This coursework is focusing on the modern direction of staffing in multinational companies in terms of globalization occurring in all types of organization. International Human Resource Management (IHRM) significantly differs from the Human Resources Management (HRM) in domestic companies, International HRM has more influenced by external factors, wider heterogeneity of management functions and a differentiated approach to the training of management personnel. Cultural variety, social differentiation, economic development and legal systems in those countries and globalization processes occurring in an international business affect on recruiting pattern in organizations all around the globe. The function of human resource management in multinational companies are very complicated in terms of adaptation the personnel management policies and procedures in the headquarters, to the branches in various countries around the world. In different countries, we can observe various behavioral pattern and methodology of staffing influenced by factors of management style and practice, the differences of labor markets and labor costs, problem of movement of labor, factors of industrial relations, the national orientation and control factors.
The necessity of effective HRM in a current period of globalization in the business scope leads to mobilization of better professional resources and play the significant role in controlling and implementing strategies in an international business. Implementation of international strategies by competent managerial personnel helps to minimize the risk of underperformance or failure in overseas assignments.
Analysis and Discussion: four staffing approaches in MNC
Attracting, developing and retaining high-quality personnel is seen as a key to success (Pfeffer, 1994). Most of the academic books and sources in the sphere of Human resource management and almost all working organization in their HRM strategy states that people are the most valuable asset and resource for further success. The interest occurring last three decades in international aspects of HRM has been associated with increasing numbers of businesses internationalizing their operations. The level of spreading business interests around the world or influence of globalization processes for the further existence of a particular organization can lead to the adoption or implementation of international strategies for the management of staffing activities. In terms of transnational growth, the demand pattern of recruitment is determined by: the periodic outflow of staff as in headquarters so as in overseas branches; the vertical and horizontal career moves, the expansion of activities and the implementation of diversification of the company's intentions, territorial and market expansion and technology transfer in an international environment.
Schuler et al (1993) including Dowling et al (1999) and Budhwar (2003), in reviewing of existing academic literature on international staffing, highlights four generic approaches to this area. Collings and Scullion (2006) linked back these approaches to the conclusions of research of Perlmutter (1969) and of Perlmutter and Heenan (1979). Perlmutter (1969), as a founder of this method, highlighted three initial approaches (ethnocentric, polycentric and geocentric) that have become the fundamental basis to describe staffing policies in multinational companies. Organizations who adhere an ethnocentric approach, more frequently hire “parent country” nationals to senior positions at their subsidiaries, at the same time organizations who adhere a polycentric approach, more likely would hire “host country” nationals. Organizations who adhere geocentric approach mostly appoint the best person, despite applicant's nationality – representative of the parent country, the host country, or a country other than the organization home country and the country of the subsidiary, so-called “third country” nationals. The further development of this theory, which was published by Perlmutter in cooperation with Heenan in 1979, defined a fourth approach, which they called regiocentric approach. I the framework of this staffing policy managers are transferred on a regional basis, and it unites traits of all previous forms as a polycentric, ethnocentric and geocentric approaches. It is important to notice that some the parent-country and the third-country nationals can occupy a middle management positions and host country nationals can be observed on all levels of subsidiaries, but described staffing approaches as a policy can be applied exceptionally to senior positions in international organization subsidiaries.
Within the existing literature in international human resource management, all scholars define three type of attraction of personnel according to nation or citizenship of employee: parent-country nationals (PCNs), host-country nationals (HCN) and third-country nationals (TCNs):
• PCNs – the nationals of the original country (parent) one in which the headquarters of transnational organizations, or citizens of this country;
• HCNs – the nationals of the country where the subsidiary is organized branch of the company (the host country), or the citizens of that country;
• TCNs – the nationals of third countries, who are neither citizens of the country in which the headquarters of international companies or nationals of the country in which the country carries out its business operations.
Parent country
national (PCN) Host country
national (HCN) Third country
national (TCN)
Meaning Nationality of employee is the same as that of the headquarters of the multinational firm e.g. a UK employee working at the Polish subsidiary of Tesco Nationality of employee is the same as that of the local subsidiary e.g. a Polish employee working at the Polish subsidiary of Tesco Nationality of employee is neither that of the headquarters nor the local subsidiary e.g. an German employee working at the Polish subsidiary of Tesco
Advantage Organizational control and coordination are maintained and facilitated, perspective managers receive international experience Language and other barriers are eliminated, hiring cost are reduced and no work permits is required Salary and benefits requirements may be lower than for parent-country nationals, third-country nationals may be better informed than parent-country nationals about the host country environment
Disadvantage The promotional opportunities of home-country nationals are limited, adaptation to host country may take a long time Control and coordination of headquarter may be impended, home-country nationals have limited career opportunity Transfer must consider possible national animosities, the host may present hiring of third-country nationals
Ethnocentric
Under this approach, the representatives of organization country origins known as expatriates often occupy the strategic senior management positions in the subsidiaries and overseas branches such as Chief Executive Officer (CEO) and financial director (CFO). Such a system enables to implement in the subordinated company the headquarters’ management style in term of standardization of strategic decisions making and stay subordinate and controlled on core issues by the parent company.
