CASE STUDY – MODULE XVIII

ORGANIZATIONAL DEVELOPMENT

Shiwanthie Wijesuriya
PQHRM/17/72

Professional Qualification in Human Resource Management

Institute of Personnel Management, Sri Lanka.

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 • Question 1
Explain The Growth Of Interest In Staffing Issues In International Firms

Recruitment and Selection; Staffing, is the processes through which an organization

takes in new members. Recruitment involves attracting a pool of qualified applicants for the
positions available. Selection requires choosing from this pool the candidate whose qualifications
most closely match the job requirements.

In companies that function in a global environment we have to distinguish different types of

employees. They are classified as one of these three types:
• Parent Country Nationals.
The employee’s nationality is the same as the organization’s.

• Host Country Nationals.

The employee’s nationality is the same as the location of the subsidiary.

• Third Country Nationals.

The employee’s nationality is neither that of the organization nor that of the location of
the subsidiary.

Staffing, as a function in International Human Resource Management, becomes increasingly more

complex. There are staffing issues that international firms confront that do not exist in domestic
environment or are complicated by the international context. Basically internationalization touches
on increasing numbers of managers and professionals. It also puts a premium on certain
competencies or skills.

International business comes in many forms. It includes domestic firms exporting, firms with
subsidiaries abroad, alliances ranging from joint ventures with shared equity to much looser
arrangements to pool resources to purchase, market, research or produce; and international
companies of varying complexity and reach.

• Rapid increase in global business activities; Globalization

With the spread and diversity of international business and as many firms are developing nations and
transitional economies become more involved with global activities, the level of competition are
increasing day by day. The rapid increase in global activities: Globalization, staffing in MNC or
international firms becomes much important. With the emerge of globalization, the whole world has
now become a village. Even though globalization leads to many arguments, it adds many values also
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in the business context. With globalization, companies can attract any nationality that best fit to their
organizational culture and requirement without much hassle, as the access to world-wide is easy.
Therefore the labour market, specially international labour market, becomes much complex.
Attracting the right talent and right attitude people also therefore becomes much complex.

However, it is a well accepted and proven fact that the strongest competitive advantage that any
company may have is its Human Resource. HR may become a competitive advantage if it adds a
value to the organization process only. This may be done only with the Right Person at the Right
Place at the Right Time. Organizations need to attract the required talent and retain the best talented,
value-added people in the organization for its survival and growth. This should be facilitated by a
good staffing policy only.

Also with the globalization direct investment opportunities always exists. People may invest only on
the businesses where their resources invested will get the maximum return to them. Even though
organizations may run with machinery and technology, the constant and unique business value
adding can be done through Human Resource only. For this, having a talented work pool is much
important. Attracting the required talent and retaining them therefore becomes important in order to
attract investors to the business.

Development of Human Resource in the global competition therefore has become very complex and
equally much important for the multi national business growth and existence.

• Growth in Merges and Alliances of Businesses

A contributing element and response to increase of global activities and competition is
the increase in the number of merges and acquisitions and the trend of alliances. Merges and
Acquisitions may lead to create large scale multinationals through cross-border. This also creates an
environment where a special and intense eye should be placed in staffing. With the merge or
acquisition, the activities involved may become complex and no. of activities also may increase, as
they involve with cross-border level. To deal with cross-borders, employees may have to have skills
and competencies to suit the business environment. Therefore acquiring people who have the
required skills and competencies becomes much important for the growth of the merge. This creates
much gravity in the staffing.

• Organizational Restructuring

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 As a consequence or growth and changes in the firm’s business environment, firms
constantly re-align their operations and activities to support those changes in strategic direction.
Large scale retrenchments and restructuring are very much experienced among multinationals in the
present business environment. Under this, organizations outsource activities, sell under-performing
units, engage in plant rationalization, integrate acquired operations and also merge businesses.

