What generates the violation of psychological contracts at multinational corporations? A contextual exploratory study

Abstract

The violation of a psychological contract may have negative effects on employees such as mistrust, lower job performance, and reduced job satisfaction and organizational commitment. We demonstrate that the probability of these negative occurrences is prevenient at multinational corporations. This study adopts an exploratory approach based on data collected at four Israeli companies operating in the high-tech industry that outsource or have established subsidiaries in India. Results indicate five situations that may lead to psychological contract violation, as well as to specific cultural and contextual factors that generate such violation. We argue that the possibility of psychological contract violation anticipatory at multinational corporations due to their distinctive characteristics, namely, inherent cultural diversity, dynamic structure, and global dispersion. The study further contributes to general psychological contract research by showing that certain aspects of the psychological contract are culturally constructed and that incongruences in these aspects as constructed by members of different groups may lead to perceptions of violation.

Keywords

Context culture high-tech India Israel multinationals psychological contracts

Introduction

In the face of increased global competition, multinational corporations (MNCs) often establish subsidiaries overseas, make decisions to downsize, and outsource activities to offshore locations. Thus, these organizations become a site of interaction among employees holding diverse perspectives of work norms including those related to the relationships between employer and employee (Herriot and Pemberton, 1996). The psychological contract (PC), that is, the perception and expectations on the part of both the employer and the employee regarding the unwritten mutual promises and obligations in an employment relationship (Morrison and Robinson, 1997; Rousseau and Schalk, 2000) are part and parcel of these relations. The importance of the PC was documented in a meta-analysis showing that violations of this implicit contract were related to mistrust, reduced job satisfaction and organizational commitment, turnover intentions, and lower organizational citizenship behavior and in-role performance (Zhao et al., 2007). Yet little research has focused on the study of PCs at MNCs, and to the best of our knowledge, existing research has not suggested an analysis of the factors that generate PC violations at MNCs.

We argue that the possibility of PC violations and their negative effects is prevenient at MNCs due to their distinctive characteristics, namely, inherent cultural diversity, dynamic structure, and global dispersion.

The presented analysis of factors generating PC violation at MNCs highlights the imperative of two PC dimensions. The first, which existing PC literature tends to overlook, is the cultural collectivistic dimension of the psychological contract content. This dimension is significant when analyzing situations of PC violation between culturally diverse MNC populations. The second dimension is the contextual aspect of the psychological contract content. In MNCs, due to their dynamic structure and wide global dispersion, there is an inevitable encounter between different PCs resulting from particular regulative and normative work environments and from particular employment conditions. Such encounters often lead to PC violation. The analyses demonstrate that it is precisely these PC dimensions that explain PC violation at MNCs. These dimensions, we believe, may also explain PC violation in other types of organizations.

Much of the existing literature on PCs has highlighted their individualistic, perceptual, and idiosyncratic nature. According to most researchers, if the perceived obligation is based solely on past experience in other employment relations, then it falls outside of the PC (Morrison and Robinson, 1997: 228). Westwood et al. (2001: 625) challenged this approach, arguing that:

such psychologistic, individualized accounts of the contract formation process are necessary but insufficient … Employees do not enter organizations with an attitude tabula rasa. The expectations they develop within a specific organizational context are assuredly informed by prior experiences and expectancies derived therefrom.

In contrast to the emphasis on individualized conception of the PC in much of the literature, their study indicates that this decontextualizes the PC. The true nature of a PC, they argue, is shown to be an exchange relationship firmly linked to a culture’s reciprocity norms. Based on earlier research and on our findings, we suggest that certain aspects of the PC are affected by a person’s national culture; hence, in culturally diverse organizations such as MNCs, PC violation may be created due to incongruence in the PC held by employers and employees from different cultures.

The second dimension we discuss in this article is the impact of contextual factors on the formation and violation of PCs. Following the call to “bring context back in” to our analysis (George, 2014), and in particular to do so in international management research (Michailova, 2011), we have embraced a relatively open definition of contexts. We perceive contexts as sets of connections constructed with relevance to a particular phenomenon. According to Dilley (1999: 3), a definition of context is “that which environs the object of interest and helps by its relevance to explain it.” Because contexts can be cultural, social, economic, or political, we have followed this rational and have restricted our analysis to those that are directly related to the focus of our investigation (PC violation), that is, the specific characteristics of MNCs and a specific industry in which they operate (high-tech). Our second argument regarding the issue of context is that the manner in which MNC geographical distribution is carried out as well as the nature of its restructuring process are factors explaining PC violation at MNCs.

This article is based on empirical data collected at four Israeli MNCs operating in the high-tech industry that outsource or have established subsidiaries in India. Since not much is known about PC violation at MNCs, the present research adopts an exploratory approach, suggesting an analysis of the main factors generating PC violations. We begin with a literature review explaining the PC. Next, we review studies that provide insights into the analysis of PC violations at MNCs from a cultural and contextual perspective. Following this, we introduce the study context, the cases and the study methods. In the results section, we discuss and analyze each of the five situations of PC violation that emerged from the data, focusing on cultural and contextual factors that generate PC violation.

Psychological contract

The PC was first referred to by Argyris in 1960 in regard to the hidden aspects of the relationship between an employer and employee. Later definitions were less broad, referring to the perception and expectations on the part of both employers and employees regarding the unwritten mutual promises and obligations in an employment relationship (Morrison and Robinson, 1997; Rousseau and Schalk, 2000). The assumptions concern elements of employees’ expectations that are concrete (e.g. pay, performance requirements, and working conditions) and abstract (e.g. job security, work challenges, respectful treatment, and safe working environment). In return, the employer expects loyalty, involvement, and investment in the organization or the work.

