Chapter 3

IHRM: Sustaining International

Business Operations

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 Chapter Objectives
The aim of this chapter is to establish the role
of HRM in sustaining international business
operations and growth. We will cover the
following:

 Issues related to various approaches to

staffing foreign operations;
 Reasons for using international assignments:
position filling, management development
and organizational development;
(cont.) 2
 Chapter Objectives (cont.)
 Various types of international assignments:
 Standard assignments: Short-term, extended, and
longer-term;
 Non-standard arrangements: Commuter, rotator,
contractual, and virtual.

 The role of expatriates and non-expatriates

(international business travellers) in supporting
international business activities

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 Approaches to Staffing
 Factors affecting approaches to staffing
 General staffing policy on key positions
at headquarters and subsidiaries

 Constraints placed by host government

 Staff availability

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 Staffing Approach
 IHRM literature uses four terms to
describe MNE approaches to managing
and staff their subsidiaries. These terms
are as :

Ethnocentric
Polycentric
Geocentric
Regiocentric 5
 Ethnocentric Approach
 Strategic decisions are made at
headquarters;
 Limited subsidiary autonomy;
 Key positions in domestic and foreign
operations are held by headquarters’
personnel;
 PCNs manage subsidiaries.

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 Ethnocentric Approach
(Reasons)
Advantages: Disadvantages:
 To ensure new subsidiary Limits the promotion opportunities
complies with overall of HCNs, leading to reduced
corporate objectives and productivity and increased turnover
policies among the HCNs
Takes Longer time for PCNs to
 Lack of qualified host adapt to host countries, leading to
country nationals errors and poor decisions being
made
 Assignments as control High cost
Considerable income gap, high
authority, is viewed unjustified by
HCNs.
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 With regard to home countries, subsidiaries of
Japanese MNCs are much more likely to have a
PCN as managing director.

 At subsidiary level, the highest percentage of

PCNs can be found in Latin America, Africa,
Asia and the Middle East,

 While expatriate presence is much lower in

Canada and Western Europe and is particularly
low in Scandinavia.
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 In general, MNCs operating in the financial
sector and the automobile industry show the
highest percentage of PCNs as managing
directors.

 A low expatriate presence is found in some

service industries and in “multidomestic”
industries such as food.

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 Polycentric Approach
 Each subsidiary is a distinct national
entity with some decision-making
autonomy;

 HCNs manage subsidiaries who are

seldom promoted to HQ positions;

 PCNs rarely transferred to subsidiary

positions. 10
 Polycentric Approach
(Reasons)
Advantages:
Employment of HCNs eliminates
language barriers, avoids adaptation of
PCNs, reduces the need for cultural
awareness training programs
Employment of HCNs allows a
multinational company to take a lower
profile in sensitive political situations
Employment of HCNs is less expensive
Employment of HCNs gives continuity
to the management of foreign
subsidiaries (lower turnover of key 11

managers)
 Polycentric Approach
(Reasons)
Disadvantages:
Difficult to bridge the gap between HCN
subsidiary managers and PCN managers at
headquarters ( language barriers, conflicting
national loyalties, cultural differences)

HCN managers have limited opportunities to

gain experience outside their own country
PCN managers have limited opportunities to
gain international experience

Host government may dictate that key

managerial positions are filled by its nationals.

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 Geocentric
 A global approach - worldwide integration;
 View that each part of the organization makes a
unique contribution;

 Nationality is ignored in favor of ability:

 Best person for the job;
 Color of passport does not matter when it
comes to rewards, promotion and
development & hiring.
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 Geocentric Approach
(Reasons)
Advantages: Disadvantage:
 Increases the ability of Host government may use
the firm to develop an immigration controls in
international executive order to increase HCNs
team globally employment
Expensive to implement
 Support cooperation due to increased training
and resource sharing and relocation costs
across units Large numbers of PCNs,
HCNs, and TCNs need to
be sent across borders
(hence time consuming)
Reduced independence of
subsidiary management (i.e. 14
HCN)
Geocentric Staffing Requirements

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 Regiocentric
 Reflects a regional strategy and structure;

 Regional autonomy in decision making;

