Differences Between International and Domestic Staffing

Recruitment and Selection in Multinational Firm – Why International Staffing is different from Domestic Staffing?

Introduction

“One of the main issues facing the development of the global companies has always been to find the right balance between the local autonomy between subsidiaries and the control of the corporate headquarters.” – Maral Muratbekova-Touron (2008)

Internationalization of the firm

Today the impact that multinational companies’ foreign direct investment has on the growth of the world economy is even more important than that of international trade (Harzing, 2004a). Therefore the managers handling international operations must function well across the cultural borders (Dowling and Welch, 2004). Because of this managing the human resources of a company effectively has become essential in order to gain competitive advantage for the global company (Phatak, Bhagat and Kashlak, 2005).

For most MNCs finding suitable candidates for international projects is a major challenge for the human resource department (Black et al., 1999). An International connection brings out various risks and much of it comes from the threat of expatriate failure (Phatak et al., 2005). The failure of an international project has wide spread consequences on effecting operations in host country (Harris and Brewster, 1999). Therefore the expatriate manager deals with enormous pressure to succeed in mission (Wilson and Dalton. 1998). The ‘right person’ for an international assignment is found only after a thorough job analysis, market and personality traits of the prospective candidate (Tung, 1981), and finding the right person decreases the risk of expatriate failure (Dowling and Welch, 2004).

Staffing failure is more often connected to problems with cross-cultural adjustment and lack of technical skills (Harris and Brewster, 1999). According to Scullion and Collings (2006) the reasons as to why MNC still rely mostly on technical competency as international assignments are concerned with the filling of the roles or positions. It is also to be noted that interpersonal and cross-cultural skills are difficult to recognize and determine. The global staffing decision can, according to Dowling and Welch (2004), be understood by reviewing actual selection process. Research has showed that MNCs generally recruit parent country nationals (Harzing, 2004) while the main reason for expatriate failure is connected with cross cultural adjustments (Black et al., 1999).

In view of the above, the main purpose of this study is to gain an understanding of the differences in domestic and international staffing and this shall be addressed by following research questions:

Why and how international staffing is different from domestic staffing?

What is the reason for growth in importance of International Staffing?

How recruitment and selection strategies can be advantageous in the right acquisition of Human resources?

Literature Review

Existing research and theories on the dissertation topic will be reviewed in this section below.

As the primary focus of this dissertation topic is Global Staffing in terms of recruitment and selection so it is important to consider the evolution of IHRM in this regard. Companies operating in the international business environment are faced with a great variety of cultural and institutional variations which make managing in a multinational context particularly complex (Doz and Prahalad, 1986). Significantly, managers of multinational corporations (MNCs) are increasingly realising the importance of HR practices in ensuring the profitability and viability of their business operations. While research suggests that many firms continue to underestimate the complexities of managing human resources across borders which often results in poor performance in international operations (Dowling and Welch, 2004).

Differentiation between HRM and IHRM and emergence of HRM

Despite some similarities between operating in the domestic and international business environment, there is growing recognition that IHRM is distinctive from HRM (Dowling and Welch, 2004), and there is growing support for the argument of Evans et al. (2002: 14) that ‘in the global era the most relevant insights into management processes will come from studying human resource management in an international context’.

The main major factors which differentiate domestic HRM from International HRM are at the outset complexities of operations in different countries (different cultures), and the employment of different national categories of workers. On the one hand where domestic HRM is involved with employees within only one national boundary, IHRM, on the other hand, deals with three national or country categories: the parent country where the firm is usually headquartered; the host country where a subsidiary may be located; and other countries which may be the source of labour, finance or research and development. In addition, there are three types of employees of an international firm: parent country nationals (PCNs), host country nationals (HCNs) and third country nationals (TCNs). (For example, Citibank, headquartered in the USA, might recruit some Australian managers to work for them in Japan.) There is no consensus about the definition of IHRM although most studies in the area have traditionally focused on the area of expatriation (Brewster and Harris, 1999).

Importance of Recruitment and Selection

It is important to examine expatriate failure and adjustment as the high cost of failure in both economic and human terms highlights the importance of recruitment and selection.