According to the dominant approach in PC research, a PC develops through interactions, both formal and informal, between the individual and the organization. These processes may occur during the formal processes of recruitment and socialization or in the ongoing interactions between the employee and managers (Rousseau, 1995; Westwood et al., 2001). These interactional events and perspectives are shaped by the individual over time into cognitive schema which map out a personal understanding of employment relationships and the reciprocal obligations and entitlements they believe are in place (Sparrow, 1996). It is argued that each employee holds a mental representation—a schema—about what a typical employment relationship entails, and that organizational socialization will affect the degree of similarity between an employee’s schema regarding the employment relationship and the schema held by organizational agents (Morrison and Robinson, 1997). Rousseau (1995) distinguishes between four types of contracts, among them the normative contract and the social contract, which are of contextual relevance to MNC research: The normative contract is the shared PC that emerges when members of a social group, organization or work unit hold common beliefs. The social contract consists of broad beliefs in obligations associated with a society’s culture. Such contracts are cultural as they are based on shared collective beliefs regarding appropriate behavior in a particular society. A more common PC typology portrays psychological contracts as transactional, relational or balanced. Transactional contracts are based on tangible (e.g. monetary) exchanges over a specific period and typically lack a promise of long-term commitment. Relational contracts are based on both tangible and intangible (e.g. job security) exchanges and are not bound by specific time frames or other limitations on the relationship (Rousseau, 1990).

Psychological contract violation

Existing research has not been consistent regarding the definition of contract violation. In this study, we accept the distinction made by Morrison and Robinson (1997: 231–232) between violation and perceived breach. Perceived breach refers to the cognition that one’s organization has failed to meet one or more obligations within one’s psychological contract in a manner commensurate with one’s contributions. In contrast, PC violation is associated with the various emotions that result when expected outcomes do not eventuate (e.g. disappointment and frustration), and at a deeper level, strong emotional feelings of betrayal, anger, and bitterness due to perceived broken promises (Morrison and Robinson, 1997; Rousseau, 1989). This negative emotional state was quite evident in our data.

Since 1989, research on PC violation has focused on employees’ experiences and their perceptions of violations by the organization. This employee-centered approach is at odds with early conceptualizations of the psychological contract, where the emphasis was clearly on both parties in the employment relationship (Argyris, 1960). Nadin and Williams (2012) found that the response of employers to contract violations by the employee is similar to the responses of employees to contract violations committed by the employer. Following this research, in our initial exploratory approach, we documented and analyzed data about contract violation as experienced by both employers and employees.

Causes for PC violation

Existing research indicates several causes for employees’ perception of unmet expectations ignoring the employers’ perception of unmet expectations. In the following section, we classify this research while commenting on its relevance to the analysis of PC violation at MNCs, taken from the perspective of both employer and employee.

One cause at the individual level is employee vigilance, that is, the degree to which an employee actively monitors how well the organization is fulfilling his or her psychological contract (Morrison and Robinson, 1997). An employee who is highly vigilant may be more likely to perceive that the organization has breached the PC merely as a function of the employee looking for instances of contract transgression. Employees’ perception of unmet expectations may also result from reneging, that is, when the employer is unwilling or unable to deliver on a promised outcome (Morrison and Robinson, 1997).

Other triggers of PC violation may be related to the existence of discrepancies in commitments made by different organizational functions (Herriot et al., 1997). Morrison and Robinson (1997) argue that one of the root causes for employees’ perception of unmet expectations is incongruence in the expectations of the employer and the employee (e.g. when the employer has a different understanding of the promised outcome). Such a situation was documented in a study conducted with UK employees and managers showing that employees and organizations differ with respect to their perceptions of obligations (Herriot et al., 1997). Morrison and Robinson (1997) provided explanation for such incongruence based on the degree to which the employee and agents of the organization hold divergent cognitive schemata regarding employment obligations. They argue that schemata are idiosyncratic to the person holding them (p. 235). Hence, an employee and an agent of the organization may possess very different schemata for what the employment relationship should entail. The authors further explain that schemata are formed mainly from experience. They hypothesize that if the cultures of an employee and organizational agent are characterized by very different assumptions and beliefs about employment obligations, there is apt to be greater incongruence.

While existing research has documented and theorized that one of the factors of PC violation may be insurgence between employee and organizational agent schemata, little attention has been given to situations of incongruence between PC perspectives as constructed by employees and employers originating in different national cultures. Although several scholars have suggested looking at the PC as a subjective construct affected by factors such as a person’s upbringing and societal values (e.g. Rousseau, 2001; Sparrow, 1998), only a small number of studies have considered national culture as a factor explaining PC content and violation (Kickul et al., 2004; Restubog et al., 2007; Rousseau and Schalk, 2000; Sparrow, 1998; Thomas et al., 2003, 2010; Westwood et al., 2001).

Research has shown that employees from different countries differ in terms of the importance they attribute to the PC, its essence and its breach (Kickul et al., 2004; Thomas et al., 2010; Westwood et al., 2001). Sparrow (1998) discussed cross-cultural differences in the degree of importance of values attributed to the centrality of work, in societal norms about the rights and duties attached to work, and in the goals pursued by individuals in their working lives. Rousseau and Schalk (2000) referred to differences in the extent to which a culture perceives promises as binding: In rigid cultures, the promise is a binding agreement by which people do not promise something unless they are committed to ensuring that they will deliver on that agreement. In more relaxed cultures, promises are often taken to mean that the promise-making party will try to do something, but the result is not in any way guaranteed. Along these lines, Westwood et al. (2001) demonstrated how cultural values influence the perception of PC obligations.

Thus, there is some indication to assume that PC is constructed collectively. Since MNCs become a site of interaction among employees holding diverse perspectives of relationships between employer and employee (Herriot and Pemberton, 1996), one may assume that the different groups composing the MNC may hold to different PCs and that such a situation may lead to PC violation. Yet, to the best of our knowledge, such a situation had not been analyzed either in diverse organizations or specifically in MNCs.

Research also points to changes in the work and economic environment as factors explaining PC formation and violation. The level of resources made available to firms and the quality of the labor force influence the formation of psychological contracts (Morrison and Robinson, 1997; Rousseau and Schalk, 2000). Short-term contract work is more common than a decade ago, and the workforce is being urged to obtain knowledge and skills that are required by the market as a whole, not by a specific employing organization. They are being encouraged to re-skill or upgrade their skills (Westwood et al., 2001). These changes have significantly altered the nature of psychological contracts and have led to an increased incidence of contract violation (Morrison, 1994; Morrison and Robinson, 1997).

