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Approaches to International Human Resource Management

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Approaches to International Human Resource Management

Corporate management philosophy is an important issue because it decides how a firm views the world in relation to itself and how it wants to manage human resources in different countries. HR manager at international level must not only select people with skills, but also employees who can mix with the organisations’ culture. General Electric, for example, is not just hiring people who have skills required to perform particular jobs, it wants to hire employees whose style, beliefs, and value system are consentient with those of the firm.

Corporate culture and management philosophy, to a great extent decide the formulation and implementation of corporate and operational strategies and their evolution into various stages of internationalization. Companies involved in world trade and investment can be divided into four types based on their management approach and corporate philosophy:

  • Ethnocentric
  • Polycentric
  • Regiocentric
  • Geocentric

Ethnocentric Organisation:

There motto is ‘this work in my country therefore, it must work in other countries also’. These are home country oriented organization. Example, when a Japanese corporation invests in Mexico, Japan is the home country and Mexico is the host country. If the Japanese Corporation is ethnocentric, it will except Mexicans to accept the inherent superiority of Japan. Investments will be made on the Japanese methods of conducting business.

In this approach, all key management positions are held by parent country nationals, e.g., Toyota, Matsushita, Samsung etc. this strategy may be appropriate during the early phases of international business, because firms at that stage are concerned with transplanting a part well in their home country. Ethnocentric corporations believe that home country nationals are more intelligent, reliable and trust worthy than foreign nationals. Firms such as Procter and Gamble, Philips, and Matsushita originally followed the ethnocentric approach.

In this approach, all important positions in MNCs are filled up by PCNs in the early stages of internalization. Apart from this, for certain business-related reasons which are as follows:

  1. A perception that qualified HCNs may not be available for the units;
  2. To ensure that coordination and communication are maintained adequately in headquarters.

But, these are several problems in adopting the approach. Some of them have been pointed below:

  1. An ethnocentric staffing policy limits the promotion opportunities of HCNs, which may lead to reduced productivity and increased turnover among that group.
  2. The adaptation of expatriate managers to host countries often takes a long time during which PCNs make mistakes and make poor decisions.
  3. When PCN and HCN compensation packages are compared, the often considerable income gap in favour of PCNs is viewed by HCN, as unjustified.
  4. For many expatriates, a key international position means new status, authority and an increase in standard of living. These changes may affect expatriates sensitivity to the needs and expectations of their host country subordinates.

Apart from, this the cost of maintenance of expatriates is quite high. This approach is not only reflected in the staffing policy but in all other areas such as performance appraisal where evaluation format is designed and administered by parent nationals and new product development is done in the home country. Many international companies exhibit this ethnocentric philosophy. They have difficulty in communicating in different languages and accepting cultural differences. But ethnocentrism limits strategic alternatives to entry modes, such as exporting, licensing and than key operations.

Polycentric Organisations:

These motto is ‘when in Rome do as the Romans do’. When you are elsewhere lives as they live elsewhere. The polycentric staffing requires host country nationals to be hired to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. Although top management positions are filled by home-country personnel, this is not always the case. They see profit potential in a foreign country but find the foreign market difficult to understand.

The polycentric message is: ‘Local people know what is best for them. Let’s give them some money and leave them alone as long as they make us a profit.’ Governmental pressure and foreign laws often necessitate polycentric approach. The local government may be a major customer and insist on local ways to be adopted. Many multinationals adopt this approach because they face the heterogeneous environments in which product preferences may be the deciding factors and strategies are to be developed on a market by market basis. There are several advantages with this approach are outlined below:

  1. Employing HCNs eliminate language problems for the expatriates and their family members, reduces cost on costly awareness training programs, and takes care of the adjustment problems to a large extent.
  2. In politically sensitive situations, it helps the MNCs to maintain a low profile.
  3. Even though high salaries may have to be given to attract HCN applicants, it still works out cheaper for the company in the long run as compared to employing PCNs.
  4. The crucial problem of turnover experienced when employing PCNs can be avoided effectively by employing HCNs, since they are more stable and can help in maintaining the continuity in managing subsidiaries more efficiently.

