Annamalai University MBA Chennai DDE

Assignments MBA (HR) 1.a)

Introduction

As with all other Human Resource Management decisions and practices, global staffing should be linked to the overall strategy and objectives of the multinational enterprise. These strategies and objectives are of course influenced by and set within the context of the overall global business environment. Thus, employee recruitment and selection decisions comprising the process of immediate staffing to meet work demands are influenced by such important general factors as the firm’s business strategy, stage of international development, specific foreign market experience, host government restrictions and incentives, host country socio-cultural restrictions, and plans for individual and organization development. There also can be various situational factors such as economic trends and conditions, the nature and duration of the international work itself, MNC resources available for staffing and availability of willing and able candidates. In this article, we will discuss each of these factors as they relate to staffing decisions.

1. MNC Business Strategy

The primary focus of a firm’s human resources agenda throughout all of its processes and activities should be the optimal support and reinforcement of company strategy, in efforts and activities involving both strategy formulation and implementation. The staffing function itself has a potentially huge impact on strategic management, including the recruitment and selection of key MNC leaders who have primary influence in formulating MNC strategy, and the selection and placement of middle managers throughout the MNC who have a vital role in implementing and carrying out the strategic direction of the firm.

Staffing should seek to fit and reinforce the purposeful direction and priorities of the MNC, such as being consistent with its ethnocentric, polycentric, region-centric, and geocentric general strategic approaches in operating foreign wholly owned subsidiaries. Or where an MNC desires to follow a strategic alliance strategy of focusing on its core competencies and reducing labor costs, the staffing function will likely employ outsourcing to support this strategy, such as through increasing the outsourcing of non-core back-office operations, or even resort to a broader level of external partner selection in complementary alliances, typically noted in international joint-ventures.

An organization’s approach to global talent acquisition (or staffing) must support its way of doing business. Perlmutter (“The Tortuous Evolution of the Multinational Corporation,” 1969) studied this process and identified three primary ways in which global organizations are staffed. A fourth staffing approach was added several years later. We now will discuss specific implications for the staffing function, especially for upper levels of management, held by ethnocentric, polycentric, region-centric, and geocentric strategic approaches. We will also discuss as how an organization’s global orientation affects talent acquisition and how global HR practitioners can provide leadership toward effective globalization.

a) Ethnocentric Approach

Key note: Tight control of international operations; little autonomy; key positions held by headquarters (HQ) personnel.

Impact of approach on Staffing:

Headquarters country personnel manage all operations.
Home Staffing policies are replicated in countries.
Talent skills transfer essentially one-way

Staffing that is consistent with an ethnocentric approach is typically characterized by all or most of the key positions at a foreign operation being filled by Headquarter (HQ) Personnel. Headquarter (HQ) Personnel are often utilized in earlier stages of globalization to optimize control for the purpose of transmitting company culture and instituting and implementing company procedures and methods. Or for much more experienced MNCs, the company might desire to retain a heavy use of headquarter personnel for managing foreign operations due to the perceived lack of qualified local home-country national (HCN) talent.

As in all international HR decisions, MNCs electing to follow an ethnocentric staffing approach should keep in mind several potential disadvantages and costs.

I) Expatriates represent a considerable direct cost for the MNC compared to HCN and typically third-country national (TCN) managers. Many estimates of the cost of expatriates run from three to as much as five times the expatriate’s normal salary. In addition, the adjustment process of expatriates to their host country surroundings, as well as of the HCN’s to the new expatriate, often takes considerable time. This adjustment period, or “learning curve”, itself represents a time span of costly suboptimal performance and a chance for costs to be greatly expanded by mistakes and poor decisions.

II) As an additional potential disadvantage, an ethnocentric staffing approach limits the promotional and developmental opportunities of HCNs, which might lead to their increased dissatisfaction and related costs of lower productivity and increased turnover. Also, due to headquarter-nation compensation typically being based on home country rates and often increased by inducement premiums and allowances, there may be a significant pay gap with HCNs whose compensation is based at a lower local rate, potentially causing additional dissatisfaction due to perceptions of inequity. These potential sources of HCN dissatisfaction are likely linked to general negative attitude towards headquarter-based personnel.

Staffing Practices that promote Globalization:-

Rotate coaches into countries to develop talent.
Require returning personnel to bring back lessons learned.
Refine talent acquisition policies to reflect local country input.

b) Polycentric Approach

Key note: - Subsidiary treated as own entity; local personnel manage operations; few promotions to headquarter.