Advantages.
• Full organizational control.
• The facilitation and maintain of coordination within entire organization.
• Assurance that subsidiary will comply with organization objectives of the development strategy.
• Valuable international experience for perspective managers of the organization.
Disadvantages.
• Lack of knowledge and (or) misunderstanding of local business environment and cultural differences by HCNs that may lead to reduced productivity and increased turnover among that group.
• The adaptation of expatriate managers to new environment takes time during which these expatriates make poor decisions.
• Expenses for relocation compensation and salary for home country nationals – expatriates around 4 times higher than expenses for hiring local employees.
Polycentric
Under this approach, local professionals employees are hired on the base of their knowledge of the local system and existing rules of doing business in given country to implement company's strategic goals. Within this pattern subsidiaries are allowed to be more autonomous in operational activity and can diversify management tools in terms of adaptation to local circumstances.
Advantages.
• Removes cultural barriers in governing (language, traditions, behavior).
• Avoids issues with adaptation of expatriates and their families.
• Eliminates the need for cultural awareness training.
• Significant reduces of compensation expenses.
• Continuity of management of foreign subsidiaries thus reduces losses and turnover.
Geocentric
Staffing is undertaking on a worldwide basis. The HR practices, which emerge, have to stamp of staff from both headquarters and subsidiary units. Although there is more cultural flexibility contained in these practices, they are implemented consistently.
Regiocentric
This is the variant of the geocentric model in this case managers are recruited regionally and HR practices are consistent within specified regions.
Advantages and disadvantages of PCNs
Advantages Disadvantages
Familiarity with the parent organisation’s goals, objectivities, policies and practices Difficulties in adapting to the foreign language and the socioeconomic, political, cultural and legal environment
Technical and managerial competence Excessive costs involved in selecting and developing expatriate managers
Effective liaison and communication with parent
country staff Family adjustment problems
Advantages and disadvantages of HCNs
Advantages Disadvantages
Familiarity with the socioeconomic, political and legal environment and with business practices in the host country Difficulties in exercising effective control over the subsidiary's operation
Lower costs incurred in hiring staff in comparison to PCNs and TCNs Communication difficulties in dealing with the parent company
Provides opportunities for advancement and promotion to local nationals and increases their commitment and motivation Lack of opportunities for the home country’s internationals to gain international and cross cultural experiences
Responds effectively to the host country’s demands
Advantages and disadvantages of TCNs Source: Harzing and Van Ruysseveldt (2007:254)
Advantages Disadvantages
Perhaps the best compromise between securing needed technical and managerial expertise and adapting to a foreign cultural environment Host country’s sensitivity with respect to nationals of certain countries
TCNs are usually career international business managers with a wealth of experience Local nationals are impeded in their efforts to upgrade their own ranks and assume responsible positions
TCNs are usually less expensive to maintain than PCNs
TCNs may be better informed about their host environment than PCNs
Focusing on the use of expatriates
• Expatriates are employees who go to work in another country
• They can either work for the organization already in their home country or can be recruited externally
• Their assignments can vary in length and purpose. From short visits of days/weeks to longer terms of months/years
• The cost of using expatriates is high so it is essential that they are carefully selected and developed
• Effective pre-departure training is essential to support the employee to adapt to a new culture and country – as well as a new job
The methods of international staffing activity described above are mostly to differ in their influence on career development. The ethnocentric approach demonstrates the notable drawbacks for local employees’ career in terms of restricted upward growth, what can be explained by lower management positions at the start. Existing academic sources express the view that a great number of foreign senior managers blocks the career advancement opportunities and creates sizeable disparities in income and status, leading to frustration and dissatisfaction among locals and leads to huge staff turnover. Hom and Griffeth (1995) declare that perceived career advancement opportunities within the organization reduce employees’ inclination to quit.
