the

cultural and institutional diversity that makes creating a unified global HR system

problematic (Sparrow et al., 1994; Ferner, 1997; Clark et al., 1999). Recently, the field

has also begun to focus on an emerging issue in IHRM: the creation of social capital

in the organisation’s global network (Nahapiet and Ghoshal, 1998; Kostova and Roth,

2003; Griffith and Harvey, 2004; Gomez and Sanchez, 2005a,b; Lengnick-Hall and

Lengnick-Hall, 2006; Taylor, 2006). Social capital has been defined as ‘. . . the sum of

the actual and potential resources embedded within, available through, and derived

from the network of relationships possessed by an individual or social unit’

(Nahapiet and Ghoshal, 1998: 243), and is the result of developing social networks.

Social networks have been shown to have many benefits to MNCs, including

increasing the knowledge of foreign market opportunities (Ellis, 2000), access

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 17 NO 4, 2007336

© 2007 The Author.

Journal compilation © 2007 Blackwell Publishing Ltd., 9600 Garsington Road, Oxford, OX4

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to technologies or resources that competitors do not enjoy (Gulati et al., 2000),

identification of competitive threats, ability to leverage joint venture relationships

(Harrigan, 1985), ability to learn from alliances (Hamel et al., 1989), and the ability to

leverage internal knowledge and aid in coordination and cooperation (Kostova and

Roth, 2003). This internal benefit to MNCs of social networks and the resultant social

capital is the central focus of this article because of its salience in MNC success.

Social capital is critically important to the success of MNCs because of its close

links with the creation and sharing of knowledge throughout the firm and also

because of its ability to support effective coordination and ensure cooperation across

geographic and cultural borders. As Kogut and Zander (1993) argue, the ability to

access the knowledge existing throughout the MNC’s global network is what gives

an international firm a competitive advantage over local firms. Leveraging internal

knowledge and innovation enables the firm to take advantage of its worldwide

access to information, learning and creativity to continue to improve its competitive

offerings in products or services. Creation and transfer of such knowledge largely

depend on the ability and willingness of employees to undertake the complex

organisational tasks of coordination and communication necessary to use knowledge

for competitive advantage (Kogut and Zander, 1992; Nahapiet and Ghoshal, 1998;

Storey and Quintas, 2001). In addition, knowledge flow is particularly important to

MNCs with a high degree of complex interdependency between headquarters and

subunits (Kostova and Roth, 2003), enabling the firm to coordinate effectively in a

dynamic global environment.

Social capital plays an essential role in nurturing the willingness and ability of

employees to engage in the creation and sharing of knowledge in global firms, and

enables coordination and cooperation in the global network (Nahapiet and Ghoshal,

1998; Kostova and Roth, 2003). The emerging importance of social capital to MNC

success places new demands on the IHRM function (those responsible for designing

and implementing IHRM policies and practices) and the IHRM system within

MNCs. Among these is an important concern for how to build social capital in the

global network of an MNCs’ subunits. Another related concern is the identification,

development and retention of managers, particularly those crossing geographic and

cultural boundaries, who can successfully develop social capital in multiple cultural

settings. This article will argue that while the development of social capital in MNCs

has become increasingly recognised as a key task of IHRM (e.g. Lengnick-Hall and

Lengnick-Hall, 2006; Taylor, 2006), there has been less recognition that the diverse

ways in which social capital is conceived and manifested in different cultures is

likely to make this a complex task, with important implications for the resultant

system. Research has not addressed how developing social capital differs across

cultures, a necessary first step to creating the theoretical frameworks of how the

IHRM function can help build social capital in global, internal networks. The intent

of this article is to elucidate this complexity and provide a framework to both

researchers and practitioners on how to approach the issue. The article will analyse

how the concept and manifestation of social capital are likely to be affected by the

diversity of cultural milieux in which MNCs operate and will draw on this

discussion to critically assess the recommendations that have been made regarding

developing social capital in MNCs. The article will then speculate on what

competencies are most critical in managers with the ability to develop social capital

Sully Taylor

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 17 NO 4, 2007 337

© 2007 The Author.

Journal compilation © 2007 Blackwell Publishing Ltd.