The development of a human resources strategy is important to the long-term success of any organization looking to compete on the global scale. Development of a human resources strategy will not only help the company develop loyalty from its employees but it will also aid in creating large profits through properly educating and training managers to deal with the variety of challenges they may face in their host country.
Controversial questions arise whenever a company starts expanding internationally.
Should HR hire a parent-country nationals, host-country nationals, or mixed nationals as expatriates?
What are the strengths and the challenges of each of these approaches?
Which approach could achieve the highest productivity, the lowest cost, and a minimum failure rate?
An international company can generally break labors laws working in foreign branches into four categories; ethnocentric, geocentric, polycentric, and region/Regio centricstaffing approaches.
Large multinational companies (MNCs) that operate on an international scale run the unique challenge when it comes to preparing managers as expatriates abroad. The human resources department of these large corporations must decide on which human resources staffing strategy will work best for their organization. According toCollings & Scullion (2006) and Hussan (2013), list three approaches to international human resources management (IHRM) or global human resources management: the ethnocentric approach, the polycentric approach, and the geocentric approach. The region orRegio centric approach has been added in the 21st century (Hill & Hilt, 2017). The approach utilized will depend of the staffing policy of that MNC.
The ethnocentric approach to a human resources strategy is the belief that all management positions should be filled by appointees who share the same national origin with the company (Hill, 2011). This ethnocentric approach can apply to locations in the home country as well as subsidiaries and branch offices abroad.A firm may use the ethnocentric approach for three main reasons. Firstly, a company may feel that only managers from the home country may possess the skills to effectively manage its affairs (Hill, 2011). Secondly, an organization may implement an ethnocentric approach to preserve its corporate culture(Hill, 2011). Lastly, a company may feel only that only a manger from its home country could preserve the values and vision of the company (Hill, 2011).
For example, video game company Nintendo Co. LTD, creators of the Super Mario Bros. video game franchises have employed an ethnocentric approach to their operations in their native country of Japan. Researching the company’s history, we realize that all the men who have headed the company since its founding, have been natives to its home country of Japan.
The current president Nintendo is Satoru Iwata (Nintendo, 2011). Prior to Mr. Iwata, Nintendo was headed by Hiroshi Yamauchi whom oversaw the company for the better part of 55 years before stepping down (Kelly, 2010). Mr. Yamauchi was preceded by Sekiya Kaneda whom was preceded by company founder Fusajiro Yamauchi (Nintendo, 2011).
Therefore, it’s safe to say that Nintendo uses an ethnocentric approach regarding its operation in Japan.
It is important however to acknowledge the possible disadvantages of the ethnocentric approach. An ethnocentric approach can lead to limited advancement opportunities for the company’s managers that are working abroad (Hill, 2011). Managers can also suffer cultural myopia! Also, the company must be aware that such an approach can lead to management misunderstanding its host country’s global needs (Hill, 2011).
While the ethnocentric approach has worked for the company in its homeland, we understand why they want to embrace a more polycentric approach with its location in the United States.
The geocentric approach is used by companies that look to hire the best individual no matter the national orientation. Another way of putting it is – a geocentric approach is a staffing policy wherein an international business hires the best employees who fit important positions regardless of their nationalities (Dowling & Welch, (2004).Such a policy represents real globalized and liberalized companies that have a completely integrated global strategy.
This can benefit the company as it is considered the most efficient use of the human resources department (Hill, 2011). The geocentric approach also allows the company to develop a stable cadre of managers whom are accustomed to working in different foreign cultures (Hill, 2011). The numerous benefits of the geocentric approach allows for the company to improve the effectiveness of the company’s operations in the local economy (Hill, 2011).
The challenge which could face these companies is although they are truly globalized and liberalized, the world and counties are not. Therefore, they might face political immigration rules in many countries where they can’t hire certain nationalities in certain countries. Moreover, language and cultural barriers will be between not only home and local managers, but also between managers from different nationalities in a foreign county (Hill & Hult, 2017). In the same international business in a foreign country, a managerial team could contain French, German, Arab, and Russian members who have to connect and communicate with each other regardless of country of origin.
Nintendo has shown its commitment to diversity and the geocentric approach by hiring the Fils-Aime. After all, the company held a very ethnocentric strategy for the first 26 years of Nintendo of America’s existence. The hiring of an American national as the third president of its overseas subsidiary is evidence of the company hiring whom they perceive the best for the job. Had Nintendo continued its ethnocentric approach, they would have continued the tradition of hiring only Japanese expatriates to oversee Nintendo of America.
One of the major disadvantages to companies using the geocentric approach is the local population could hold a desire for the company to hire managers from its own country if the company has a reputation of ethnocentric strategies. Nintendo, however, avoided this conflict by hiring the American Fils-Aime in 2006.
A polycentric approach to human resources occurs when HR recruits locals from the host countries to manage the subsidiaries, while the key positions are handled from the corporate headquarters in the home country. This approach is favorable because the company is less likely to suffer from cultural myopia or it is more cost effective to the home country (Hill, 2011). The advantage of such an approach is that the host company will have tighter control over the culture of the subsidiary (Hill, 2011). Also, the host country managers will allow for better avoidance of cultural misunderstandings that can occur from an expatriate manager (Hill, 2011).