Furthermore, research shows that organizational changes resulting from the need to survive in a competitive global business environment modify the contract and affect employee–employer relationships (Morrison, 1994). Yet the research on such changes focuses mainly on the PC as perceived by the “survivors.” It has been argued that processes of restructuring and downsizing often entail layoffs and reduce opportunities for manager promotion, adding to a sense of insecurity and uncertainty and to a feeling of PC violation (Herriot et al., 1997; Morrison 1994; Westwood et al., 2001). Other research demonstrated survivor’s reactions to downsizing, specifically the direct effect between PC violation and commitment (Arshad and Sparrow, 2010). Turnley and Feldman (1998) found that managers in firms undergoing significant restructuring are much more likely to feel that their PCs have been violated and to respond with reduced loyalty. The current study documents a particular situation of downsizing and survivor response to it, and it points toward an additional restructuring process (establishing a new branch) and its possible outcome on PC violation.

Our next step in surveying the literature of causes of PC violation was to search for studies focusing specifically on PC formation and violation at MNCs. We found only scant research that focused on this topic, and these studies discuss how specific cultural values affect the employees’ psychological contract at MNCs but not PC violation (e.g. Abdullah et al., 2012; Ravlin et al., 2012).

Following a contextual approach to the analysis of PC violation at MNCs, we turned to survey studies focusing on PC formation and violation within the specific context of the high-tech industry and to survey studies documenting PCs as constructed by Israeli and Indian employees. This search too yielded scant results.

The more general literature on MNCs in the high-tech industry points out that MNCs operate in a business environment that demands increasingly innovative tools and in that competition for the production of the best and most cost-effective products is crucial for company survival (Kunda, 1992). The high-tech industry is characterized by long hours and the awareness that time is money. Sharing knowledge, constant learning, and frank open communication are the primary prerequisites for the creation and making of sophisticated products (Drucker, 1993; Hodson and Parker, 1988; Zaidman and Brock, 2009). Such a competitive environment demands a full realization of an organization’s potential, resulting in pressure that affects the quality of the employer–employee relationship. This leads to granting differential benefits in keeping with the level of the employees’ contribution to the organization and in fact to the establishment of a functional relationship between the organization and the worker (Harpaz and Meshoulam, 2004).

Two studies refer directly to the PC of Israeli and Indian employees in the high-tech industry. In one (Harpaz and Meshoulam, 2004), it was found that Israeli employees of high-tech organizations attach importance to challenge, autonomy, promotion, and development and set their expectations accordingly. Another study documented PC violation as perceived by Indian employees working in companies operating in various industries, mainly in the high-tech sector (Agarwal and Bhargava, 2014). Results suggest that although employees in collectivist cultures (e.g. India) ascribe great importance to people in authority, they are vulnerable to incidences of breach and react similar to employees in Western countries, who have lower commitment and higher intention to quit. The authors explain that these Indian employees, though collectivist, possess strands of thoughts, feelings, and actions that reflect underlying individualism; they not only nourish Western values of achievement and advancement, but also demand fairness and equity.

The study context

Since the late 1990s, the high-tech industry has become one of the fastest growing industries in India. In the last decade, information technology (IT) services exports (including engineering services, research and development (R & D), and services related to creating and maintaining software products) have been growing at a rate of 32 percent annually (Nasscom, 2005). Multinational technology firms are increasingly coming to rely on Indian R & D operations and the outsourcing to India of lower level technical jobs (Nasscom, 2005). Israel has an unusually high number of high-tech companies (Senor and Singer, 2009). These companies have recognized the opportunities presented by the professional and relatively inexpensive Indian workforce. They not only trade actively with the Indian high-tech sector but also have subsidiaries and outsource operations that employ Indian high-tech workers (Pines and Zaidman, 2014; Zaidman and Brock, 2009). These companies provide an adequate representation of similar MNCs in the high-tech industry in other countries.

The four Israeli MNC described below are major players in their respective fields. They vary in size and in their form of employment of Indian employees.

The cases

Three MNCs (A-Tech, B-Tech, and C-Tech) are multinational firms with a wholly owned subsidiary in India, and the fourth (Silicon) is a multinational firm that outsources to an Indian company.

A-Tech

A global IT company primarily engaged in developing and providing software consulting services. It has 500 employees who are located in 50 countries. Fifteen of the employees in the headquarters office have daily contact with the branch in India. The Indian branch was established in 1998 and had 84 employees at the time we collected our data.

B-Tech

A global provider of networking infrastructure equipment. It has offices in various parts of the world, including Israel, India, and the United States. Data were collected in one division both from its Israeli headquarters and from its offices in India. The Indian subsidiary was established in 1996, approximately 15 years before our first round of data collection. At that time, it had 50 employees, and we interviewed 35 of them.

C-Tech

A global provider of end-to-end software solutions for the pay television industry. It has offices in different parts of the world, including two offices in Israel and three service offices in India.

Silicon and its outsourcing center

Silicon provides software and systems that enable multimedia network-based enhanced services. Like A-Tech, it is a global player in the software market with representation in many countries. The company has over 1000 employees worldwide. Silicon receives services from an Indian company. It has a BOT (build, operate, transfer) agreement that gives it the option to buy the Indian company after 2 years. Eighty-six Indian employees are working with the specific division in Silicon that we studied. We collected data from Silicon and its Indian affiliate 18 months after the companies had begun working together.

Method

Study approach

Exploratory studies are frequently conducted when there is a lack of sufficient information about a topic or when the addressed area of concern has been un-researched or under-researched, as is the case with the present study (Sarantakos, 2005; Stebbins, 2001).

The main object of our investigation is a subjective construct, the PC, that is, schemata that are constructed in MNCs by people coming from diverse cultures. Focusing on such a culturally sensitive construct, we choose a culturally sensitive method of data collection, namely, the open interview. The methods of data analysis were also in line with the interpretive qualitative tradition as will be explained below.

