Using Expatriates Rather Than Host Nationals to Staff Foreign Subsidiaries - Assignment Example

HUMAN RESOURCE MANAGEMENT: A GLOBAL PERSPECTIVE HUMAN RESOURCE MANAGEMENT Instructor name: Insert name: Course code: May 16, 2011 The advantages and disadvantages of using expatriates rather than host nationals to staff foreign subsidiaries The aim of this report is to discuss the topic of control in the foreign subsidiaries of multinational corporations (MNCs). The purpose is to find answers why companies prefer to select either the host country state manager or the expatriate manager. The report focuses on the topic of management in the foreign subsidiaries of multinational corporations. Foreign subsidiaries are normally located outside the home country of the multinational corporation and thus the management of such subsidiaries poses distinct challenges compared to controlling the subsidiaries located inside the corporation’s home country. Several factors such as variations in cultures of the subsidiary and the parent MNC contribute to these distinct challenges of management in a foreign subsidiary. We are going to refer to a case study of Canon Inc. Canon Inc. is a Japanese multinational that was founded in 1937. Its headquarters are in Tokyo, Japan. Canon INC. is a manufacture of business machines, cameras and optical products. In 2008, Canon Inc. had annual net sales of 30.6 billion euro and approximately 25,400 employees. Canon Inc has subsidiaries positioned in every continent. Canon Inc. lists its core values as learning & teaching, continuous improvement, openness and trust, facing reality, participation then commitment and pride in achievement. Multinational Corporation (MNC) is defined as a group of diverse organizations that are geographically dispersed in various locations (Volkmar, 2003). The corporation comprises of headquarters and subsidiaries. A foreign subsidiary is defined as any operational unit that is managed by the multinational corporation and located outside its home country borders. Host country national manager refers to the native citizen of a particular foreign subsidiary (Volkmar, 2003). The expatriate manager on the other hand is a manager chosen from the home country of the MNC and sent to manage a subsidiary in a foreign country. Merits and demerits of using host country National Manager in staffing foreign subsidiary (Host Country Nationals (HCNs)) Advantages Disadvantages Lower employment expenses Exhibits confidence in local citizens boosts approval of firm by local society Firm is recognized as part of local economy symbolizes local attitudes in decision-making These managers have knowledge on the local business scene. Avoids language barriers. Keeps low profile in the subsidiary Improved morale of local staff. Easy to work in the subsidiary culture. Better opportunities for local staff. Leads to rescheduling of complicated local decisions (such as layoffs) complexity in recruiting competent human resources decrease the amount of control by headquarters hard to balance local demands/global main concerns Possible conflicting national loyalties that may be present. Less knowledge of the parent company’s values. Less knowledge of the processes of the parent company. Less communication with the parent communication Less technical and international expertise. The option of host country national to control the subsidiary of a multinational corporation is referred to as the polycentric staffing policy (Storey, 2007). There are several advantages associated with polycentric staffing policy. Scullion and Collings (2006) proposes that the advantages that the host country national managers possess results from the knowledge of the home business scene. The host country national manager becomes an attractive option when knowledge concerning the subsidiary country is little. Host country national managers normally enjoy the already established local associations and have profound understanding on how to operate in the subsidiary. When a host country national manager is selected to lead the subsidiary, he or she will not have problems with the local language or with the adjustment to the subsidiary. Furthermore, when a host country manager is chosen to lead the subsidiary, the morale of the local staff is boosted. Vaghefi et al. (1991) suggests that the improved local staff morale results from their apparent better opportunities to get promoted to higher positions in the company. Sporadically, the option of host country national managers may be autonomous from the requirements of the multinational. For instance, the immigration laws in several nations demand the employment of local nationals. Generally, the option of host country national manager allows the multinationals to maintain lower profile in the subsidiary. Schniederjans (1998) notes that the costs of host country national managers are generally lower than having to bring in an expatriate to lead the subsidiary. There are also disadvantages that are associated with the polycentric staffing policy. The subsidiary-headquarters relationship is the main source of challenges that result from the employment of host country national managers. Schniederjans (1998) argues that the multinational corporations could be concerned about potential contradictory national loyalties that might be present. He argued that the MNCs do not prefer the subsidiaries to be too autonomous since it is vital for the corporations to retain strong connections and continuous communications with their subsidiaries. The multinationals require to be guaranteed of their control over their subsidiaries and the corporation doubts whether the host country national manager would manage to maintain the desired communications with the headquarters (Schniederjans, 1998). Vaghefi et al. (1991) suggest that the MNCs are also prone to question the ability or skills of the host country national managers to carry out the orders of the headquarters. This could be as a result of language problems or difficulties in understanding the corporate culture in the multinational corporation. Lack of the essential skills needed to run a foreign subsidiary is another reason why it might be impossible for the multinational corporations to consider selecting a host country national manager as the leader of the subsidiary. Occasionally, host country national managers may not be technically competent and the normally fall short of international experience. The process of selecting host country national managers might also be trickier than that of the parent country nationals, especially if the multinational corporation does not have any established system that would assist them select their foreign employees (Steers & Nardon, 2006). All these factors might prompt the multinational corporations not to select host country managers and instead opt for the expatriates or the parent country nationals. The advantages and disadvantages of using expatriate managers to staff foreign subsidiaries (Parent Country Nationals (PNCs)) Advantages