Introduction
Human resource management has a strategic role to play in a firm. It has witnessed several changes over the past few decades. Depending on the size and area of coverage, there are a number of ways through which the staff can be managed in a firm. Multi-national firms, with subsidiaries in overseas countries are always faced with the challenge of choosing the right staff to work in their overseas branches. They have three options from which to choose.
The first option is taking employees from the parent country. Parent Country Nationals (PCN) always has some advantages that make them appropriate for overseas tasks. This is especially so when the task demands some technical knowledge that may not be available in the host country. It also has its own disadvantages.
The other option that the company may have is taking the Host Country Nationals (HCN). Host country nationals may be vital in case knowledge about the local environment is needed. The third option would be Third Country Nationals (PCN). In this case, a firm takes employees who are neither from the parent country or host country.
The choice of employees depends on several factors. The management should choose the best approach as regards to its international human resource management. Weather they take export/ethnocentric approach, integral/region-centric approach or adaptive/polycentric approach, the choice should be practical and cost effective.
This report gives a detailed analysis of the challenges faced by multi-national corporations when it comes to hiring of employees in their overseas subsidiaries. The paper seeks to analyze the three options (PCN, HCN, and TCN). It seeks to evaluate theories associated with these models and their practicability.
Factors Influencing Approaches to Overseas Staffing
A number of factors would influence the staffing decisions of a firm in its overseas subsidiaries. Before a firm can choose the best approach to adopt in hiring staff in its overseas branches, there are factors that must be considered. These factors are both internal and external concerns, which have a direct effect on the firm’s operational activities (Carson 2008, p. 45).
These factors include general staffing policies of the firm at the headquarters, regulatory procedures put in place by the host country, and the availability of the staff. Depending on these factors, Cunningham (2000, p. 63) notes that a firm may choose to hire parent country nationals, host country nationals, or third country nationals.
Parent Country Nationals (PCN)
In many occasions, multinational companies would rely on the human resource available in the company’s parent country to run the overseas branches. As Avery and McKay (2006, p. 160) note, many companies in Japan and some European nations prefer hiring parent country nationals, especially in top managerial positions. The decision to hire the parent country nationals to manage subsidiaries always arises from the policies of the company.
Some companies prefer keeping a close control of subsidiaries. They prefer having the subsidiaries run in a similar manner as that in the parent country. In such a case, the management would select some of their current employees at the headquarters or other developed branches within the parent country and post them to these overseas subsidiaries. In so doing, the company hopes to transfer its policies in the parent company to its headquarters.
According to Backhaus and Tikoo (2004, p. 510), taking an ethnocentric approach in hiring of staff in the subsidiaries means a company is always guided by a number of factors. One such factor is the type of products the company offers to the market. General Electric, a US electrical and electronic company offers a wide range of electronics and electrical gadgets to the world.
Due to dynamism in this environment caused by changes in technology, the staff should be able to adjust according to the changing environment. The staff would need to be equipped knowledge pertaining to the product in order to be in a position to explain to other staff members the technical aspects of the firm.
Chapman and Webster (2006, p. 1038) note that there are a number of reasons that may force a company to hire the parent country nationals in their subsidiaries. There might be a need to fill a position that only suits a parent country national. Another reason could be the need to educate the host country nationals. In this case, the parent country nationals are sent to study in overseas institutions in order to orient local employees to the company’s policies. Alternatively, this may be caused by the need for organizational development.
According to Giddens (2009, p. 54), the parent country nationals can be categorized according to the level of allegiance to either the host country or the parent country. Free agents are expatriates with low allegiance to the host and parent courtiers. Such individuals are always sent to perform specific tasks over a short period.
A native expatriate is an individual with high allegiance to the host country. The third group is referred to as ‘the heart at the parent’ expatriate (Blackwell, Miniard & Engel 2006, p. 69). This group has a very strong attachment to the host country. The last category is called dual citizens. These individuals owe allegiance to both the host and parent countries.
Advantages of PCN
These employees have some coherent advantages over other types of employees. They have rich global experience, which they bring to the subsidiary. Because they are coming from a different country, their ability to understand the local environment and their knowledge of the outside world puts them at a comprehensive global outlook position.
They are also familiar with the company values and beliefs, which were practiced at the braches they were taken from. For this reason, they will find it easy to transfer the same to other employees. Lievens (2007, p. 54) also notes that the top management at the headquarters would find it easy to coordinate branches headed by the parent country nationals.
Disadvantages of PCN
Employing the parent country employees has some demerits. The expatriates would demand higher remunerations, a fact that would hurt the financial status of the firm. This may also trigger other employees to ask for similarly higher pays. These expatriates may also be slow in understanding the local environment, hence be slow in implementing various policies.