Impact of approach on Staffing:-

Headquarters country personnel have little impact on other countries.
Talent acquisition policies are unique to each country.
Little cross-border movement of talent and skills occurs.

A polycentric strategic approach is similar to what is often described as a multi-domestic strategy and involves customizing company products, services, and practices to meet the often differing market and nonmarket circumstances, needs, laws, and accepted practices of individual countries or regions. Here each major overseas subsidiary is usually somewhat independent and is typically managed by a local HCN who is very familiar with the competitive demands of this local market. Some major advantages of the staffing of foreign operation management with HCNs consistent with this approach include a strong familiarity of operation management with local social norms and customs, language fluency, costs that are typically less than an expatriate assignment, and no foreign adjustment problems for an employee and any accompanying family members. And despite being a multinational corporation with headquarters in some distant country, the heavy use of HCNs from top management down in the operation can win the support and confidence of the local government and people who see the operation as benefiting their citizens.

Staffing Practices that promote Globalization:-

Encourage cross-border knowledge sharing.
Encourage trading complementary talent between countries.
Develop common processes where similarities exist.

c) Regio-centric Approach

Key note: – Operations managed regionally; communication and coordination high within the region, less so between regions.

Impact of approach on Staffing:-

Employees circulate within regions, with a focus on regional business results.
Talent acquisition policies are developed and coordinated within regions.
Talent and skills are developed within regions, with minimal inter-region transfer.

A staffing policy may also be in operation under a prevailing regio-centric strategic approach, where the firm’s operations or particular functions are structured by multiple country areas or major economic regions. Here we often see a predominance of HCN staffing at a local subsidiary, however, with an increased movement of senior HCN managers to head up operations in other countries of the economic region. In these cases we also often see headquarter personnel represented at regional headquarters, which provides opportunities for cross-cultural interaction beyond what is found in the polycentric approach. The former HCN managers themselves with these cross-border assignments also gain useful albeit less culturally distant international career experience; however, they are still generally limited to this regional level with little chance of promotion to the top management strategic team back at present company headquarters.

Another possible advantage of the regio-centric approach is that it may contribute, through this expanded level of cross-border assignments, to building useful international competencies, representing a helpful transition to an eventual global strategy featuring a geocentric approach to staffing.

Staffing Practices that promote Globalization:-

Support succession planning among selected regions.
Encourage cross-region knowledge sharing.
Encourage trading of complementary talent across regions.
Develop global approaches where a business case is strongest.

d) Geocentric Approach

Key note: - Organization seen as single international enterprise; management talent comes from any location; strategic plan global in orientation.

Impact of approach on Staffing:-

Employees circulate throughout the global organization.
Talent acquisition policies maximize long-term strength of the global organization.
Talent and skills are deployed globally to achieve global goals while meeting local requirements.

MNC staffing policy driven by a geocentric approach considers and selects the best talent for important jobs throughout the world operations of the MNC, regardless of nationality. This staffing policy works well especially within industries whose products or services involve minimal cultural differentiation.

Besides aiming to secure the best human talent regardless of national passport for positions throughout the MNC, both at MNC headquarters and its other operations and foreign subsidiaries, several significant advantages of the geocentric approach exist. These include increased global leadership development opportunities for HCN’s who were heretofore held back, especially by ethnocentric and polycentric staffing policies; increased opportunity for cross-cultural learning and knowledge sharing throughout the firm, with meaningful cross-border interactions; greater opportunity for developing a common MNC identity and mind-set; and a more widespread development of key global competencies throughout the MNC leading to a distinct competitive advantage in human capital. Nevertheless, a geocentric staffing policy may be restricted in cases where local governments require certain levels of HCN professional and managerial presence in their host country operations or place significant documentation and qualification requirements for hiring foreign nationals.

Staffing Practices that promote Globalization:-

Evaluate and refine global talent acquisition processes based on organizational impact.
Adjust the global plan to reflect changing global requirements.
Leverage local talent and tools for cost-effective global talent acquisition.

2. Global Growth Strategies

Talent acquisition is also directly impacted by how a global enterprise decides to expand its international presence. In some cases, the form of expansion adds to the overall talent pool; in some cases, it does not. In all situation, however, the overall complexion of the organization’s talent pool changes with new acquisitions or locations. Let’s discuss some of the implications the different types of expansion have for talent acquisition.

1) Expansion: - The reason for expansion will drive the best approach for staffing – whether to use international assignees, local nationals, or globally mobile employees.