 Staff may move outside their countries but

only within the designated region, rather
than globally;
 Staff transfers between regions are rare
(Asia to Europe) 16
 Regiocentric Approach
(Reasons)
 Advantages:  Disadvantages:
Allow interaction between Produce federalism at
executives transferred to
regional headquarters from a regional rather than
subsidiaries in the region a country basis and
and PCNs posted to the constrain the firm
regional headquarters from taking a global
stance
Provide some sensitivity to
local conditions, since local
subsidiaries are staffed Staff’s career
almost totally by HCNs. advancement still
Help the firm to move from limited to regional
a purely ethnocentric or headquarters, not the
polycentric approach to a parent country
geocentric approach
headquarters 17
 Parent-Country Nationals
Advantages Disadvantages
 Organizational control and  Promotional opportunities of
coordination is maintained. HCNs are limited.
 Rising stars are given  Time and performance costs
international experience. associated with adaptation
 PCNs may be the best to the host country.
people for the specific job  PCNs may impose an
due to special skills and inappropriate HQ style.
experience.  Compensation for PCNs and
 An assurance that the HCNs may differ.
subsidiary will comply with
company objectives &
policies.

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 Host-Country Nationals
Advantages Disadvantages
 Language and other barrier  Hiring of HCNs may
eliminated encourage a federation of
 Reduced hiring costs national rather than global
 Continuity of management units
 HCNs have limited career
 Government policy may
require hiring HCNs opportunity outside the
subsidiary
 Possible increased morale
 Control and coordination of
because of increased career
potential HQ may be impeded
 Hiring HCNs limits
opportunities for PCNs to
gain foreign experience
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 Third-Country Nationals

Advantages Disadvantages
 Salary and benefit  Host government may
requirements may be resent hiring TCNs.
lower than for PCNs.
 TCNs may be better  TCNs may not want to
informed than PCNs return to their own
about host-country countries after
environment. assignment.

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 Reasons for International
Assignments
 Position filling, e.g.
 Skills gap, launch of new endeavor, technology
transfer
 Management development
 Training and development purposes, assisting in
developing common corporate values (either HQ
staff transferred to HC or HC staff transferred to HQ
for training purpose. )
 Organizational development
 Here strategic objectives of the operation come into
play:
 Need for control, transfer of knowledge,
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competence, procedures and practices
 Types of International Assignments
 Short term: up to 3 months
 Troubleshooting
 Project supervision
 A stopgap until a permanent arrangement is found

 Temporarily importing the talent necessary to train

the local workforce, to handle needs on a project
basis, to eliminate the cost and disruption of
relocating entire families (Melone, 2005).

For instance, Central and Eastern Europe and the

Indian Subcontinent emerging as significant
destinations for such assignees. 22
 Types of International Assignments
(continued)
 Short term: up to 3 months (continued)
 Common disadvantages include: (1) taxation issues¸
particularly for assignments over six months duration,
(2) failure to build effective relationships with local
colleagues and customers and (3) work visas and
permits
 Extended: up to 1 year
 May involve similar activities as short-term
assignments
 Long term
 Varies from 1 to 5 years
 The traditional expatriate assignment 23
 Non-standard Assignments
Commuter assignments
Rotational assignments
Contractual assignments
Virtual assignments

Some of these arrangements assist in

overcoming the high cost of international
assignments but are not always effective
substitutes for the traditional expatriate
assignment. 24
Non-standard Assignments (Cont’d)

 Commuter Assignment
International Commuter assignments
are defined as ones where the
employee commutes from home
country to a place of work in another
country, usually on a weekly or bi-
weekly basis, while the family
remains at home.
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 Concerns about using Commuters

 As (PricewaterhouseCoopers, 2000) reports

pointed out:

 There are real concerns about the feasibility of

commuter arrangements over an extended
period of time due to the build up of stress
resulting from intensive travel commitments
and the impact on personal relationship
 Merger or Project is the main reason to use
commuter assignees.
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 Rotational Assignment
 Employee commutes from the home
country to a place of work in another
country for a short, set period
followed by a break in the home
country.

 For instance, Oil companies rigs…

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 Contractual Assignments
 CA are used in the situations where employees
with specific skills vital to an international
project are assigned for a limited duration of 6-
12 months.

 Research & Development (R&D) is one area

that is using multinational project teams and
lends itself to short term contractual
assignments.

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 Virtual Assignments
(Decentralization)
 Within VA employees are not relocate to a
host location but manages from home
base, international responsibilities for
part of the organization in another
country.
 VA’s are very useful for regional positions,
European companies are commonly
using it on regional basis.

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 Virtual Assignments
 This trend has accelerated since the late 1990s
due to the growth of the internet and other
communication technologies

 It has been argued that virtual assignments are

most appropriate for relatively routine activities
and that there are certain circumstances where
face-to-face communication is indispensable

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 Factors Influencing Virtual Assignments

Role conflict, dual allegiance (loyalty) and

identification issues Between the person in the
home location and the virtual group in the
foreign location. i.e. how much time should be
devoted to the ‘virtual’ work responsibilities
versus the ‘real’ work
Interpersonal relations Much of the work is done
through electronic media, cultural
misunderstanding can increase, and needs high
skills of using electronic equipments, so face to
face meeting could still be required 31
 Roles of an Expatriate
 Agent of direct control
 Agent of socialization
 Network builder
 Transfer of competence and
knowledge

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 Roles of an Expatriate
Agent of direct control

 The use of staff transfers can be regarded as a

bureaucratic control mechanism, where the
primary role is that of ensuring compliance
through direct supervision.

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 Roles of an Expatriate (cont’d)
The expatriate as an agent of socialization
This role is related to the use of corporate culture
as an informal control mechanism.
 There is an implicit expectation that expatriates
assist in the transfer of shared values and
beliefs.
 However there has been little empirical
investigation as to how effective expatriate have
been as agent of socialization.

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 Roles of an Expatriate (cont’d)
As a Network Builders
 International assignments are viewed
as a way of fostering interpersonal
linkages that can be used for control
and communication purposes.
 Here duration of the assignment will
determine a strong network linkage.
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Roles of an Expatriate (cont’d)

Transfer of competence and

knowledge

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The Role of Non-expatriates
 People who travel internationally yet are not considered expatriates
as they do not relocate to another country. That is, non- expatriate
are international business travelers, persons for whom a large
proportion of their role involves constant international visits to
foreign markets, subsidiary units…
 Also known as Road warriors, globetrotters, frequent fliers
 Much of international business involves visits to foreign locations,
e.g.
 Such as for Annual budgeting meetings or for maintaining personal
relationships with key colleagues and customers in the host
country.
 Sales staff attending trade fairs
 Periodic visits to foreign operations
 Visits to deal with host country government officials,
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suppliers…
 International business travelers
 Welch and Worm (2006) argue that IBT are
particularly appropriate in underdeveloped
markets or volatile countries where people
would be reluctant to relocate.

 Arguably they are also particularly appropriate

in the European context, where many European
capitals can be reached with a short flight (1 to
3 hours). Similarly, in South east Asia
multinationals like Telecom Malaysia are
making increasing use of IBTs.
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 A Glamorous Life
 International business travelers cite the
positives as:
 Excitement and thrills of conducting
business deals in foreign locations
 Life style (top hotels, duty-free
shopping, business class travel)
 General exotic (foreign) nature

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 But a High Level of Stress!
 Home and family issues
 Frequent absences
 Work arrangements
 Domestic side of position still has to be attended
to
 Travel logistics
 waiting in airports, etc.
 Health concerns
 Poor diet, lack of sleep, etc.

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 Chapter Summary
This chapter has expanded on the role of IHRM in
sustaining international business operations. We
have:
 Looked at the various approaches to staffing
international operations – ethnocentric, polycentric,
geocentric and regiocentric – examining their
advantages and disadvantages and factors that may
determine the choice of these options.
 Considered the reasons for using international
assignments: position filling, management
development and organization development.
(cont.)
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 Chapter Summary (cont.)
 Discussed the various types of international assignments:
short, extended and long-term (traditional); and non-
standard forms such as commuter, rotational, contractual
and virtual assignments.
 Examined the various roles of the expatriate: as an agent for
direct control, as an agent for socialization, as network
builders, as boundary spanners and as language nodes.
These various roles of the expatriate help to explain why
expatriates are utilized and illustrates why international
assignments continue to be an important aspect of
international business from the organization’s perspective.
(cont.)

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 Chapter Summary (cont.)
 Recognized that non-expatriates are also critical to
international business operations. International
business travellers present their own challenges, such as
the effect of frequent absences on family and home life,
the possible negative health effects and other stress
factors. The management of such individuals, however,
does not appear to fall within the domain of the HR
department.

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