HRM Literature Review

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Literature Review: The new role of Human Resources Management - the transition of Human Resources Department during the merger process.

Horowitz et al. (2002), provide one of the most definitive pieces of research on the subject of human resource challenges in mergers and acquisitions. Their article identifies the attributes of organizational culture and human resource practices required for successful transitions in mergers and acquisitions, and analyses the implications of culture types for inter-organizational combinations. They cite the importance of information when dealing with employee turnover during a merger or acquisition, and also the importance of giving special attention to management style and organizational integration in successfully managing mergers and acquisitions. Another recent academic piece to touch on the subject was that of Signorovitch (2004). This article discussed how to successfully deal with a change in leadership in a company, and in some cases, those leadership changes were accompanied by other changes, such as reorganization, acquisitions or mergers. He claimed that it is also not that difficult to get some early insights into the new leader from colleagues in the organization, especially in the human resources department, due to that department’s necessary close association with the change.

Meyer (2001) takes another approach to the topic, using an understanding of the allocation processes in mergers and acquisitions by applying an organizational justice perspective. This is a perspective that had previously been neglected in past research on mergers and acquisitions, but which is very important in understanding the challenges managers face in allocating human resources and other resources of symbolic importance. particular, the paper examines the trade-offs between multiple goals in selecting distributive and procedural justice rules, and identifies factors that constrain these choices. A similar perspective is offered by Lieberman and Moss (2001), who analyse the reasons reorganizations and mergers often result in workforce reductions, and the forms these changes often take. However, this paper concentrates more on the legal challenges and risks for in-house counsel and the human resources departments when dealing with local and regional employment laws, claiming that, with proper planning and advice, the potential for incurring charges of discrimination or other employment law issues can be anticipated and avoided. However, the paper is very clear that human resource departments planning a reduction in force, whether due to mergers or otherwise, are often running tribunal risks, and should consider whether other options are feasible, including freezing wages or postponing wage increases if cash needs are an immediate issue.

Specific information on the role of the HR department in the medium and long term, following a merger or acquisition, can be harder to find, although People Management (2003) focused on the study HR’s Contribution to International Mergers and Acquisitions, released by the Chartered Institute of Personnel and Development, stating the importance of accounting for differences in human resources management policies and industrial relations between companies, whilst also studying information on cultural due diligence. In contrast, Kearney (2005), whilst discussing the consolidation of Oracle and PeopleSoft workforces, looked at differences in the consolidation process in several countries, including collective consultation on the merger and job losses. His conclusion was that job losses are inevitable in a merger, and it is up to HR departments to complete them as swiftly as possible because prolonging the pain for everyone in the name of protecting the few really is cruel. (Kearney, 2005) Kearney’s conclusions back up those of Faulkner, Pitkethly and Child (2002), who investigated HRM practices adopted by companies from the USA, Japan, Germany and France in UK companies that they acquired, with UK/UK acquisitions used as a control. The research, which was based on a survey instrument applied to 201 companies and interviews with forty, notes that there is some convergence of HRM practices, in that, for example, all countries researched employ performance-related pay and increased the amount of training in their new subsidiaries. It found, however, that there is a distinct difference in the HRM practices employed by companies from each of the countries, influenced by the characteristic HR practices common to companies in the country of origin of the parent. This work thus shows the importance of accounting for national differences, whilst also ensuring that necessary changes are carried out swiftly and efficiently in order to minimize prolonging the pain, as Kearney put it.

More focused, research was undertaken by Pomeroy (2005), who focused mainly on the role played by Hewlett-Packard human resources and workforce development executive vice president Susan Bowick in the HP-Compaq merger in 2001, showing the pressures that mergers and acquisitions can place on senior HR management. Further, the Human Resources Department Management Report (2005), focused on the announcement of Affiliated Computer Services Inc. that it will acquire Mellon Financial Corp.’s human resource (HR) consulting and outsourcing division in the U.S. This report examined the increasing tendency for companies to acquire well functioning human resource operations, as well as develop and focus on their own, thus voicing the expectation that the HR business process outsourcing market would grow, fuelling the so called ‘mergerama’.

Obviously, the differences in HR practices across nations are of vital importance to potential mergers and acquisitions made by Chinese state owned companies, especially if they are acquiring companies based in western nations. This is shown most clearly on the front cover of the August 2005 edition of Asia Monitor: China & North East Asia Monitor. The article focuses on the US$18.5bn offer by China National Offshore Oil Corp. (CNOOC) for Unocal Corp., the US oil and gas company, which, according to the publication, is a landmark event. Not only is the deal the biggest ever by a Chinese company, but it is also the first contested take-over, and it is the first to be made in a strategic and politically sensitive sector. Members of the U.S. Congress are attempting to block the deal on the grounds of national security. Also, they feel that the deal is unfair on commercial grounds because of the hidden subsidy that the 70% state-owned CNOOC receives from the Chinese government.