Following the analysis of the participant’s perspectives on the object of our investigation (an “emic” perspective), we turned to an “ethic” data analysis in an attempt to analyze the contextual factors explaining PC violation at MNCs. We used our data and existing PC research in this process.

Study development

Our initial goal was to conduct an interpretive qualitative research analyzing the main difficulties experienced by employees working in two MNCs (B-Tech and C-Tech), focusing on employee–employer relationships. Accordingly, the main method of data collection was semi-structured interviews (Sarantakos, 2005; Stebbins, 2001). In these interviews, we used two to four open questions about employee–employer relationships (see below), followed by probing and example questions aiming to get rich data.

When we read the transcription of these interviews, we realized that the participants talked about these difficulties in terms of perceptions, expectations, and obligations. In other words, the participants framed their responses in what we, the researchers, coin “the psychological contract.”

Once we revealed the significant explanatory power of the PC in understanding employer–employee relationships at an MNC, we took two steps. First, we reviewed earlier data collected from two other high-tech MNCs (A-Tech and Silicon), searching for more evidence of PC violation. Specifically, we surveyed two open questions conducted in open interviews with employers and employees. Secondly, we conducted five more interviews with five Israeli and Indian B-Tech employees asking more directly about the PC (see Appendix 1).

Participants

The samples from both India and Israel and from all organizations included employees representing different managerial and seniority levels in their respective organizations. The majority of the interviewees in all four organizations and at both locations were men (about 80 percent). On average, the Israeli employees were 6 years older than the Indian employees. In general, in all four organizations, Israeli employees had 4–5 years of experience with the products, while the Indian employees had much less experience with them (see Table 1).

Table 1.

Participants.

MNC	Number of interviews	Participants: Indian/Israeli	Year of data collection	Type of interview
B-Tech	30	Indian	2011	Short
	32	Israeli	2011	Short
	4	Indian	2011	Long, in depth
	4	Israeli	2011	Long, in depth
	5	Israeli and Indian	2013	Long, in depth
C-Tech	32	Indian	2011	Short
Silicon	36	Indian	2005–2006	Short
Silicon	14	Israeli	2005–2006	Short
A-Tech	31	Indian	2003	Short
A-Tech	15	Israeli	2003	Short

Earlier data (A-Tech and Silicon)

Data collection at A-Tech

We conducted 46 interviews with A-Tech employees, 31 with employees at the branch in India and 15 with Israeli employees at the headquarters in Israel. Data were collected during 2003.

Data collection at Silicon

We conducted interviews with 14 Silicon employees in Israel and 36 employees at the operation in India. Five of the Israeli employees were interviewed twice within a period of several months. Data were collected during the years 2005–2006.

All interviews were conducted individually, face-to-face, with each participant at the participant’s office. They were conducted in Hebrew in Israel and in English in India by the first author. We analyzed the questions: “How do you describe your work?” and “What difficulties do you face at your work?” and transcribed them verbatim.

Current data (B-Tech and C-Tech)

Data collection at B-Tech

We conducted short interviews with 70 employees, 36 in Tel Aviv and 34 at the company’s branch in India. Longer interviews were conducted with four senior managers at both sites. Data were collected in 2011. We conducted five additional in-depth interviews with Israeli and Indian managers focusing on the PC during 2013.

Data collection at C-Tech

We conducted interviews with 32 employees of the company’s branch in India. Data were collected in 2011. The interviews were conducted individually with each participant at the participant’s office. The interviews were conducted in Hebrew in Israel and in English in India by research assistants, both Indian and Israeli, and by the first author who conducted interviews both in India and in Israel. We asked a few context-related questions focusing on different aspects of work relationships between the headquarters and company offices in India (C-Tech) and concerning the specific work relationships from an historical perspective between the division we studied and their Indian colleagues and employees overseas (B-Tech). Following this, we asked two open questions: “What difficulties do you face at your work place?” and “What are your expectations from an ideal work place in order to form an ideal employment relationship?”. Considering the importance of carefully documenting the participant’s point of view (Spradley, 1979), we transcribed the interviews verbatim.

Interview analysis

The analysis was conducted in five stages:

Stage 1

We clarified and agreed upon basic definitions. As we immersed ourselves in the data, we realized that it was necessary to adopt a broader definition of “employer” in order to address the diverse forms of global employment that exist today. We define employers as those who employ other people in an organization and often those who represent the headquarters of a multinational company. The term “employees” refers to those who work for someone. They may be located at the subsidiaries of the company or at an outsourced company. Employees at an MNC might work under the supervision of several employers at the same time, such as under their direct managers as well as their professional employers who direct and supervise their work. In a similar way, we carefully checked existing definitions of “psychological contract.” We found that different researchers have focused on theoretically distinguished aspects in their definitions of what constitutes a PC. Some research efforts focused on expectations, others on obligations, and yet others on promises. Based on the earlier research indicating that expectations, obligations, and promises elicit the same general conceptual or mental framework from participants (Roehling, 2008), we assumed that psychological contracts at MNCs may be about expectations, obligations, and promises.

Stage 2

We coded the interviews using Atlas.ti computer software for text analysis. We went over each interview and coded its content based on a list of codes, such as “relationships” and “difficulties.” We created separate files for each of the four MNCs and attached basic biographical information to each quote. The output came in the form of several lists of quotations that we analyzed independently for each organization.

Stage 3

We conducted a thematic analysis revealing dominant themes (e.g. Israeli managers’ emotional responses to the high level of attrition at Silicon) and relevant themes (e.g. A-Tech’s reflections about the establishment of a new branch in India).

Stage 4

We collected all quotes that included direct or indirect references to “expectations,” “obligations,” “promises,” and “PC violations” and thematically analyzed them (e.g. different work expectations).

Stage 5

Based on all the above, and combined with data about contextual factors as gathered from the interviews, we identified the main situations and the main factors that generate violation of PCs at MNCs.

Results

Five situations of PC violation emerged from the data:

Situation 1: Coexistence of different psychological contracts

At the time of data collection (2005–2006), there was an increased demand for Indian employees. The result at the firm level was an atmosphere of tension, emerging from the coexistence of two different types of psychological contracts.