In 1980, Nintendo established Nintendo of America in New York City and began work on their portable gaming device; the Nintendo Game and Watch (Nintendo, 2011). The wholly owned subsidiary moved to Seattle in 1982 and started work on their new home video game entertainment system, the NES (Nintendo, 2011).
The head of Nintendo of America was Japanese native and grandson of the founder of Nintendo, Mr. Minoru Arakawa (Kohler, 2010). Tatsumi Kimishima replaced Mr. Arakwa as president in 2002 whom was then replaced in 2006 by current Nintendo of America President Reggie Fils-Aime (Nintendo, 2011). Though Nintendo has shown itself to be ethnocentric in its appointments in Japan, they have shown they could be more polycentric by appointing the American Fils-Aime to oversee their Nintendo of America operations.
However, there are some disadvantages that Nintendo will have to consider when using the polycentric approach. First, home country managers will have less opportunity to travel abroad and gain experience in decision managing and problem solving in diverse cultures. Secondly, Nintendo must be aware of the possibility of a gap forming between the management team of the home country of Japan and the host country of the United States.
It is agreeable that trade is an essential part of development; it increases prosperity, growth and income levels, helping other countries. Having free trade becomes a positive aspect for growth in the third world countries, since having factories overseas creates income for those countries. Since their agreement to NAFTA, Canada and the U.S. have experienced immense growth levels, specially the United States, as a country is an advocate for “free trade”. They have achieved this secondary to their open borders in order to decrease the barriers. The White House created a guide for free trade that continues to create rivalry between some countries.
In order to further create partnerships, the United States uses its influence of a giant free country, conflicting with South America and Latin America. Today, the main goal is to promote good governance and liberalism in the region and this goal is backed up by the FTAA.
The Regio-centric/region centric staffing policy is a method that help international recruitment where the people with managerial skill may be selected from different countries within the geographic region of business in progress (Popescu & Avram, 2013). Because of the satisfaction of the responsiveness of the local ideal, Regio-centric would be one of the strategies used. There are many advantages and disadvantages when it come for using the region centric or Regio-centric approach. For example, the advantages of using the region centric policy are: the cost of hiring citizens of the host-countries may be less than hiring and outsider. Another advantage is: the managers hired will do a better job in their neighbor countries that are in their region of business and often they speak the same language and have similar cultures, skills and experiences (Popescu & Avram, 2013).
Home countries may also have some great advantages; one of the major advantages is the home country can be familiar to the headquarters goals, policies and practices as to the host countries, however, one of the major disadvantage a home country may come across is the prohibitive cost in selecting the people to be train from overseas (Popescu & Avram, 2013). As for the host countries, the cost of hiring their employees will be less. However, the disadvantage managers may encounter is the difficulty of communicating with the staff in the headquarters (Popescu & Avram, 2013).
Nintendo has a long history as a company. The corporation started out as a playing card company and evolved into one of the most recognizable brand names on the planet. The company was started in 1889 and continues to grow its operations (Nintendo, 2011). On September 23rd, 2011 Nintendo Co. Ltd. Turned 122 years old (Nintendo, 2011).
Staying in business for 122 years is a testament to Nintendo’s keen eye for trends, effective team building and a willingness to evolve (Nintendo, 2011).Nintendo has shown that over last 122 years, it is willing to implement a variety of human resources staffing strategies to ensure its success. While the company has employed the ethnocentric approach in its home country of Japan, Nintendo has shown a willingness to employ polycentric and geocentric strategies in its subsidiaries abroad. Nintendo continues to be a leader in the electronic entertainment in large part because of its willingness to implement different human resources policies company wide.
A country seeks to do business in another country. The management must build a plan to enable this type of business transaction. In order to do business in internationally, a company’s human resources department must be able to analyze the culture of the country in order to set up the process necessary to hire employees and/or use the company’s own personnel. International human resources management (IHRM) plays a major part in how corporations operate when conducting business internationally. IHRM varies in how each country handles the manpower in another country. According to Hill (2015), IHRM could help in placing the right people in the position that fit the skill set and tasks required to perform efficiently.
International or global challenges/strategies using ethnocentric, polycentric, geocentric, and region-centric approaches
Ethnocentric approach involves recruiting parent-country nationals (expatriates) from the company’s home country for the key positions in global subsidiaries. Expatriates are often believed to have more interest in carrying out the strategies of the home office and make sure that the foreign offices are complying with the home headquarters’ objectives and policies. The ethnocentric approach has its advantages: effective communication, efficient coordination, direct control of foreign operations, and required level of competence. On the other hand, some disadvantages include: limiting job opportunities for host-country nationals, which can reduce productivity and increase turnover; time to adapt for parent-country nationals might be longer than expected which can lead to poor decision making; and it is more expensive to staff expatriates (Hill, 2015).
Chitakornkijsil (2010) stated that the polycentric approach consists of hiring host-country nationals to manage foreign subsidiaries, while the parent company deals with key positions at corporate headquarters. This staffing approach is very common in developed countries such as Canada and Japan, where the job market offers qualified candidates that can be easily located.