It is possibly in response to this, that the changes commented on by Zhu, Cooper, De Cieri and Dowling (2005) have occurred in Chinese state owned industry. Their research firstly notes that the Chinese government has launched extensive reforms to encourage integration with the global economy and, secondly, investigates the implications for human resource management practices of the changing business environment in China, ownership of organizations, organizational strategies and strategic integration of the HR function. The results from two surveys in major Chinese cities, in 1994/5 and 2001/2, with managers of state-owned, privately owned, collectively owned and foreign-invested enterprises, are analysed, and regression analyses are used to show that organizational strategy and organizational ownership, in contrast with earlier research, were not found to be strong predictors of HRM practices. The changing business environment in China and participation by the HR function in strategic decision-making were the strongest predictors of HRM practices, and overall, a strategic role for the HR function and implementation of ‘Western’ HRM practices are becoming more prevalent in China, although the legacy of traditional practices endures and new challenges are emerging.

This research can also be viewed with that of Goodall and Warner (1997), who examined HRM in joint ventures in Shanghai compared with those in Beijing, using a case-study approach. They focused primarily on issues relating to labour contracts, rewards and benefits, social insurance, trade unions and personnel policies, and described developments in China in each of these areas. The extent to which HR practices in joint ventures are distinct from those in contemporary state owned enterprises was also examined. The papers conclusions were that, although, as one would expect, foreign ownership modified traditional practice, the degree and extent to which this was true varied widely. Although neither of these pieces of research directly related to mergers and acquisitions, they were both strongly focused on the influence of the west in China, and thus provide good data and analyses which will be prevalent in the study of the M&A field.

Hong Kong is a useful case study for predicting and analyzing the potential future directions the Chinese mainland state owned enterprises will take, and HRM practices and development there were reviewed by Chiu and Levin (2003). Their work briefly reviewed the principal types of employment systems that emerged within this environment following the reunion with the People’s Republic, and analysed how changes in the economy, the politics, and the labour marker impacted on these systems from the late 1970s to the mid-1990s. In particular, it examined how human resources management practices in both the private and public sectors’ have changed since 1997 in response to two critical events occurring that year: the onset of the Asian Financial Crisis and the change of sovereignty over Hong Kong. A further study on the effects of the Asian Financial Crisis on human resource practices in the area was conducted by Chu and Siu (2001), whose paper examined the processes of the ‘rightsizing’ strategies of Chinese-owned small and medium-sized firms in Hong Kong. The research results suggest that SMEs in Hong Kong follow different human resources practices at different stages, and also suggested a tentative model for the ‘rightsizing’ strategies of human resource departments in Chinese state owned small and medium-sized firms in Hong Kong.

Another piece with strong relevance is that Law, Wong and Wang (2004), who claim that the localization of human resources has been a major objective for many transnational corporations and state owned enterprises in China. After a review of related literature and in-depth interviews with six such corporations, Wong and Law (1999) developed a model explaining the localization process in China, and based on this localization model, Law, Wong and Wang (2004) conducted an empirical test involving the antecedents of successful localization results of 139 transnational corporations in the country. Results showed that whether or not localization had been identified as an important goal, overall localization planning efforts and most importantly the actual human resources management practices were important factors leading to successful localization of expatriate positions.

Several pieces of academic research have examined recent merger and acquisition data regarding Chinese state owned enterprises, one of the most recent of which was conducted by Wen (2004), who used a Cournot competition model to show that the welfare consequences of different reforms are determined by the industrial structure, the distribution of production capacities, and the cost differentials among firms. As these factors vary from industry to industry, decisions on reform of loss-making state owned enterprises, including choices between mergers and sale, to which the enterprises’ assets should be sold as well as the auction approach should be endogenized within the industrial structure. Near the end of 2003, the Far Eastern Economic Review looked at the purchase of the two plants of U.S.-based Intergen Co. in Australia by China state-owned Huaneng Power International Inc., and examined some of the potential implications.