Senior managers at Silicon repeatedly mentioned the problem of getting skilled workers and keeping them in the organization. While Silicon agreed on a goal of 90 new employees, the Indian company was able to recruit only 40 at the time of data collection (see above). Furthermore, both Israeli and Indian managers indicated that they were frustrated by the high level of attrition among Indian employees. Silicon managers told us that Indian employees sometimes sign contracts simultaneously with several companies and that they stay only 3–4 months with a company and then leave for another. An Israeli manager reported a 50 percent turnover rate every year of Indian employees; employees at all levels tended to leave. Both Israeli and Indian managers interpreted this phenomenon as a lack of commitment of Indian employees to the organization. The Israelis found this difficult and somewhat unacceptable.

In Israel, you will not find employees who would write in their CV that they worked several months for company A and 2 months for company B. I am not comfortable with the fact that it is okay in their culture not to stay at one place. We invest in people, and they disappear. The replacement of people results [in] huge investments from our side, which are wasted. (A-Tech manager)

The data presented above can be interpreted as reflecting difficulties that are associated with the encounter between two types of PCs, mainly concerning different perceptions of loyalty. Some Indian high-tech employees pursue transactional contracts, which are short term, with a purely economic focus that entails limited involvement of both parties (Rousseau, 2004). This was expressed quite clearly in the words of one Indian manager: “We are not attached to the organization, but to the profession.” Silicon employees, on the other hand, had been with the company for several years and felt involved in the organization. They held relational contracts, which are long term and include terms of loyalty in exchange for organizational growth (Morrison and Robinson, 1997). Thus, we find that within the same setting, employees and managers construct different expectations regarding loyalty, commitment, and job security.

The level of attrition at B-Tech was smaller. A senior manager reported that 35 people had left within the last 5 years, a turnover rate of 15 percent every year. B-Tech had three additional years of experience with Indian employees compared to Silicon and that experience might have shaped their expectations: “I don’t expect them to be loyal to the organization for a long period of time, but I do expect that they would not run away in the middle of a project,” said a senior manager of a line of products. This manager acknowledged the mobility of employees in the high-tech industry, yet even these employees are obliged not to leave at the midst of a project. The manager explained further: “What I see is that they are loyal to their [Indian] manager and that there is less loyalty of employees to their company.” Thus, the expectation of Israeli employers at Silicon and at B-Tech is that Indian employees would be loyal to the organization (or at least be committed to completion of the project before leaving).

In line with earlier research (Nadin and Williams, 2012), our data clearly show that the employer (i.e. Israeli managers of B-tech and Silicon) expressed emotions of disappointment and frustration since their employees did not fulfill their obligations. Both contextual factors and incongruence between employee and agent led to PC violation.

At the time of the data collection (2011), India was at the highest point of the high-tech bubble. Multinational companies discovered the benefits of employing relatively inexpensive but skilled Indian employees. Bangalore, where the B-Tech data were collected, had become a main center of Indian industry, and the competition over manpower was well felt during our field research (e.g. Indian interviewees told us that they had other job offers).

Furthermore, Indian employees preferred working for a well-known multinational company, and B-Tech was unknown within the Indian business environment. The possibility of a BOT might have had a further negative effect on the Indian employees’ involvement. They hesitated regarding being permanently employed by an unknown MNC.

Although short-term contracts are common in the high-tech industry, there are different expectations regarding the accepted timing for one to quit a job, reflecting, as we explained, a high demand for Indian employees but also different perspectives and incongruencies regarding the object of employee loyalty (Morrison and Robinson, 1997). The expectation of the Israeli employer that the Indian employee be loyal to the organization was not met, while in practice loyalty was expressed, if at all, to the direct Indian manager. This observation has also been documented in earlier research (Hofstede, 2010; Sinha, 1990) about high power distance in India showing, in fact, the impact of cultural constructions and employees’ prior experiences on essential aspects of psychological contracts (Westwood et al., 2001). One should also consider possible differences in the extent to which Indians and Israelis perceive promises as binding (Rousseau and Schalk, 2000).

It is interesting to note that several Israeli managers accepted the existing “functional relationship” with Indian employees (Harpaz and Meshulam, 2004), but even when they were aware of the terms of these transactional contracts, they expected that the obligation of an employee is to complete a task. This expectation reflects the central role of product development (and to the tasks involved in this process) in the competitive high-tech field (Kunda, 1992).

To summarize, the wide geographical dispersion of these two MNCs leads to coexistence of two types of psychological contracts: one developed from the particular employment conditions in the subsidiaries and the other suited to the particular economy and employment conditions of the MNC headquarters. In this case, the Indian high-tech bubble probably enhanced the creation of transactional psychological contract, whereas this type of PC was not common at the MNC headquarters. Thus, it is this particular characteristic of MNCs—their operation within diverse economic and work environments—that shape different PCs and, hence, a sense of contract violation by one population or the other. In addition, incongruence between the MNC culturally diverse populations regarding the object of employee loyalty were another cause that explains PC violation.

Situation 2: Different work expectations

Incongruence regarding the obligation of employees and employers was another factor that entailed a feeling of contract violation from both Indian employees and Israeli employers. Notable differences in Israeli employers’ and Indian employees’ expectations regarding taking responsibility and sharing knowledge often led to feelings of contract violation.

Situation 2.1

Different expectations regarding taking responsibility were strong at Silicon and the Indian outsourcing organization, where Israeli employers expressed a sense of contract violation. However, this gap emerged from the data collected at all four MNCs.

Effective work in Silicon, as in the general high-tech industry, is measured in terms of the quality of the product and the ability to supply products and services to the customers on time (Kunda, 1992). Within this context, Indian employees were expected to work effectively and to take responsibility. Yet these expectations were unfulfilled. During our visits to Silicon’s premises in Tel Aviv, we repeatedly heard that the Indian employees did not fulfill their obligations. A senior manager said, “They are supposed to help us, and in the end, we have to do their work, at the last minute and under pressure. It’s very annoying. In other departments, they stopped letting them develop … People avoid working with them.” This perception of role reversal describes the essence of contract violation, which was expressed with anger and a high level of frustration.

