Implementing a strategy of International expansion takes a lot of planning and can be very expensive. At the first level of planning, staffing policy suitable for a particular kind of business, require decision-making at its global strategy, and its geographic locations. Key issues involve the difficulty of control in geographically spread operations, the need for local decision making independent of the home office, and the suitability of managers from other sources.
Staff Philosophies for Global Operations:
A number of philosophies of managerial staffing abroad are known as ethnocentric, polycentric, regiocentric, and global approaches.
Ethnocentrism:
Firms that fill key managerial positions with people from headquarters or use parent-country nationals (PCNs) follow ethnocentric approach. This is because PCNs are familiar with company goals, policies and procedures, products, technology, and very well know how to get things accomplished through headquarters. Ethnocentric approach is used where a company finds that the local managerial skills are inadequate and there is need to maintain close coordination with headquarters. The approach is also preferred when the organization has been structured around a centralized approach to globalization and is primarily at the internationalization stage of strategic expansion. Usually, companies use PCNs for the top management positions in the foreign subsidiary to maintain close control and when a high level of technical capability is needed. They are also preferred for new international ventures requiring managerial experience in the parent company and where there is a concern for loyalty to the company rather than to the host country particularly in cases where proprietary technology is used extensively.
Poly centricism :
With a polycentric staffing approach, local managers or host-country managers (HCNs) are hired to fill key positions in their own country. This approach is more effective when implementing a multinational strategy. HCNs are preferred because they are familiar with the language local culture, and ways of doing business. They have many contacts in place and are more likely to be accepted by people both inside and outside the subsidiary. They provide role models for other upwardly moving personnel.
With regard to cost, it is usually less expensive for a company to hire a local manager than to transfer one from headquarters, frequently accompanied with a family and often is at a higher rate of pay. The practice of transferring from headquarters is particularly an expensive policy. Local managers also tend to be instrumental in staying off or more effectively dealing with problems in sensitive political situations.
Global staffing approach:
In global staffing approach, the best managers are recruited from within or outside of the company, regardless of nationality. Many European multinationals sometimes use this practice. Recently, as more major U.S. companies adopt a global strategic approach, they are also considering foreign executive for their top positions. General Motors hired J.Ignacio Lopex de Arriortua as vice-president for worldwide purchasing. The global staffing approach provides a greater pool of qualified and willing applicants from which to select, which, over a period of time, results in further development of a global executive cadre. The skills and experience these manager use and transfer throughout the company result in a pool of shared learning that is necessary for the company to compete globally. Firms such as Philips, Heinz, Unilever, IBM, and ABB follow a global staffing approach, which turns them highly visible and seems to indicate a trend.
Regio centrism:
The preparation and training for cross-cultural interactions is critical in international business. The need for cultural sensitivity by expatriate managers arises from the experience of companies that expatriate managers are not able to adjust to the local environment. The reports indicate that up to 40 percent of expatriate managers end their foreign assignments early because of an inability to adjust to the local environment and poor performance. About half of those who do remain, function at a reduced level of effectiveness. The direct cost of a failed expatriate assignment is estimated to be from $ 50,000 to $150,000. The indirect costs may be greater, depending on the expatriate’s position. Relations with host-country government and customers may be spoiled, resulting in a reduction of market share and poor reception for future PCNs.
Even though cross-cultural training has proved to be effective, a small number of expatriates are given such training. A study by Harvey of 332 U.S. expatriates, it would found that MNCs has not provided them with sufficient training or social support during the international assignments. The reason for this lack of training is an assumption that managerial skills and processes are universal. A manager’s domestic track record is used as the major selection criterion for an overseas assignment.
However, in most countries, the success of the expatriate is not left so much as to chance. American companies provide training less than companies of other countries. That is why Japanese expatriates experience significantly fewer incidences of failure than American expatriates. The success is largely attributable to training programs and intelligent planning by the human resource management staff in most Japanese organizations.
Staff Philosophies for Global Operations:
A number of philosophies of managerial staffing abroad are known as ethnocentric, polycentric, regiocentric, and global approaches.