Some are they problems are as follows:

  1. Bridging the gap between HCN subsidiary. Managers and the PCN managers at headquarters is a major problem, especially with regard to language barriers, conflicting national loyalties and differences emanating from personal values, attitudes to business and so on. This may result in a MNC becoming a ‘federation’ of independent national units with weak linkages to the corporate head quarters.
  2. Lack of exposure to international assignments among PCN managers at headquarters and lack of career mobility among HCN managers due to their stagnation in subsidiaries will ultimately affect the strategic decision-making capabilities, reducing their market share and customer base and their position in the foreign country vis-à-vis their competitors.

Regiocentric Organization:

These are regionally oriented organizations. A Corporation implements a regional strategy when synergistic benefits can be obtained by sharing functions across regions. The international staff is transferred with in the same region they work, example, for a global firm having a number Asia-Pacific, European and US, a manager working in Asia-Pacific region will be moving within the same region only, if the company adopts regiocentric approach. Regional headquarter organizes collaborative efforts among local subsidiaries, it is responsible for the regional plan, local research and development, local executive selection and training, product innovation, cash management, brand policy, capital expenditure and public relations.

The headquarter managers world strategy, country analysis basic research and development, foreign exchange, transfer pricing, inter company loans, long-term financing, selection of top management, technology transfer and establishing corporate culture. The advantages of using a regiocentric approach are:

  1. It allows interaction between executives transferred to regional headquarters from subsidiaries in the region and PCNs, posted to the regional headquarters.
  2. It reflects some sensitivity to local conditions, since local subsidiaries are staffed almost totally by HCNs.
  3. It can be a way for a multinational to more gradually from a purely ethnocentric or polycentric approach to a geocentric approach.

Disadvantages of regiocentric policy.

  1. It can produce federalism at a regional rather than a country basis and constrain the organization from taking a global stance.
  2. While this approach does improve career prospects at the national level it only moves the barrier to regional level staff may advance to regional headquarters but seldom to positions at the parent headquarters.

Geocentric Organisation:

This staffing philosophy seeks the best people for key jobs throughout the organization, regardless of nationality, selecting the best person for the job, irrespective of nationality is most consistent with the underlying philosophy of a global corporation. The MNC is taking a global approach to its operation, recognizing that each part (subsidiaries and headquarters) makes a unique contribution with its unique competence. It is accompanied by a worldwide integrated business and nationality is ignored in favour of ability. There are three main advantages to its approach:

  1. It enables a multinational firm to develop an international executive team which assists in developing a global perspective and an internal pool of labour for deployment throughout the global organization.
  2. It overcomes the federation drawback of the polycentric approach.
  3. It supports cooperation and resource sharing across units.

There are disadvantages associated with a geocentric policy.

  1. Bridging the gap between HCN subsidiary managers and the PCN managers at headquarters is a major problem, especially with regard to language barriers, conflicting national loyalties and differences emanating from personal values attitudes to business and so on.
  2. Host government want a high number of their citizens employed and may utilise immigration controls in order to force HCN employment if enough people and adequate skills are unavailable.
  3. Many western countries need extensive documentation if they wishes to hire a foreign national instead of a local national, which is time consuming, expensive and at times, futile.
  4. A geocentric policy can be expensive to implement because of increased training and relocation costs. A related factors is the need to have a compensation structure with may be higher than national levels in many countries.
  5. Lack of exposure to international assignments among PCN managers at headquarters and lack of career mobility among HCN managers due to their stagnation in subsidiaries will ultimately affect the strategic decision-making capabilities of both the groups of managers, thereby affecting the firms, and the quality of their business decisions and their resource allocation capabilities, reducing their market share and customer base and their position in the foreign country, vis-à-vis their competitors.
  6. Large numbers of PCNs, TCNs and HCNs need to be sent abroad in order to build and maintain the international team required to support a geocentric staffing policy. To implement a geocentric staffing policy successfully, therefore, requires a longer lead time and more centralized control of the staffing process. This necessarily reduces the independence of subsidiary management in these issues, and this loss of customarily may be resisted by the subsidiary.

Philosophy toward staffing:

Based on top management attitudes, a multinational can pursue one of several approaches to international staffing. It may even proceed on an adhoc basis, rather than systematically selecting one of the above four approaches. The dangers with the approaches are: ‘The firm will opt for a policy of using parent-country nationals in foreign management positions by default, that is, simply as an automatic extension of domestic policy, rather than deliberately seeking optimum utilization of management skills.’

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