An Indian manager explained the situation from his perspective: “The technology is new. Only one person in a team of five knows the technology.”

Indian employees at C-Tech expected to receive guidance from their Israeli employers, while the employers expected that their Indian employees would take responsibility for their work. “They have learned for a long time, by now they should be there,” said a C-Tech manager. Silicon managers expressed similar opinions.

What factors can possibly explain the feeling of contract violation as experienced by Israeli employers at all four MNCs? We found that a combination of contextual and cultural gaps led to feelings of frustration. As indicated earlier, the four MNCs operate within the context of the high-tech sector, where creativity and the ability to handle nonroutine tasks is required (Harpaz and Meshoulam, 2004).

First, it is possible to assume that Israeli employers’ cognitive schemata about autonomy were formed during their previous experiences in high-tech organizations. Indeed, it was found that Israeli employees of high-tech companies attach importance to challenge, autonomy, promotion, and development and set their expectations accordingly (Harpaz and Meshoulam, 2004). However, the majority of their Indian employees are younger, and they have much less experience in the industry. Second, significant differences between Indian employees and Israeli employers in power distance (PD) most likely lead to different assumptions and beliefs about employment obligations. Indication of significant differences in power distance between Indian and Israeli employees working in the high-tech industry was reported in a study documenting the effects of these differences on knowledge transfer (Zaidman and Brock, 2009). The more general data show that India scores high on the PD dimension (77), indicating an appreciation for hierarchy, dependency on the boss for direction, paternalistic leadership, and management that rewards, directs, and gives meaning to one’s work in exchange for loyalty from employees. In contrast, Israel scores very low on PD (13), indicating an egalitarian mind-set, belief in independency, and managers who count on the experience of their team members (Hofstede, 2010). Third, existing research indicates that Israelis in general and Israeli high-tech employees in particular score high in taking responsibility and in assertiveness (Shamir and Melnik, 2002). In contrast, according to the literature, the tendency of Indian employees is to seek attention, support, and advice, even in situations in which they are fully capable of making decisions on their own. They are also portrayed as exhibiting a relative lack of assertiveness (Sinha, 1990).

Hence, it is possible to assume that there is incongruence between the schemata of the Israeli employer and the Indian employees regarding the employees’ dependency and taking responsibility, which results mainly from different levels of the participants’ exposure to the high-tech culture and from cultural differences between them. Combined, these differences in expectations constructed both collectively (as the result of cultural influences) and individually (reflecting the level of individual exposure to the high-tech culture) lead to PC violation.

Situation 2.2

Another difficulty concerns the expectations of the Indian employees that their employers will share professional knowledge with them, a crucial element in knowledge workers’ work. Several Indian employees at C-Tech expected their employers to provide information and knowledge and were critical about not receiving it. A team leader talked about the difficulties in obtaining information: “We actually need to, I mean, literally beg it,” and a technical leader said, “I think they should cooperate with our needs also, sometimes, in fact many times, their work is given more importance to complete rather than meeting our deadlines which sometimes pisses us off.” The Israelis, on the other hand, expected that this labor force would be independent and obtain knowledge and skills outside the organization (Westwood et al., 2001). Nevertheless, it seems that Israeli employers consider knowledge an asset and occasionally are reluctant to share it with overseas employees.

In this situation, the Indian employees experienced contract violation, which was expressed in frustration. As explained earlier, sharing knowledge and constant learning are the primary prerequisites for the creation and making of sophisticated products (Drucker, 1993; Hodson and Parker, 1988; Zaidman and Brock, 2009). Thus, the data show, in addition to the factors discussed in Situation 2.1, some evidence of an additional factor—the perception of Indian employees that the employer is unwilling to deliver knowledge.

In summary, cultural differences between the diverse (Indian and Israeli) populations of these four MNCs, and the differences in their exposure and adaptation to the norms of high-tech culture lead to different expectations and to PC violation.

Situation 3: Comparing working conditions

Contacts between the Indian employees of Silicon’s outsource company and the Israeli employees who work under a different set of work expectations evoked feelings of injustice among several Indian employees. The Indian employees were working under the norms common in Indian organizations. They were expected to work 8 to 15 h a day and often on weekends, and they were not allowed to work from home. A number of Indian employees accepted the situation, but others thought it unfair. The following are the words of a female team leader who openly expressed dissatisfaction:

We stay in the office until it is closed. The Israelis leave in the evening and continue the next morning. They have a family life. If I have not completed a task my manager would say: “Why did you go home?” They would call me at my home.

Gila, a Silicon employee who traveled frequently to India, explained, “There are people in India who work overtime in a crazy manner. They work on the weekends, and this is something that I don’t see in my department.” Israeli employers communicate a similar expectation: “There is a general expectation, which works like a self-fulfilling prophecy, that Indian employees will work more hours compared to the Israelis” (manager of a group of 20 Israelis and Indians). The data indicate the coexistence of two normative contracts (Rousseau, 1995), one which is common among members of Silicon’s Indian outsourcing center (an Indian company) and one which has been developed at Silicon’s offices in Tel Aviv.

Basically, differences at the regulative environment at the state level (i.e. work norms in high-tech in India and in Israel) govern the range of acceptable behaviors by both employees and employers, including hours of work (Rousseau and Schalk, 2000). In our case, the PC that was formed at Silicon and the one that was formed in its outsourcing center were formed in two different regulative environments. However, Indian employees perceived contract breach, followed by frustration to be a result of their exposure to what they perceived as a fairer contract, the one between Israeli employers and Israeli employees. Our data show that in situations of divergence in PCs, employees’ interactions resulted in a comparison and reevaluation of one’s PC, leading to the feelings of PC violation. Such a situation was created in an MNC (such as Silicon) due to its wide geographical distribution.

Situation 4: Imposition of a new psychological contract

Restructuring processes at MNCs (e.g. opening a new branch) often have an effect on the construction and violation of psychological contracts.