Ethnocentrism:
Firms that fill key managerial positions with people from headquarters or use parent-country nationals (PCNs) follow ethnocentric approach. This is because PCNs are familiar with company goals, policies and procedures, products, technology, and very well know how to get things accomplished through headquarters. Ethnocentric approach is used where a company finds that the local managerial skills are inadequate and there is need to maintain close coordination with headquarters. The approach is also preferred when the organization has been structured around a centralized approach to globalization and is primarily at the internationalization stage of strategic expansion. Usually, companies use PCNs for the top management positions in the foreign subsidiary to maintain close control and when a high level of technical capability is needed. They are also preferred for new international ventures requiring managerial experience in the parent company and where there is a concern for loyalty to the company rather than to the host country particularly in cases where proprietary technology is used extensively.
Poly centricism :
With a polycentric staffing approach, local managers or host-country managers (HCNs) are hired to fill key positions in their own country. This approach is more effective when implementing a multinational strategy. HCNs are preferred because they are familiar with the language local culture, and ways of doing business. They have many contacts in place and are more likely to be accepted by people both inside and outside the subsidiary. They provide role models for other upwardly moving personnel.
With regard to cost, it is usually less expensive for a company to hire a local manager than to transfer one from headquarters, frequently accompanied with a family and often is at a higher rate of pay. The practice of transferring from headquarters is particularly an expensive policy. Local managers also tend to be instrumental in staying off or more effectively dealing with problems in sensitive political situations.
Global staffing approach:
In global staffing approach, the best managers are recruited from within or outside of the company, regardless of nationality. Many European multinationals sometimes use this practice. Recently, as more major U.S. companies adopt a global strategic approach, they are also considering foreign executive for their top positions. General Motors hired J.Ignacio Lopex de Arriortua as vice-president for worldwide purchasing. The global staffing approach provides a greater pool of qualified and willing applicants from which to select, which, over a period of time, results in further development of a global executive cadre. The skills and experience these manager use and transfer throughout the company result in a pool of shared learning that is necessary for the company to compete globally. Firms such as Philips, Heinz, Unilever, IBM, and ABB follow a global staffing approach, which turns them highly visible and seems to indicate a trend.
Regio centrism:
- In a regiocentric staff approach, recruiting is done on a regional basis- say within Latin America for a position in Chile.
- This staffing approach can produce a mix of PCNs, HCNs and TCNs, according to the needs of the company or the product strategy.
- The strategy and organizational structure of the firm as well as the factors related to the particular subsidiary influence the choice of staffing policy.
- Factors related to the host country such as the level of economic and political stability, development in technology, regulations regarding ownership and staff and the socio-cultural setting also play an important part.
- The choice of staffing policy has a considerable influence on organizational variables in the subsidiary, such as the methods of communication, locus of decision-making authority, and the perpetuation of human resource management practices.
The preparation and training for cross-cultural interactions is critical in international business. The need for cultural sensitivity by expatriate managers arises from the experience of companies that expatriate managers are not able to adjust to the local environment. The reports indicate that up to 40 percent of expatriate managers end their foreign assignments early because of an inability to adjust to the local environment and poor performance. About half of those who do remain, function at a reduced level of effectiveness. The direct cost of a failed expatriate assignment is estimated to be from $ 50,000 to $150,000. The indirect costs may be greater, depending on the expatriate’s position. Relations with host-country government and customers may be spoiled, resulting in a reduction of market share and poor reception for future PCNs.
Even though cross-cultural training has proved to be effective, a small number of expatriates are given such training. A study by Harvey of 332 U.S. expatriates, it would found that MNCs has not provided them with sufficient training or social support during the international assignments. The reason for this lack of training is an assumption that managerial skills and processes are universal. A manager’s domestic track record is used as the major selection criterion for an overseas assignment.
However, in most countries, the success of the expatriate is not left so much as to chance. American companies provide training less than companies of other countries. That is why Japanese expatriates experience significantly fewer incidences of failure than American expatriates. The success is largely attributable to training programs and intelligent planning by the human resource management staff in most Japanese organizations.
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