Their presence in a firm also limits the ability of the locals to rise in the management hierarchy. In addition, the possible political debate concerning the firm would hurt the operations of the firm. They would probably question the benefit they derive from the firm if the company does not absorb their nationals.
Host Country Nationals
In this case, a company hires its employees from the host country. The decision to hire employees from the host country may be influenced by various factors. This may perhaps include the company policy. Many American firms always prefer hiring natives of the countries in which they operate.
This is always motivated by various factors. Anderson (2004, p. 72) asserts that a company that deals with products that are well known and accepted in the market may consider Polycentric Approach as regards to hiring of its staff. This is because the market is penetrable and the need that exists is to expand the coverage of the market.
This could also be motivated by the need to cut down the cost of hiring staff, as PCNs are always relatively more expensive. According to Giddens (2009, p. 63), some companies are also motivated to create employment opportunities in the host country as a means of elevating the standards of living, especially in the third world countries.
Another factor that may influence this decision is the regulatory procedures put in place by the host country. In some instances, a host country may demand that a given proportion of employees in the branch be local citizens. In this case, a company may have little option but to higher the locals. Coca Cola Company is one such firm that has employed this strategy in its overseas subsidiaries.
As Paauwe, (2009, p. 15) observes, a company may resort to hiring home country nationals when the level of expertise needed for the task is available within the particular country. It might be tricky to employ this method if the host country lacks the right workforce.
Advantages of HCNs
Employing the host country nationals come with a number of advantages. As Schmitt and Oswald (2006, 618) note, host country nationals are less expensive as compared to the parent country nationals. They also have a deep understanding of the culture and general beliefs within the local environment.
Therefore, it would be easier for them to work within that environment. They have a good understanding of the geographical distribution. Therefore, they would easily determine which locations need the company’s products most. They also understand the local language and therefore there would be no language barriers. Moreover, employing natives would help the firm take a low profile when it comes to political debates.
Disadvantages of HCN
Inasmuch as this method is cheaper and more reliable, especially when dealing with well-known products in the market, it comes with some demerits. It may not be easy to link up the subsidiary with the headquarters’ policies. This may be due to language barrier, cultural differences or lack of commitment by the locals to the firm they consider foreign. The host country managers may also lack the global experience that would help propel the firm to higher heights, especially in the current dynamic and competitive market.
Third Country Nationals
Third country nationals are employees taken from a country that is neither host country nor parent country. They come from the third country. Andrzej and Buchaman (2007, p. 81) observe that this method was popularly used by the colonial British when constructing railway lines in Africa and other countries in Asia.
This method is used when the level of knowledge or skills required for a particular job may not be found both in the host and parent country. It may also be used because the workforce available in the parent country is unwilling to go to the host country, and the host country lacks the right workforce.
According to Giddens (2009, p. 69) there are a number of factors that should be considered before taking Geocentric Approach in hiring the staff. It is easier for the management to identify the right skill within the parent country. It may not take long, especially when this skill is searched in a host country.
However, it may be an uphill task to identify the right skill from the third country. The management may not have time to go to the workforce market in another country to select the right labor. For this reason, it is vital that a company ensures that before settling on this method, there are mechanisms that would help in identifying this workforce in the third country.
Advantages of Third Country Nationals
Third Country Nationals may have a deeper understanding of the host country as opposed to the parent country nationals. This may make it easier for them to appreciate and work with the cultural values and beliefs of the host country. Just like the parent country nationals, they come with a rich experience gained outside the boundaries of the host country.
This means that they have a global outlook to the business world, which is an important ingredient for success to these multinational corporations. As Carson (2008, p. 67) notes, these individuals are likely to ask for a little lesser remuneration package as opposed to the parent country nationals.
Disadvantages of Third Country Nationals
Employing this strategy in staffing subsidiaries has some demerits. TCNs may be affected by factors such as xenophobia. Such animosities may make the working environment for the TCNs not conducive. Therefore, this would make them less productive. The TCNs may also be affected by the immigration procedures put in place by the host country. The political elites of the host country may also oppose the attempts to hire TCNs. Just like the PCNs, TCNs may take time to adapt to the local environment.
Conclusion
Human resource is one of the most important asserts for any given firm. Finding the right human resource is always the ultimate goal of every firm. However, there comes a challenge for large corporations with branches all over the world. They have three methods available for them in choosing the right workforce for their overseas subsidiaries.
The first option is to employ parent country nationals to work in the subsidiaries, the second option is to employ host country nationals, and the third option is to employ third country nationals. In this case, a firm employs individuals who are nationals of neither host country or parent country. The three options have their merits and demerits.
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