Global staffing is thus one of the critical issues faced by multinational corporations with regard to the employment of home, host and third country nationals to fill key positions in their headquarter and subsidiary operations. Thus our conceptualization not only concerns the transfer of PCNs to subsidiary operations, as is implied in traditional definitions of expatriation, but also includes staff flows in other directions. Hence it is imperative to know and find out how recruiting and selecting staff for international assignments play an important role in enabling MNCs to participate efficiently in international business.

There are three specific areas of country differentiation that international HR managers must be aware of:

The type of labour legislation – which varies from country to country in terms of scope , whether it conveys an employer or employee bias, and in particular areas of deficiency in the behavior of individuals, organizations and institutions. The scope of labour legislation and associated collective agreements and custom or practices varies markedly. For example, some constitutions convey rights in relation to appointment.

The type of labour market – There are marked differences in countries in terms of labour market. Germany, Japan, France and Switzerland generally noted for internal labour markets and recruitment here is focused on specialized entry points at low levels followed by promotions based on internal assessment. Although Internal labour markets are considered to have the benefits like improved morale, commitment and security amongst employees, competencies and accrued knowledge, more specialized HR skills around dedicated HR points (such as graduate recruitment), the downturn is that there can be high levels of political behavior, informal ‘glass ceilings’, complacency and structural shocks when market and technological changes force whole vocational system for a significant overhaul of HR system.

The advantages of external labour markets in this context is that it gives an opportunity to bring new blood as part of culture-change processes, insights into competitor capabilities and the ability to respond in the equal opportunities issues more visibly. Examples are Britain, USA, Denmark, The Netherlands and HongKong etc

The recruitment methods – Recruitment occurs through both formal and informal methods. Informal methods rely on the contacts of existing employees or on people just applying. International differences in the use of informal recruitment are substantial but it is widespread throughout the world, especially in developing countries.

The selection Process for International Managers in Foreign Markets

The state of mind of an organization, as described by Perlmutter (1969) motive for international transfer, affects an organization’s selection for prospective and potential candidates. Tung (1981) argue that it is of utmost importance that a contingency approach to be applied in the selection process as strategies that only focus on one particular criterion, (not taking environment and task in consideration), has proven to reach little success.

According to Tung (1981) the first step in selection process is to identify projects that company will require to handle. After that it is to be decided as to who would be most suitable for the job, a parent country national – host country national, or third country national. If PCN r or TCN is to be hired, the search should be conducted among those who are already present in the operations in the international or foreign market and are within the competing industries.

After this the, according to Tung (1981), the selectors need to determine the degree of interaction with the host market the new manager has or will require to do, this is done to establish the importance of relational abilities. Another important factor is that the recruiter or selector must assess the willingness of the managers for going abroad. If there are great differences between the culture of the parent company and host country then the selection decision should rely to a great extent on relational abilities, if not then factors relating to actual assignment will be of more importance.

Harris & Brewster’s Typology of international manager-selection system

Harris and Brewster (1999) identified four different variations of the selection system for international managers based on various variations. The first two variations relate to nature of selection procedures. The expatriate management literature identifies yje use of both ‘open’ and ‘closed’ selection procedures. An ‘open ‘ system is one in which all vacancies are advertised and any one with appropriate qualifications and experience may apply and applicants are interviewed with greater or lesser degrees of formalized testing. Selection decisions are taken by consensus of all selectors. In contrast, a ‘closed’ system is one in which selectors at corporate headquarters choose, or nominate to line managers, suitable candidates. In this situation, only one manager may be involved in the selection process at head office. The candidate is informed only when agreement about acceptability has been reached between head-office personnel and line manager.

The second two variations of the selection process relate to the existence of formal and informal systems operating at organizational level. Substantial evidence exists of the mediating effects on the formal organizations systems of informal mechanisms, leading to unintended outcomes, In this way four distinct categories are derived depicted below:

FORMAL

INFORMAL

OPEN

Clearly defined criteria

Clearly defined measures

Training for selectors

Open advertising of vacancy (internal/external)

Panel discussions

Less defined criteria

Less defined measures

Limited training for selectors

No panel discussions

Open advertising of the vacancy

Recommendations

CLOSED

Clearly defined criteria

Clearly defined measures

Training for selectors

Panel discussions

Nominations only (networking/reputation)

Selector’s individual preferences determine criteria and measures

No panel discussions

Nominations only (networking/ reputation)

Figure 1 Typology of international manager-selection systems (Brewster and Harris)