These activities directly link to the staffing of the organization. With the present economic recession
prevailing in the world, retrenchment becomes the best way of being cost-effective. Under this the
first step that many organizations take is freezing head-hunting. This may prevent the company
acquiring the right and required talent in. Sometimes the organizations may have to repatriate and
acquire local managers and staff to run the subsidiaries to cut down the cost. However, with
whatever activities involved, organizations should make sure they retain their value-adding people in
for the existence and survival of the business. Therefore under the organizational restructuring
scenario, staffing also has a bigger and important role to play.

• Advances in Technology and Telecommunication

The rapid example for this is the adoption of the Internet. Although the anticipated
contribution of Internet, to developing new ways of conducting international business, has not yet
returned, the advancement of technology leads to many changes in the business context. With the
merges and acquisitions of business across time zones and national borders, constant communication
via telephones and e-mails have assisted the managers in multinationals in handling of crisis and
situations in a greater way. Therefore in staffing to multinationals, firms should make sure getting
the right competent people in whom can deal with all these activities.

Also the organizational processes and procedures have enhanced with the technology by being
computerized, which has lead to improved production and working conditions. Therefore these
changes have implications for the way in which people are staff and managed those who are
involved in the multinationals.

• Shortage Of Required Skills And Competencies

Shortage of required skills and competencies of senior managers in international firms
also leads to place an importance in staffing in international scenario. Senior Managers play a vital
role in any organization, in leading and directing the employee team towards the achievement of the
corporate objectives. Thus if they lack of any skills and competencies which are essential in the
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international arena, this becomes a reason for attracting new set of people to fill the skill gap or
developing the necessary skills through trainings. This also stresses the importance of staffing the
right people specially to international businesses.

Basically there are four Multi National Enterprise approaches to managing and staffing their
business units. They are Ethnocentric, Polycentric, Geocentric & Regio-centric. The staffing
approach may based on top management assumptions upon which key product, functional and
geographical decisions were made. This may be supported with the aspects of decision-making,
evaluation and control, information flow and complexity of organization.

In a company with an ethnocentric approach, parent country nationals usually staff important
positions at headquarters and subsidiaries. With a polycentric approach, host country nationals
generally work in foreign subsidiaries while parent country nationals manage headquarters positions.
An organization with a geocentric approach chooses the most suitable person for a position,
regardless of type.

In its approach to recruitment and selection, an organization considers both headquarters’ practices
and those prevalent in the countries of its subsidiaries. Local culture always influences recruitment
and selection practices, and in some countries, local laws require a specific approach.

In choosing the right candidate, a balance between internal corporate consistency and sensitivity to
local labor practices is the goal. Different cultures emphasize different attributes in the selection
process. When making a hiring decision, people in an achievement-oriented country consider skills,
knowledge, and talents. Although "connections" can help, companies generally only hire those with
the required qualifications. Any organization selects its employees whose personal characteristics fit
the job.

• Question 4

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 What Are The Main Advantages And Disadvantages Of An Ethnocentric Staffing
Approach?

An Ethnocentric approach is individuals from the home country manage operations

abroad; the key management positions in an international business are filled by parent-country
nationals. Firms pursue this policy only for top managerial posts in their international operations
because at lower levels, it is impractical.
Firms pursue an ethnocentric staffing policy for three reasons:
• Believes there is a lack of qualified individuals in the host country to fill senior management
positions
• Sees an ethnocentric staffing policy as the best way to maintain a unified corporate culture
• Believes the best way to create value by transferring core competencies to a foreign operation
is to transfer parent country nationals who have knowledge of that competency to the foreign
operation

• Advantages
a. Lower Labor Costs
Recruiting home country national always lead to low cost. Getting people from other
countries make the cost involved high as their total compensation package has to cover
lot of areas. The cost involved in interviewing, screening and activities such as
reference checking and employee tests become much easier when the people are easily
contactable and reachable with the country limits itself.

b. Demonstrates trust in local citizens

A policy of recruiting locals for senior positions lead to create a trust feeling among
the locals that the firm is giving priority for them in offering jobs.

c. