VARIOUS OPTIONS IN TERMS OF DECIDING TALENT PIPELINEPROCESS EMPLOYED BY MULTINAITONAL CORPORATION

 

INTRODUCTION

 

With thedevelopment of multinational corporations, the demand of the talent isincreasing, and it is special for international assignment. The problem isaddressed. How do multinational corporations decide talents to deal withinternational assignments? The following article discusses and evaluates thevarious options about the process that multinational corporations develop theirtalent pipeline. The process is to decide international Human resourcemanagement strategy, recruitment and selection, training and development,performance appraisals and compensation for the international assignments ofmultinational corporations. The article compares the advantage and disadvantageof these various options of the process. These comparisons are useful to makedecision about talent attraction, recruitment and retention for multinationalcorporations.

 

INTERNATIONALHUMAN RESOURCE MANAGEMENT STRATEGY

 

In modern society,business is no longer limited by national boundaries. More and more businessorganisations are establishing and strengthening their businesses overseas. Itis obvious that the success of international business depends most importantlyon the quality of top executive talent. Then, where do multinationalcorporations find these managers? Do multinational corporations employ themfrom outside, or do they select them from internal?

 

Generallyspeaking, international human resource management strategies or approaches arefirstly considered for multinational corporations. These strategies orapproaches have an effect on the various options in terms of staffing(recruitment and selection), training and development, performance appraisalsand compensation, motivation and reward of multinational corporations. Perlmutter(1969, cited by Harzing 1995) distinguished three attitudes of internationalexecutives as international human resource management approaches: ethnocentric(or home-country oriented), polycentric (regiocentric or host-country oriented)and geocentric (or world oriented).

 

There are someobvious differences of three approaches in terms of recruitment and select,compensation, training and development. A logical consequence of ethnocentricapproach is that multinational corporations consider only parent-countrynationals as suitable candidate for top or senior positions at headquarters andthe subsidiaries. Multinational corporations may consider the local marketrates as compensation, and training and development is little or not concernedabout cross cultural training. On the contrary, multinational corporationsusing polycentric approach believe local nationals are suitable for positionsat subsidiaries. Expatriation is rare excluding at senior level. However, alocal manager will never be considered as top or senior position atheadquarter. If expatriation is carried out, local market rates, language andcross cultural training for expatriates may be considered by multinationalcorporations. A geocentric multinational corporation will appoint managers atheadquarters or subsidiaries whatever their nationality. Then, it is essentialto offer them language and cross cultural training. Table 1 (Refer to Appendix)detailedly shows that Perlmutter (1969, cited by Harzing 1995) summarises thedifference among these three approaches toward subsidiaries in multinationalcorporations. Perlmutter’s summaries are helpful for multinational corporationsto achieve their strategic goals on specific human resource management.

 

RECRUITMENT ANDSELECTION

 

There are variousoptions to choose from such as parent-country nationals, host-country nationalsand third-country nationals when multinational corporations recruit and selectcandidates for top or senior management positions. Jaap Paauwe and Philip Dewe(1995) pointed out the ultimate choiceduring recruitment and selection depends on strategy or approach of topmanagement level at the parent organisation. The strategy or approach of parentorganisation influence itself to choose managers from which groups ofemployees. Negandhi et al (1987, cited by Borg and Harzing 1995) mentioned someof the advantages and disadvantages about choosing managers from three optionsin Table 2. (Refer to Appendix) There are obvious differences among threeselection options.

 