One advantage of using this approach is that the company is less likely to suffer from diverse culturalaspects. Host-country managers will not make mistakes caused by cultural misunderstandings that expatriates might be more exposed to. Another advantage is that by using the polycentric approach, a company will send a message to the host country of their commitment to the people and country.
The drawbacks to the polycentric approach include: host-country nationals might put local interests over the company’s interests; host-country managers will have limited chances to move up in the foreign subsidiaries; and language barriers, national loyalties, and other cultural differences can come in between the host-country and parent-country nationals (Hill, 2015).
The region-centric approach is applied when several foreign subsidiaries within a geographic region work as a unit. These foreign subsidiaries work with a fair amount of independence from the home headquarters. The region can consist of countries and employees can transfer between the subsidiaries, which includes moving up to key positions at the regional level but will not be able to compete for jobs at the home headquarters.
Failure of Inertia
Hill (2015) informed that using the polycentric approach can lead to failure of inertia. This approach can create a communication gap between host-country nationals in the foreign subsidiaries and the parent-country nationals in the headquarters as stated previously. The lack of employee transfers from home to host countries, and vice versa, can create a division between the corporate headquarters and foreign subsidiaries. This division can produce a “federation” of quasi-autonomous foreign subsidiaries with its own strong national identity. This federation will be reluctant to accept changes such as shifting from a strategic posture to another.
The “right fit” for a global company today
In my opinion,the best staffing approach for a global company today will be the geocentric staffing policy. Hill (2015) stated that other things being equal, this policy seems the most attractive. The main reason is the efficient and effective use of the firm’s human resources by hiring the best and most adequate people for key positions throughout the organization, regardless of nationality. The competitive advantage of any firm is created by its human resources. Human resources help build a strong corporate culture and an informal management network. In addition, the geocentric staffing policy enables a firm to develop a pool of international executives with international experience and contacts across borders. The geocentric approach also recognizes each part (subsidiaries and headquarters) contributes equally to the organization and it is well suited to both global standardization and transnational strategies (Hill, 2015).
Hill (2015) explained that in recent years there has been an increase in adoption of a geocentric policy by multinationals. For example, Japan’s Sony Corporation broke tradition by putting a non-Japanese person in the chairman and CEO position for the first time in 60 years. This person was Howard Stringer, a Welsh-American businessman. Another example shared by Hill was that of India’s Tata Group; a global conglomerate with American and British executives.
An examination of Samsung, handles human resources overseas. Samsung Group and Samsung Electronics approach to human resources is highlighted as well as the challenges and/or strategies of the approach of“the right fit” for Samsung in regard to IHRM.
Samsung Group and Samsung Electronics is a South-Korean corporation Samsung Group and Samsung Electronics is one of the leading technology and semiconductor corporation in the world. Samsung Group and Samsung Electronics was first known for semiconductor business and later went on to develop more products for consumers such as appliances and mobile technology. “Samsung was founded in 1938 by Lee Byung-Chull as a trading business” (Bracetti, 2013). Imagination and innovation has been at the forefront of Samsung Group and Samsung Electronics collaborations and inventions (Samsung, 2015). Samsung Electronics has been in business for at least 75 years.Samsung Electronics personnel spans many countries but the main headquarters is in Korea.
For Samsung Electronics to benefit from global business, it requires management to be able to inspire the progression, worth, and production of the firm’s human resources by attempting to achieve the goals set in place. According to Hill (p. 570, 2015), “the strategic role of HRM would be dependent upon the following examples:
- Compensation practices may vary from country to country, depending on prevailing management customs;
- Labor laws may prohibit union organization in one country and mandate it in another; and
Samsung Electronics IHRM must be able to establish the guidelines needed to be able to do business in another country using their own personnel and/or the personnel hired in the other country. When HRM does the hiring of personnel, executive management would have to consider what it would entail for that culture.
Samsung Group and Samsung Electronic is a corporation that operates on an ethnocentric staffing policy. Ethnocentric staffing policy is in place when there is no one qualified enough to hold upper management positions; a way that a corporate culture maintains; and transfer core competency to foreign operations to produce the desired results (Hill, p. 572-573, 2015). Though Samsung Group and Samsung Electronics determination is for growth and corporate citizenship, the overall corporate setting intel’s.
The one that could lead to failure of inertia is the polycentric staffing policy. The polycentric staffing policy has its setbacks such as language, loyalty, and differences in culture (Hill, p. 574, 2015). The setbacks could hurt a corporation’s business transactions and economy of the country. IHRM must be able to value a country’s interaction regarding the country’s belief and value system with business in a big way. By not establishing a HRM system specific to the country their doing business with, Samsung Electronics would need to build a strategic that aligns not only with their business culture but the public culture of the country they will be working with.
The “right fit” for a global company today is the geocentric staffing approach. The geocentric staffing approach will utilize the resources within an organization without regard of nationalities (Hill, p. 574, 2015). Most corporations currently promote from within because the employee has invested time into the corporation which saves the organization money and time in staffing, interviewing, and training.
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