2) Merger and acquisition: - (a) new talent resources become part of the organization. (b) Retention of key talent is a major issue. (c) It is critical to have global HR practitioners play a major role in due diligence to ensure that all potential costs are identified beforehand.

3) Joint Venture: - The type of joint venture, what the partnership agrees to, and the people that the partner contributes (e.g. number of employees, skill sets) all influence talent acquisition.

4) Greenfield operation: - (a) A new site needs to be staffed from the ground up. (b) Due diligence also is important to understand local laws and employment regulations. (c) This can be a huge effort, especially when the local labor market is underdeveloped.

5) Strategic alliance: - (a) Depending on the type of alliance, this could have no or considerable staffing impact. (b) In many strategic alliances, employees remain with their own companies. (c) If a new venture is formed in the alliance, then talent acquisition plans are directly affected.

3. Specific Foreign Market Experience

As in the very early stages of internationalization, multinational firms that have little experience with a specific foreign market are likely to staff these new foreign operations to a significant degree with local management that is very familiar with the specific market. This staff may be local Host Country National (HCN) managers who have been instrumental in the planning for this new market entry, or Third Country National’s (TCNs), perhaps from a neighboring country, who have considerable experience and expertise with the local market.

Although Headquarter Personnel might be involved to ensure proper communication and coordination with company headquarter, local HCNs or experienced TCN’s can more effectively address initial critical decisions faced by the new foreign operation, including the complete staffing of this operation most likely with HCN employees. In some cases, especially where the firm is reluctant to hire an experienced HCN or TCN from outside the MNC on a long-term basis, this experienced manager might be hired on a short-term or full-time consultancy basis until the firm has had enough time to develop internal talent for effectively managing the foreign operation.

4. Stage of International Development

Several studies have supported a general concept of progression of business through various stages of international development, or “internationalization”, beginning with export activity and progressing through the development of foreign sales offices, licensing agreements and foreign direct investment with manufacturing facilities, international division formation, multinational status, and finally integrated global enterprise. However, firms of all sizes differ greatly in the pace of their evolution toward increased internationalization, and some bypass stages through acquisitions and joint ventures. And some “born global” new ventures even begin with a primary focus on the global marketplace, skipping the earlier traditional forms of internationalization. Staffing decisions at each of these stages of internationalization can differ significantly due to the unique work demands of each stage.

At the simple export stage a firm is likely interested in obtaining the contracted services of an export agent and eventually a sales firm or independent sales representatives to promote product distribution.

At the more advanced level of the multinational enterprise, firms are often greatly interested in transferring company knowledge and technical expertise to foreign wholly owned subsidiaries, as well as coordinating with headquarters and controlling foreign operations to ensure consistency with parent company policies and procedures. MNC’s frequently accomplish these knowledge transfer and control purposes through expatriate headquarter personnel assigned to these operations.

Finally, at the stage of integrated global enterprise the firm has a large assortment of internal talent to consider for its staffing of both domestic and global operations. Following the geocentric approach discussed earlier, the MNC at this stage recruits and selects internal talent based on a determination of the best talent available and representing the highest return on staffing investment, regardless of national boundaries. External and non-standard or contingent sources of employees are also frequently considered at this level, again depending on the nature of the particular work demand and the comparative advantage of these sources.

5. Maturity of the Global Location

Maturity pertains to the experience, local market development, and skill sets for a particular international location. Each location has its own history, tradition, and patterns. In Compensating Globally Mobile Employees (1995), Calvin Reynolds identified a common pattern among global organization. He noted that expatriates are used for initial staffing, perhaps of a Greenfield operation, because local talent is not yet ready. Then, as the local labor force becomes more skilled, the percentage of local nationals increases significantly. Over time, local nationals can be sent to other global locations to fill specific needs, just as employees from headquarters did before them.

According to Reynolds, the primary reasons for this changing staffing pattern are:

a) The high relative cost of expatriates.

b) Pressure by local staff to advance at home and abroad as they become qualified.

c) The difficulty of hiring good local staff at reasonable salary levels if they perceive that expatriates hold most top jobs.

d) Pressure by local governments to maximize participation by local nationals.

e) Desire to present the image of a good employer by offering local nationals the opportunity to advance.

This exact pattern may not pertain in all global locations. Some organizations have expressed strategies that keep international assignments high. In some regions, country or local policies may restrict the number of international assignees and place a cap on them that is proportional to local hires. However, Reynolds’s findings are instructive as another key variable to understanding in designing and developing global talent acquisition plans.

