International Human Resource Management
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Ever since the globalization era began, companies have become more aware of the competitive environments they operate in. It is obvious that a competitive advantage such as technology, resources and quality can be imitated. It is the personnel that a company employs that makes the difference. Making the right selection and most efficient use of it will surely provide the advantage needed.
This difficult task is left in the hands of International Human Resource Management. The term IHRM refers to the development and deployment of human resource capabilities within an international framework. Companies have several techniques at their disposal when faced with staffing decisions.
The first approach is called ethnocentric. It is based on the occupation of a key position by employees from headquarters (i.e. expatriates or parent country nationals PCN). It is assumed that subsidiaries can be managed more efficiently by expatriates. This is because expatriates are more informed of the company’s goals and objectives, strategies and “know how” compared to local managers. This method is used when expanding globally and there is need of good communication, cooperation and control of activities. Consequently, PCN’s are assigned to top management positions who implement strategic decisions coming from headquarters. Hence, the selection of expatriates will depend on the technical knowledge required or the type of international expansion a company is planning.
The ethnocentric approach provides the parent company with more control which is vital when expanding to a new country. Therefore, expatriates are seen as more able than host country nationals.
Unfortunately, this approach has its side-effects. For instance, host country nationals (HCN) are very restricted in their career progression since they will never occupy top management positions. In addition, the have limited autonomy and control over activities which may cause frustration and disappointment leading to labour turnover and a fall in productivity. The wage differential is another disadvantage in this model since PCN’s receive higher salaries than HCN’s.
There are some cases were expatriates had difficulties in adjusting to the new environment and as a result have made poor decisions. As an example we can take Procter & Gamble’s unsuccessful attempts in assigning expatriates subsidiaries in Japan.
The second approach is called polycentric. It relies on HCN’s being recruited to manage subsidiaries in their own country, while positions at headquarters are maintained by PCN’s. Under this scenario each subsidiary is perceived as separate national entity with a degree of autonomy in decision-making and is mostly used when implementing a multinational approach.
Polycentric staffing can have certain advantages. By hiring HCN’s language barriers are overcome, there is perfect knowledge of the market, legal and political structure and culture. Also there is no delay in the adjustment process when assigned to new posts compared to expatriates. By using local staff labour turnover can be decreased and productivity rises. In addition, HCN managers receive lower wages and benefit packages which have considerable effects in the reduction of costs.
However, the polycentric approach has some disadvantages. This can be described as lack in communication and control between the headquarters and the subsidiary. This is attributed to differences of language, culture and conflicts of interest. As a result, there is a gap in the strategic planning process and the pursuit of common objectives since each subsidiary will as an independent unit.
Another limitation is the conflicting career options that PCN’s and HCN’s face. On the one hand, expatriates occupy key position at the headquarters but are limited from an international career which would give them extra feedback on how things work abroad. Likewise, HCN’s cannot occupy positions at headquarters or anywhere abroad, thus, restricting their career prospects.
The next staffing method is called geocentric, in which there is no discrimination between PCN’s, HCN’s and third country nationals (TCN). This implies that staffing decisions are solely made on who is the most able man for the job. This approach reflects a more worldwide view towards international expansion. In other words, candidates are chosen either within or outside the organization and the selection criteria is based on their abilities and not nationality. The notion that only PCN’s occupy headquarter positions does not hold in this case since HCN’s and TCN’s can be found in this positions. The role of the parent company is more of control and coordinating type than strategic decision-making as mentioned earlier. Examples of such companies are Coca-Cola, General Motors and Xerox.
An important benefit is that the labour force is multi-diverse and multicultural which are essential in today’s complex and diverse environment. Hence, activities between headquarter and subsidiaries is more integrated and therefore more efficient. The employee’s of the company are very able, willing and skilled and all of these features can be passed on to future candidates. This can be important for the continuum of the company’s global activities.
The use of TCN’s in managing subsidiaries can be very helpful in that language and culture barriers are not an issue. Employing TCN’s involves multilingual individuals sharing similar backgrounds. In addition TCN’s receive low wages which makes it convenient for companies to employ them.
However, there are limitations to this approach. For instance, there are considerable training and relocation costs involved. There are cases were host governments have implemented strict legal and labour laws to prevent the entrance of expatriates in favor of home nationals.
Another issue that companies neglect is the assignment of PCN’s, HCN’s and TCN’s in different environments so as to enhance their international management skills.
Under the regiocentric approach, staffing decisions are based on geographic region. Unlike the geocentric approach, regiocentric staffing is limited to choosing or moving around applicants within a certain region (i.e. for a job in Argentina staff can be selected from the South America region).
Although managers have more autonomy in investment and decision-making activities they can never progress to a position in headquarters.
This approach is that it can promotes the interaction of HCN’s and TCN’s with PCN’s which are assigned at the regional headquarter. This is achieved through transfers of staff. The majority of staff is HCN’s which benefits them in terms of future careers while keeping local authorities pleased.
One common problem is that regions can turn into small “federations” and not comply with the company’s objectives. Another limitation might be the difficulty to progress beyond the national level, since employees are restricted to a regional level thus creating a high exit barrier.
It is evident that companies can use different methods in their staffing selection. The decision will depend on several factors such as the size of the company, how successful it has been in its previous international ventures, what strategy it follow or how loyal its employee’s are. Of course the external environment plays a significant role and therefore companies must always be flexible. The most complete and efficient method complying with a global strategy is the geocentric approach.
Concluding, we can say that companies in the future should consider acting “glocal” that is, acting global while thinking local
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