However, Maali H.Ashamalla (1998) asserts most often expatriates are selected from within thecorporation. The important reason is that the expatriate goes abroad in orderto fulfill the needs of the parent organisation to introduce methods ofworking, new technology or marketing methods, and sometimes to propagatecorporate culture. (Jackson,2002) The expatriate from parentorganisation can do better than host-country managers. At the same time, MalcolmBorg (1995, cited by Borg and Harzing 1995) pointed out there are many negativeaspects associated with expatriates from parent-country and third-country: highcosts, limited promotion opportunities for native managers at the subsidiaries,low morale caused by an imposed leadership style, culture shock, and high riskof failure and repatriation problems. IBM, for example, has a policy of notassigning parent-country managers to key positions and the key positions in eachcountry normally consist of local managers.  According to Malcolm Borg and Anne-Wil Harzing,it seems not to be necessary to make expatriate managers from parent-countryand third-country because of certain changing circumstances over time. MalcolmBorg (1995, cited by Borg and Harzing 1995) conclude three main reasons:firstly, the reason is that development of telecommunications and Internettechnology has greatly improved written and oral communication between parentorganisation and its subsidiary. Secondly, they consider development ofbusiness flights can help the top manager from parent organisation visit andgive the subsidiary helpful advices to solve local management about technicaland administrative special problems. Finally, Englishis used universally in business world. It has improved communication betweendifferent nationalities. In fact, it seems that expatriation is still a very feasibleapproach within MNCs. Table 3 (Refer to Appendix), the data from Tung (1988,cited by Borg and Harzing 1995), shows parent-country nationals account forbetween 29 percent and 85 percent of the senior positions in foreign country.

 

TRAINING AND DEVELOPMENT 

 

Although expatriation is related to high costs, adjustment difficulties,premature returns, repatriation difficulties and career management problems,the imporantce of expatriates in international business is well recognized(Suutari and Burch, 2001). Multinational corporations select expatriate fromparent-country or third-country to assign them to carry out internationalassignments due to expatriate’s central role as controllers, co-ordinators andknowledge transferrers. (Suutari and Burch, 2001)However, an important problemis addressed.  Then, are the expatriates’professional managerial skills and job qualifications suitable for newenvironment? With respect toquality, top management must continuously weigh professional managerial skillsand technical competence against contextual or environmental adaptiveness. (Paauweand Dewe, 1995) That is why it isimportant to train management candidates who come not only from parent-country,but also from third-country. The training of expatriates for their internationalassignments is a very important human resource management challenge. (Suutariand Burch, 2001)

 

Suutari andBurchthe (2001) point out training usually takes place before the assignmentbegins, it could also continue during the stay abroad. However, headquarters ofmultinational corporations focus on selecting suitable persons and trainingthem for their international assignments and they pay a little attention to thehost country providing training and support. In fact, the expatriates who aretrained in parent-county can not have better understanding of the localenvironment and culture than they are trained in local country. Similarly, accordingto Pucik, when training and development are reserved for the ‘elite’ fromcorporate headquarters (that is, parent-country nationals), the consequencewill be negative. (Paauwe and Dewe, 1995)The main reason is that their insightsremain limited to knowledge of the host-country market. Therefore, Suutari and Burch(2001) have developed the best know theoretical model of internationaltraining and adjustment. In this framework training and adjustment has beendivided into three facets: adjustment to work, adjustment to interacting withhost nationals, and adjustment to the general environment.

 

Compared withtraining in host country, the most obvious training needs are language skills,cross-cultural training and job-related training in parent-country.Particularly, job-related training is necessary in host country. For languageskills training, the statistics show Within the European context, language training isvery common, and for example, 85 per cent of British and 91 per cent of Germanmultinationals, and 70 per cent of Scandinavianones provided such training to their expatriates. (Suutari and Burch, 2001) Suchlanguage training is helpful for expatriates to understand local culture.However, such training is not provided by multinational corporations. Thefindings among multinational corporations indicate that a lot of companies donot provide such training at all. In addition, pre-departure cross-culturaltraining is successful in supporting expatriates. However, it has to be takeninto account that some multinational corporations providing such trainingdefined cross-cultural training as a one or tow hour introduction to theculture, basic and survival skills. (Suutari and Burch, 2001) Obviously, such training can not have positiveeffects on expatriates. Similarly, Schell and Solomon state that, for example,a few days of pre-departure cross-cultural training can not fully prepareindividuals for every business eventuality they will encounter and thus thetraining should go on after settling in the new country. (Suutari and Burch, 2001) If multinational corporations train expatriates in hostcountry, they do feel culture shock and experience culture difference, and theycan have holistic understanding of local culture and management model.  From anotherangle, cross-cultural training is also for the host-country employees in how towork with foreign expatriates so that this kind of training could be naturallylinked to the training given to the expatriate on the specifics of a localculture and environment. (Suutari and Burch, 2001) On the other hand, if multinational corporations decideto train expatriates in host country, the subsidiary may not have muchexperience in dealing with training expatriates and they may fail to provide necessarysupport without guidance from international human resource management experts. (Suutariand Burch, 2001) In addition,social support is necessary for expatriates in the host county. A multinationalcorporation needs to keep in mind that it is sending the entire family, notjust the expatriate overseas. (Molnarand Loewe, 1997) The ability of the expatriate and familyto adapt to living in a different culture can be even a factor in determiningthe overall success of an international assignment. (Molnar and Loewe, 1997) Furthermore, Harvey and Danielle point out host countrynationals may also provide insight and information about the host culture andfeedback concerning others’ expectations of the expatriates, thereby helpingthe expatriates and their family to culturally adjust to the host country. (2001,cited by Albrecht 2001)