Disadvantages Cultural correspondence with parent company guarantees transfer of business practices Closer control /coordination of global subsidiaries human resources get multinational orientation Creates pool of globally knowledgeable executives Local talent may not yet add value Creates troubles of flexibility to foreign environment and customs Increases “foreignness” of subsidiary engage high transfer, salary and added costs May lead to private and family problems May lower moral and enthusiasm of local administration Subject to local government restrictions The multinational corporations may also opt to employ the expatriate manager to control the foreign subsidiary. This mode of staffing is known as the ethnocentric staffing policy in the Perlmutter’s model (Vaghefi et al., 1991). This mode of staffing is frequently practiced in those multinational corporations that are in their early stages of internationalization. When the multinational corporation is inexperienced in operating in global environment, they mainly find it better to send an expatriate manager. This is because these MNCs in their initial stages if internationalization may lack any established connections and ways to select the host country national managers (Steers & Nardon, 2006). The multinational corporations may prefer expatriates managing their subsidiaries rather than host country managers because of the loyalty of the expatriate managers. There are arguments that the multinational corporations may recognize the expatriate manager to be more trustworthy and loyal towards the parent corporation than the host country national manager. Schniederjans (1998, p. 37-40) argues that “the expatriate managers are taken to be more ready to share production secrets and to offer confidential information to the parent company or headquarters than the host country national managers”. The expatriate managers have a very significant competence in that they are always ready to communicate with the headquarters. Furthermore, the expatriate managers neither have any language problems nor the cultural hindrances that would complicate communications with the headquarters. The expatriate managers are also perceived to have better understanding of the values and operations in the parent country (Warner, 2004). Their acquaintance with the corporate culture enables the expatriate managers to carry out the orders that come from the headquarters as noted by Edstrom and Galbraith (1977). Steers & Nardon (2006) suggests that more centralized decision-making by the headquarters are supported by use of the expatriate managers. This implies that in the more centralized multinational corporations, there is a more hierarchical power configuration, where the decision power is stricter and entrusted to few people (O’Connell & Argyris, 1997). Thus the use of expatriate managers is commonly linked with the stronger need of multinationals to have direct authority over their subsidiaries. There are also some disadvantages that are associated with multinational corporations choosing expatriate manager to controls their subsidiaries. The main problem with selecting expatriate managers is difficulties in adapting to the new host country environment and culture. The morale of local personnel also goes down because of reduced chances of promotion. Furthermore, the expatriate manager normally lacks understanding of the local business scene (Storey, 2007). Staffing policies Perlmutter (1969), in his seminal work, identified three diverse global orientations (ethnocentric, polycentric and geocentric) that are the basic standard methods of describing multinational corporations staffing policies. Ethnocentric staffing policy occurs when a multinational company opts to appoint mostly parent country nationals (PCNs) to manage their subsidiaries. This mainly happens when the MNC suspects that there are no qualified host country managers who are competent enough to control the subsidiary. Polycentric staffing policy involves MNCs selecting host country nationals (HCNs) to hold top positions in their subsidiaries. This is done mainly to reduce the costs of production that are incurred compensating an expatriate manager when he manages the subsidiary. Geocentric recruitment strategy is where a multinational corporation appoints the most excellent person, irrespective of his or her nationality and that may perhaps incorporate third state nationals (TCNs), nationals of a state apart from the MNC’s home nation and the state of supplementary. Regiocentric staffing policy is an approach where executives are shifted on a regional basis, like Europe, and forms a central station linking a pure polycentric/ ethnocentric strategy and a truly geocentric strategy. Strategies a global organization should use to effectively manage expatriates in a global environment in relation to HR’s role in recruitment, selection, training, performance management and compensation The globalization of business has accelerated at a pace that has accelerated at a speed that has recurrently outpaced several organizations’ aptitude to recognize and develop a sufficient number of competent expatriate managers (Welch, 1994). The aptitude to contend in gradually more hypercompetitive worldwide markets requires having qualified international managers who have competencies that distinguish the organization’s strategic choices (Ghoshal and Bartlett, 1997). A successful international manager should posses a complex integration of technical, political, social, organizational and cultural competencies beyond those found in most of the expatriates of the past (Bartlett and Ghoshal, 1994). Thus MNCs must develop a global staffing strategy that will make sure that they get competent expatriates and also avoid failures in their foreign subsidiaries. Developing a global staffing strategy that allows for use of dual internal and external, tangible and intangible, as well as local and global managerial resources, relative to minimizing the ambiguity of the emerging market environment adds an ‘action’ dimension to the organizational understanding of the integration process. We are going to discuss the strategies that a global organization should use to effectively manage expatriates in a global environment in relation to HR’s role in recruitment, selection, training, performance management and compensation. Selection and recruitment of expatriates Multinational corporations send people on global assignments with an aim of demanding the uppermost possible return on venture. For this to be achievable, Black et al. (1999) suggests that companies require incorporating strategy into the selection and recruitment process of global and international employees. Moreover, when a corporation increases its global reach and progresses through different stages of globalization, it requires paying more attention to the selection and recruitment process, which becomes gradually more significant. Researchers have discovered many factors that ought to be put into consideration in