Opening a new branch, as A-Tech did, often requires socialization to a new psychological contract, a stressful process for newcomers due to the novel and uncertain environment into which they are entering (Thomas and Anderson, 1998). Accounts of A-Tech managers indicated that there was no attempt to manage the culture of the branch in a different way than that of the headquarters. The implicit assumption was that cultural diversity causes problems and that a company’s professional tools can overcome any cultural differences (Hoecklin, 1995). Accordingly, the Israeli headquarters imposed new work norms, a new formal contract and a new psychological contract. The implementation did not proceed without problems. A-Tech’s values were associated with professionalism and performance, and they reflected the values of high-tech. However, employees at the new branch held different values, reflecting local norms. This encounter is described in the account of the Indian branch human resource (HR) manager:

It was difficult for me to implement [the payment system]. People did not accept it easily. They wanted to have a raise every year. The Israelis said: ‘If you do a good job, you will get a bonus’. The Indian employees were in shock. But, at the end of the year, they were happy. The payment system is combined. We have a personal evaluation of each employee which is dependent on his or her performance and dedication. It is not like in Indian companies where a person becomes a manager without knowing the job.

While headquarters imposed an employment exchange relationship that was based on employee performance, the existing Indian contract had been quite different. It reflected the content of the psychological contract of “white-collar” workers in privately owned Indian organizations, which is relational due to its open-ended terms, long-term relationship, and the importance of loyalty and trust. In some cases, this relationship entailed accepting the implicit rule that valued employees are those who are willing to perform personal favors (Shah, 2000). Indeed, the HR reference to promotion of those who did not know the job refers to such a situation.

As indicated earlier, organizational change (Morrison, 1994) modifies a PC. Our data (although limited) indicate that Indian employees were “in shock.” This response most likely arose as a result of the significant gap between the formal contract and the PC contracts that are common in a Western MNC, vis-à-vis the contracts that employees knew from their previous experiences in Indian firms. As a result of Indian liberalization, many foreign companies such as A-Tech have challenged the traditional work ethic of Indian organizations via the introduction of new forms of exchange (Shah, 2000). Indeed, recent research conducted with high-tech Indian employees demonstrated a Western influence on their perception of PC violation (Agarwala and Bhargava, 2014).

Current research deals with restructuring as it is manifested in processes of downsizing as a trigger to PC violation. However, the results of this study show that restructuring, as it is manifested in the establishment of a new branch in an entirely different location imposing a new PC on its employees, is likely to be another trigger for PC violation.

Situation 5: Downsizing

Downsizing, that is to say reducing the workforce, appeared in our data as a process that created a feeling of contract violation. Downsizing took place at both A-Tech and B-Tech. In several departments of these organizations, the number of Israeli employees was reduced, while the operation in India continued to grow. An A-Tech department manager in Israel told us: “We have had here over 30 people, many fired because of the downsizing. My friends were laid off. What interest do I have to help them?” (his Indian employees). This manager can be labeled a “survivor,” an employee who was retained after downsizing (Mishra and Spreitzer, 1998). Survivors often experience low morale, resentment, anxiety, and poor work performance. The process has also been found to lead to increased stress, loss of trust, and lower organizational commitment (Outlay, 2008). A senior manager at the Indian branch of B-Tech reported: “The level of support is reduced; they [the Israeli employer] have a feeling that these guys are coming and taking their jobs.” An Israeli senior manager at B-Tech interpreted the situation: “At some unconscious level, the Israelis are less motivated.” He explained that 3 years ago his employees felt like a family and that today they do not feel that way anymore.

Earlier research showed that managers in restructured firms were significantly more likely to perceive PC violations in areas such as job security and that they were also significantly less likely to be loyal to their employers (Turnley and Feldman, 1998). The results of this study show that downsizing by multinational companies that offshore outsource their activities or establish a branch overseas create a noticeable difficulty for the survivors in the headquarters. While the management of the multinational company expects managers in its existing offices to cooperate with employees abroad, this can prove difficult, as requests to assist their employees overseas are perceived as requiring them to act against their current home-based employees. In the situation described above, under the relational contract, the organizations expected high investments from their Israeli employees but were perceived by them as violating promises regarding job security. Consequently, as frustrated employers of Indian employees, they violated the psychological contract and expressed resistance to cooperating with employees who worked under their professional supervision.

This study shows that the results of downsizing and moving jobs overseas created a painful and bitter feeling of PC violation that resulted from laying off colleagues and friends and substituting them with unknown, foreign employees, leading to further PC violation with the overseas employees.

Discussion and conclusions

In summary (see Table 2), we identified five situations of PC breach and PC violation at MNC:

Table 2.

PC violation at MNCs: Situations and factors.

MNC	Situation	Contract violation	Cultural factors	Contextual factors	Other
Silicon B-Tech	1: Coexistence of different PCs	Israeli employers Emotion: frustration	Incongruence regarding perceptions of employee loyalty	High demand for Indian employees and their preference to work for well-known MNCs
Silicon A-Tech B-Tech C-Tech	2: Different work expectations 2.1 Taking responsibility	Israeli employers and Indian employees Emotions: anger, frustration	Cultural distance in assertiveness, dependency and PD	The exposure of Israeli employers to the high-tech culture entails a cognitive schemata not shared by the less experienced Indian employees
	2.2 Sharing knowledge	Indian employees Emotion: frustration			The employer is unwilling to deliver knowledge
Silicon	3: Employees compare working conditions	Indian employees Emotion: dissatisfaction		Different regulative and normative work environment at the state level leads to divergences of normative contract Employees’ exposure to a different contract
A-Tech	4: HQ imposes a new PC	Indian employees Emotion: shock		Organizational change Headquarters imposes new and different PC Different regulative and normative work environment at the state level
A-Tech B-Tech	5: Downsizing	Israeli employers Emotion: resentment		Organizational change

The first two situations, “coexistence of different PCs” and “different work expectations,” are created as a result of the encounter between the diverse populations at MNCs who hold different perspectives regarding the relationship between employees and employers. Specifically, they differ in their perspectives regarding employee loyalty obligations and in their beliefs about the nature of the exchange between employers and employees, that is, employee independence and knowledge sharing. We found that the focus of perceptions and feelings of contract violations, as expressed by both employees and employers, and the incongruence regarding these aspects of the relationship are related to the heart of the employee–employer relationship in the high-tech industry (Kunda, 1992; Harpaz and Meshulam, 2004). This incongruence has been created as a result of three factors. The first is the different cultural tendencies that were formed previous to one’s experience at the specific MNC, based on his or her socialization in his or her home country. The second is the different level of exposure that employees and employers have to the culture of high-tech. The third factor is not cultural but contextual, namely, the power of a specific workforce in a specific time and place.