 

PERFORMANCE APPRAISALS ANDCOMPENSATION

 

There aredifferences between national and expatriates in similar positions. The culturedifference is considered when the management performances of expatriates areevaluated. However, day to day effectiveness is a difficult criteria to measurefor the expatriate manager. (Woods, 2003) listsome constraints of performance appraisals, and two points are more importantthan rest of them. They are organisational level attributes including theexpatriate and organisational goals interactions and degree of culturaldifference between parent and host country. (Woods, 2003) For example, the research highlighted thatAustralian managers in Singaporewere seen as unwilling to adapt to cultural differences and appeared to beunaware of cultural differences between Australiaand Singapore.(Woods, 2003) The performance problemultimately affects the long-term effectiveness of Australian managers in Singapore (Woods,2003) It is helpful for evaluating performanceof expatriate when considering culture difference.

 

On the other hand,compensation is also vital for expatriates. Adler and Bartholomew (1992, citedby Logger and Vinke 1995) point out there are many methods to compensateexpatriates, and almost all compensation methods are variations of thefollowing three systems. They are separatelythe budget system, the balance sheet or home-net system and the localgoing-rate system. These systems provide options for multinationalcorporations. However, these systems separately have advantages anddisadvantages. The budget system is subject to criticism from expatriates, andthe reason is that the budget system takes in all costs incurred by the employeein parent country and host country and the result is that the companycompletely controls the expatriates’ prescribed spending pattern. (Logger andVinke, 1995) Furthermore, checking these items is hardly feasible without anindependent company representative paying regular visits to compare localprices and needs, and the cost is very expensive. (Logger and Vinke, 1995) Comparedwith the budget system, the benefit of the balance sheet or home-net system isthat the expatriate is guaranteed his or her parent-country spending power;moreover, it results in transparent and explainable differences between thesalaries of expatriates who hold equivalent positions in different countries. (Loggerand Vinke, 1995)  And a major drawback of the system isthat it may cause large salary gaps within one and the same subsidiary,particularly between parent-country nationals and host-country nationals. (Loggerand Vinke, 1995) However, multinationalcorporations preferably use the local going-rate system if they wish to takemarket standards into account. (Logger and Vinke, 1995) Under the localgoing-rate system, the expatriate is paid according to standards in the hostcountry. This prevents the situation where junior staffs are paid substantiallyhigher salaries than the expatriate, who is compensated according to thestandards of income in the parent country. (Logger and Vinke, 1995) So far, the balance sheet system is the most commonsystem although it does not necessarily mean that the expatriates will hold thesame income position in the host country. (Logger and Vinke, 1995)

 

CONCLUSION

 

Multinationalcorporations firstly consider international human resource management strategyand the difference among three attitudes of international assignment, such asethnocentric (or home-country oriented), polycentric (regiocentric orhost-country oriented) and geocentric (or world oriented) when they decide to arrangeright talent to deal with their international assignments. The stage will havea great effect on their decisions in the further. Multinational corporationscan recruit and select right talents from parent-country, host-country andthird country in order to meet the needs of international assignments. Thesuccess of international assignment depends on recruiting and selecting talentsfrom three different groups and appropriate training and development. Throughcomparing the difference of training expatriates between parent and hostcountry, multinational corporations put emphasis on considering culture differenceand family issue during training and development. In addition, threecompensation systems, such as the budget system, the balance sheet or home-netsystem and the local going-rate system, they provide various options formultinational corporations to decide which one is suitable for corporationdevelopment.

 

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