6. Host Government Restrictions and Incentives

Host governments, in following their traditional safeguarding responsibility on behalf of their working citizens, often require MNC’s to demonstrate that Host Country National’s (HCNs) are not available to fill certain managerial or technical professional positions before they grant entry visas and work permits to headquarter personnel (or parent country national’s) and TCN’s selected by the MNC. With regard to labor available to staff lower-level employment positions, Western European governments and their political movements are actively moving to restrict and reduce the number of foreign asylum seekers and immigrants, who are perceived as low-wage threats to existing national employment opportunities. Often new business development abroad can be significantly delayed due to governments blocking work permits for expatriates selected for heading up this new international work. Or, because a work permitted is granted generally only for an expatriate and not for an accompanying spouse or partner, expatriates might be reluctant or even refuse to accept a foreign assignment without an accompanying spouse or partner who also desires employment. However, many governments have begun to change their laws or quota restrictions related to employment-related immigration to better meet their local economic-development demands, especially for higher-skill jobs, thus facilitating international transfers and cross-border staffing.

Governments and NGO’s also might place demands or lobby for staffing requirements for MNCs that are making foreign direct investment, especially in developing countries, such as specifying that certain numbers of HCNs be hired and at particular levels. These requirements might also stipulate what minimal percentage of supervisor and management level positions must be staffed by HCNs at a future date, giving the MNC some time to develop this managerial expertise among the HCNs. Governments can also provide significant tax, tariff, local labor force training, and other incentives to encourage MNCs’ foreign direct investment, leading to significant HCN staffing.

7. External Factors

Crossing a border has significant ramifications in global talent management. Global HR practitioners must understand the ramifications of the laws of different countries and local and regional practices. There is no substitute for researching each country’s practices and consulting with local experts to ensure that these factors are considered in the talent acquisition plan. It is also very important to be apprised of demographic trends in both local and regional labor markets. Now, we will be discussing a list of external factors that can directly impact a global talent acquisition plan.

a) Local labor markets: Global talent acquisition must do more than move people to fill in local skill gaps; it also must develop local talent to be a resource to the entire global organization.

b) Global labor markets: Global talent acquisition requires a strategic focus on the global labor mix to ensure that staffing decisions reflect strategic global needs rather than short-term fluctuations in local markets.

c) Local culture and values: Talent acquisition decisions have strong cultural components because they affect the lives of employees and their families. Talent acquisition plans must recognize that a staffing decision can be perceived differently across cultures.

d) Legal issues: These can stipulate who can be hired and what process needs to occur if staffing changes are made. The use of international assignees also may be regulated by legal policy.

e) Relationships with alliance partners: Alliances with foreign subsidiaries, joint ventures, partners, vendors and others can create unique staffing challenges that often need to be dealt with on a case-by-case basis.

f) Competitive factors: Competition for local labor can create unexpected shortages and may result in poaching of talent from companies that have invested in employee development. Competition for critical resources may require exceeding country and industry benchmarks to ensure that quality talent is retained and available when needed.

g) Security: Terrorism is a constant threat, and unstable parts of the world make global acquisition problematic.

Conclusion

Global organizations differ in the extent to which they value global integration or local responsiveness in their operations, growth, and governance. Global integration is akin to centralized management – there is standardization and consistency across all global operations. Local responsiveness is a decentralized approach that promotes more local decision making and entrepreneurship and strives to be responsive to local markets and conditions.

Most organizations have elements of both. Some rules, policies, procedures, and planning activities, may be maintained through integration to address overlapping needs. At the same time, there may be informal mechanisms for coordination at the local level. Evans, Pucik, and Barsoux (The Global Challenge, 2002) describes these as “glue technology” tools – lateral relationships, best practice transfer, leadership development, shared frameworks, project management, and the socialization of employees into shared values. They note that the majority of these tools are really the application of global HR management. Standardization expectations for a global talent management system can be made personal for local talent by incorporating solutions that still work for organization as a whole. The balance between global integration and local responsiveness can change over time.

Finally, to increase the likelihood of foreign assignment success, MNC’s should more broadly consider other candidate characteristics besides technical competence, including interpersonal skills, personal intent and motivation for obtaining international work experience, cross-cultural sensitivity, adaptability, tolerance for ambiguity, overall inquisitiveness, and the viability of a positive experience for accompanying family members.

We hope that this article will be of equal use to staffing managers that are involved in staffing up teams for various international assignments and also those who are seeking new international assignments. Feel free to write to us for any clarification or if you have any query pertaining to any point or concept mentioned in this article.

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