A deeper look at this field was undertaken by Movshuk (2004), who used a stochastic frontier model with panel data, in order to evaluate the impact of major reform initiatives, including merger policy, on enterprise performance in China’s iron and steel industry. While the production possibility frontier of examined enterprises was shifting upward, their technical efficiency did not improve significantly, and was even deteriorating in the mid-1990s. Moreover, the largest steel enterprises did not have a pronounced efficiency advantage over smaller ones, even though the former are considered by the Chinese authorities as the core of their ongoing centralized merger campaign to create internationally-competitive steel conglomerates. As such, the paper examines various determinants of enterprise inefficiency, and discusses policy implications of major findings, including some implications that could potentially impact on HR departments.

Another useful piece is that of Woodard and Wang (2004), who discuss the implications of the acquisitions of Chinese companies being made by international companies for total foreign direct investment. They also mention the formation of the State Assets Supervision and Administration Commission in line with the restructuring and privatization of state-owned enterprises, showing that not only must HR departments in Chinese state owned enterprise be prepared to acquire other companies, but they would do well to consider the possible implications of acquisition themselves.


  • Asia Monitor: China & North East Asia Monitor (2005) China’s Bid For Unocal Hits Controversy. Vol. 12, Issue 8, p. 1.
  • Chiu, S. W. K. and Levin, D. A. (2003) HRM in Hong Kong since 1997. Asia Pacific Business Review; Vol. 9, Issue 4, p. 32.
  • Chu, P. and Siu, W. S. (2001) Coping with the Asian economic crisis: the rightsizing strategies of small- and medium-sized enterprises. International Journal of Human Resource Management; Vol. 12, Issue 5, p. 845.
  • Far Eastern Economic Review (2003) POWER. Vol. 166, Issue 51, p. 24.
  • Faulkner, D. Pitkethly, R. and Child, J. (2002) International mergers and acquisitions in the UK 1985-94: a comparison of national HRM practices. International Journal of Human Resource Management; Vol. 13 Issue 1, p. 106.
  • Goodall, K. and Warner, M. (1997) Human resources in Sino-foreign joint ventures: selected case studies in Shanghai, compared with Beijing. International Journal of Human Resource Management; Vol. 8 Issue 5, p. 569.
  • Horwitz, F.M. Anderssen, K. Bezuidenhout, A. Cohen, S. Kirsten, F. Mosoeunyane, K. Smith, N. Thole, K. and van Heerden, A. (2002) Due diligence neglected: managing human resources and organizational culture in mergers and acquisitions. South African Journal of Business Management; Vol. 33 Issue 1, p. 1.
  • Human Resources Department Management Report (2005) HRO ‘MERGERAMA’ CONTINUES. Vol. 5, Issue 5, p. 8.
  • Kearney, V (2005) It’s kind to be cruel during mergers– otherwise you’re just prolonging the pain. People Management; Vol. 11, Issue 8, p. 48.
  • Law, K S. Wong, C. S. and Wang, K. D. (2004) An empirical test of the model on managing the localization of human resources in the People’s Republic of China. International Journal of Human Resource Management; Vol. 15, Issue 4/5, p. 635.
  • Lieberman, P. A. and Moss, P. N. (2001) Addressing Employment Law Issues When Conducting Due Diligence in Mergers and Acquisitions. Journal of Employment Discrimination Law; Vol. 3 Issue 2, p. 114.
  • Meyer, C. B. (2001) Allocation Processes in Mergers and Acquisitions: An Organizational Justice Perspective. British Journal of Management; Vol. 12, Issue 1, p. 47.
  • Movshuk, O. (2004) Restructuring, productivity and technical efficiency in China’s iron and steel industry, 1988-2000. Journal of Asian Economics; Vol. 15, Issue 1, p. 135.
  • People Management (2003) Culture audits key to mergers. Vol. 9, Issue 23, p 8.
  • Pomeroy, A. (2005) Orchestrating a Mega-Merger. HR Magazine; Vol. 50, Issue 6, p. 58.
  • Signorovitch, D. J. (2004) Hidden In Plain Sight: Assessing the Challenges of a Leadership Change. Public Relations Quarterly; Vol. 49, Issue 3, p. 4.
  • Wen, M. (2004) Bankruptcy, sale, and mergers as a route to the reform of Chinese SOEs. China Economic Review; Vol. 15, Issue 3, p. 249.
  • Woodard, K. and Wang, A. Q. (2004) Acquisitions in China: A View of the Field. China Business Review; Vol. 31 Issue 6, p. 34.
  • Zhu, C. J. Cooper, B. De Cieri, H. and Dowling, P. (2005) A problematic transition to a strategic role: human resource management in industrial enterprises in China. International Journal of Human Resource Management; Vol. 16, Issue 4, p. 513.

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