Contract violations are created in three additional situations: when employees compare working conditions, when the MNC headquarters imposes a new PC on the branch and in the situation of downsizing.

The different and dissimilar units that compose MNCs (including outsourcing units) are spread over wide geographical locations, which are characterized by different regulative and normative environments at the state level. Hence, there might be significant differences in the PCs at the same MNC. The exposure of employees to a different contract than that of their employers might result in a perception of contract violation.

Finally, situations where the headquarters imposes a new PC or decides to downsize its local workforce reflect the inherent dynamic structure of MNCs, which results from the constant competition as well as changes in the global market and in the global workforce. This leads to changes in the formal and psychological contracts in its various units.

Based on the above, we argue that the specific characteristics of MNCs—divergent populations, wide geographical distribution, and dynamic structure—carry a high probability for PC violation, as demonstrated in the five situations discussed in this article.

The study’s theoretical contribution

In general, the findings of this study show that there are several inherent characteristics of MNCs operating in the high-tech industry explaining the high probability of triggers of PC violation at MNCs. Furthermore, these characteristics may explain the existence of PC violation triggers not only at MNCs. For example, PC violation triggers such as incongruence regarding perceptions of employee loyalty may be found in locally based organizations that have culturally diverse populations.

Specifically to MNCs, we suggest the following propositions to be investigated in future research: First, the more widely distributed the MNC is in terms of its operation in diverse economic, workforce, and regulative environments, the greater probability of incongruence between the different PC schema which might lead to PC violation by employers and employees. Second, the more culturally diverse the MNC workforce, the greater the probability of incongruence between the different PC schema held by employers and employees which might lead to PC violation. Third, the higher the number of restructuring processes involving changes in the existing PC that an MNC is experiencing (e.g. downsizing and establishing a new branch), the higher the probability that employees or employers may experience PC violation.

The final proposition refers specifically to MNCs operating in the high-tech culture: the more the employees significantly differ in their level of exposure to the high-tech culture at an MNC, the greater the probability of incongruence in their PC which might lead to violation.

We believe that this study further contributes to the general PC research by showing that certain aspects of the psychological contract are culturally constructed and that incongruences in these aspects as constructed by members of different groups may lead to perceptions of PC violation.

Practical implications

The PC as discussed in this article is an important construct explaining one aspect of the employment relationship. Yet it is not explicit and is constructed by an individual reflecting both his own subjective sensemaking and his or her cultural upbringing. Combined, these characteristics of the PC may lead to a high probability of PC violation and to significant losses that both individuals and organizations experience. The combination of a high probability of PC violation at MNCs and the significant losses that both individuals and organizations experience due to these violations requires intervention. We believe that such interventions need to be performed by different MNC agents, tailored to each situation.

When planning projects with an offshore outsourcing center, it is recommended that managers learn and become familiar with the existing PC. Here, a main challenge is to encourage higher levels of loyalty among local employees. It is advised to establish meaningful “deals” in order to elicit reciprocation from local employees. These deals should consider local conditions as well as the compensation scheme constructed by local employees.

More generally, when establishing a new branch, it is recommended that local (e.g. Indian) managers, including HR managers, become highly involved in the socialization process of new local employees. Furthermore, the socialization processes of local (e.g. Indian) employees to a Western MNC need to be constructed with full consideration of the specific cultural and contextual aspects of the employment relationships in the high-tech industry, with a special focus on the needs of these employees for support.

When comparing working conditions, open communication is one of the keys to the successful development of mutually beneficial PCs, and we suggest that it should be applied to these kinds of situations as well (Argenti, 1998). It is recommended that branch managers (in our case, the Indian managers) discuss these issues with their employees.

When the headquarters imposes a new PC, we suggest that several steps be taken. First, learn about the employees’ and employers’ expectations as constructed by all the participants, that is, local employees and local managers (including HR managers), headquarters managers, employees and managers of the relevant organization units, and then clarify the differences between these perspectives. Second, thoughtfully make decisions regarding the content of the new PC. Third, establish ways to enhance organizational socialization, with the aim of affecting the degree of similarity between an employee’s schema regarding the employment relationship and the schema held by organizational agents (Morrison and Robinson, 1997).

In the situation of downsizing, it is advisable to conduct clear and honest discussions concerning mutual obligations. If the organization provides an adequate explanation for unmet promises, it will heighten not only the employees’ level of trust in the organization but also the organization’s credibility in the eyes of its employees. Consequently, they will experience less frustration and express less resistance to cooperating with their employees overseas.

The main limitation of this study is that the cases investigated are all drawn from the same sector and are based on the pairing of Israeli parent companies with Indian subsidiaries. A lack of variation in the data limits the claims that can be made regarding the effect of contexts on PC. Furthermore, a more systematic data collection (i.e. one with a more direct focus on PC violation) might yield different, perhaps more detailed and rich results.

Finally, it is our belief that future studies should analyze PC formation and violation at MNCs that operate in different settings (e.g. different countries and sectors).

Footnotes

Appendix 1

Please tell me about your work with Indian employees.

Our discussion is about your work relationships as an employer of Indian employees. Please generally describe this employment relationship from your point of view.

Please explain what your expectations are from your Indian employees (probing and asking specifically about time on the job and loyalty).

Please explain what obligations are involved in this employment relationship.

What do you think are your Indian employees’ expectations concerning you and your organization?

What do you think the obligations are of employers as perceived by your Indian employees?

Please provide examples of situations in which your expectations have not met.

Please provide examples of situations in which your Indian employees’ expectations have not met.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

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