the process of selection and recruitment of successful international managers or expatriates. Some of these factors include: tactical factors, disagreement resolution talents, management skills, communication abilities, societal skillfulness, flexibility and steadiness, technological aptitude, cross-cultural appropriateness, family needs, MNE needs, language and gender-related factors (Black et al., 1999; Dowling & Welch, 2005; Anderson, 2005). Thus the assortment and recruitment phase is of immense significance for the global task to be a victory for which reason companies ought to pay much attention to this phase and make it as successful and best as possible. When the corporation has settled on the best and most suitable assortment criteria, it is important to establish how to assess applicants efficiently on those measures. The most commonly used selection methods are: biographical and background data, work samples as well as interviews. All of these techniques have their strong points and limitations for which reason a mixture of selection techniques would be most favorable to utilize in choosing the correct applicant (Black et al., 1999; Scullion & Collings, 2006). An additional aspect to consider is who should assess the candidates. In most cases, it is only the line manager, with the overall responsibility for international unit, makes the decision. Human resources department has always been underutilized and should play a key role in assessing candidates. For companies to become more strategic in their selection process, they need to learn how to integrate human resources departments’ knowledge with that of line managers in home and host countries (Black et al., 1999). When an expatriate is being sent to a foreign country, it frequently involves sending a whole family. This means that when a candidate is being assessed for an international assignment, the selection process requires looking at the candidate’s family together with candidate’s managerial skills and experience. Studies have demonstrated that the achievement of an international task is very much reliant on the feelings of a manager’s relatives at the time the tender is made to reposition as well as the capability of the relatives to adjust for the period of the global task. The corporation needs to understand the responsibility of the whole family unit in deciding whether the manager will agree to the offer, acclimatize effectively to live and work in the foreign country, and accomplish the assignment (Black et al. 1999). Training of expatriates Global projects are frequently more complicated than home tasks because they engage relocating to a different nation and different customs. Thus training is very important as it can prepare the parent country manager leaving for the international task. A key decisive factor for a company’s achievement is its workers’ aptitude to recognize, understand and acclimatize to other customs as well as to build up an international state of mind (Scullion & Collings, 2006). Thus it is significant for multinationals to make sure that global assignees are sufficiently trained so as to maximize the benefits that may be earned from the global career assignment both in terms of advancing the person’s career in addition to adding value to the organization (Scullion & Collings, 2006). Consequently, after selecting an expatriate, the next crucial step is teaching in an attempt guarantee expatriate’s efficiency as well as achievement in a foreign country, especially where the target nation is deemed ethnically harsh and extremely diverse from the home customs. Cross-cultural training is important as it offers precise outlook among parent country nationals and thus creates better likelihood for their potential to be met or exceeded. According to Black et al. (1999), cross-cultural training programs enhance international managers’ work performance, adjustment to their new cultures, as well as their cross-cultural management skills. Performance management of expatriates For multinationals to supervise human resources in foreign assignments, it is significant to obtain the latest response and to determine their performance suitably. This plays a role of reducing the threat of upcoming expensive errors, such as paying for unsuccessful employees’ employment and teaching expenses. The most important requirement in attaining the measurement of training and development payback is for human resource management departments to make sure that line managers view training and development as a way of enhancing their operation and assisting them to attain their goals and solve them (Kelly, 1993). Compensation of expatriates Since employees in multinational corporations come from extremely varied environments and skills, running them is further multifaceted than if they were all in the same nation state or even metropolis. If payment and conditions of employment are standardized around the world in multinational corporations, it is most likely that troubles would arise among employees doing same work in different states. Thus human resource management departments should make sure that there are clearly stated terms and conditions of different remunerations among similar positions in different countries. There should be put in place a formula that is easily understood, readily verified and perceived to be fair and equitable so as to avoid conflict and hard feeling amongst team members. Global reimbursement is mainly time consuming and tactically significant human resource activity in multinational corporations and when properly implemented, it would assist in making the assignment for the global managers’ function as smooth as possible (Bonache & Fernandez, 1997). Conclusion The world is becoming smaller when it comes to business. More and more corporations are operating across geographic and cultural boundaries. While most have taken up the global reality in their operations, some are lagging behind in expanding the human resource policies, structures, and services that uphold globalization. The human resource departments are facing numerous difficulties in the process of globalization, together with developing a global mind-set within the HR group, creating practices that will be consistently applied in different locations or offices while also maintaining the various local cultures and practices, and communicating a consistent corporate culture the whole organization. To overcome these difficulties, organizations ought to consider the HR function not as just as administrative service but as a strategic business partner. Companies ought to involve the human resources department in developing and implementing both business and people strategies. This kind of partnership is important if an organization would like to change potentially inaccurate perceptions of HR and reiterate the HR function’s purpose as well as the significance throughout its global environment. References: Anderson, U., Forsgren, M. & Holm U. 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