The polycentric approach known as more favorable for HCNs as they are entitled to pretend for senior management positions at the subsidiary which entails greatly wide career development opportunities. Meanwhile Perlmutter (1969) declare that polycentric method has similar restrictions for employees in their vertical growth within the multinational organization structure, but not only concerning overseas branches and also to staff at the headquarter country. According to this if employee's professional career's expectations spread beyond the border of domestic market polycentric approach will not satisfy this goals, especially in the case of a mismatch between individual and organizational career plans when the employee commitment to the organization become less. Thus, the limited scope of polycentric career paths implies the risk of turnover both at the subsidiary and the HQ level. This threat is most salient among high-performing managerial employees who will most likely be able to pursue their international career aspirations in other firms.
Building on this notion, the regiocentric approach reveals a generally higher retention capacity by extending employees’ perceived career advancement opportunities to the regional level. Still, managerial employees with international career ambitions will find their promotion prospects limited to a specific region, with only marginal chances of being assigned to the HQ (Caligiuri and Stroh, 1995). The aforementioned barriers to international staff mobility are eliminated in the geocentric orientation, which therefore seems to be the most beneficial system in terms of existing career paths and perceived career prospects. Despite its advantages, geocentric staffing policies encompass a crucial shortcoming which is related to their centric nature. As staffing decisions are still made at the HQ level, firms tend to use this approach in a selective manner. While careers of HCNs and TCNs may be managed on a worldwide basis and may entail temporary assignments to other MNC units, the majority of career paths are still limited to the local or regional level with only PCNs enjoying comprehensive international mobility (Novicevic and Harvey, 2001; Ondrack, 1985). Also, researchers highlight the importance of MNC’s administrative heritage (Bartlett and Ghoshal, 1998) and their embeddedness in the home-country cultural and institutional environment (Ferner, 1997; Whitley, 1992) for MNC behaviour abroad. These factors are likely to reduce an MNC’s inclination to adopt and implement a truly geocentric approach to international staffing.
Local employees’ perceived career opportunities are subject to additional factors. Indeed, enhanced global integration of a subsidiary, possibly accompanied by regiocentric or geocentric staffing patterns, will only be perceived as being beneficial to local employees’ careers if MNC units display a high extent of interdependencies. These may exist due to extensive communication, shared clients and mutual resource dependencies (Birkinshaw and Morrison, 1995). Conversely, a subsidiary’s strong local embeddedness will be perceived as having negative career implications concerning global integration, for example as a result of perceived incompatibility of employee skills (Newbury, 2001). Dealing with turnover then encompasses the need to effectively manage employees’ perceptions. In addition, the size of the local unit may have direct consequences for employees’ perceived career prospects: The limited career opportunities associated with a polycentric staffing policy will be more detrimental for employee retention in small subsidiaries where management positions are scarce.
These considerations also highlight the shortcomings of the approaches’ centric nature in general. It is doubtful whether centrally set staffing policies will be suitable to take into account local employees’ career aspirations and career perceptions at a particular subsidiary which, at the same time, lead to specific turnover patterns. Research, for example, suggests that there are cultural differences in career patterns and career goals (Gerpott et al., 1988; Noordin et al., 2002). Accordingly, international staffing practices need to consider and adjust to context-specific requirements. A pluralistic approach is favourable since it permits the inclusion of contextual and subsidiary-specific conditions as well as normative standards in international staffing decisions (Novicevic and Harvey, 2001). This orientation thus seems to be more successful in managing employee perceptions and may enable individual and organizational career plans to display a higher level of congruency, thereby fostering employee retention (Granrose and Portwood, 1987; Lähteenmäki and Paalumäki, 1993).
It has become clear that local nationals’ career aspirations are generally not limited to the local organization but will extend beyond national boundaries. Moreover, desirable career patterns and perceived career opportunities differ between subsidiaries and even individuals. As a result, a retention-oriented design of international staffing practices needs to consider HCNs’ career goals and perceptions to effectively bind these employees to the organization.
Over the next decade, we will observe changing and increase of segment of geocentric approach due to further development of information technologies and new communication opportunities when company can be governed from any place in the world without necessity to physical attendance in the geographical location of organization. For example nowadays a lot of meetings of the management board or the working group briefings, going through the telephone conferences, video conferences and web-applications as Skype. According to the research done by Society for Human Resource management on topic “Challenges Facing HR Over the Next 10 Years” we can assume that the emphasis moving from financial resources to technological and intellectual resources. if we agregated last two in one, figures will show significantly growth from 23% to 33% meanwhile proportion of the financial capital plunged from 29% to 22%.
According to the Universum study, a global research and advisory firm headquartered in Stockholm, more than half (51 percent) of Generation Z respondents in North America chose flexible work as the career goal most important to them, work/life balance is critical, and they would rather have part-time work than work long hours and make more money.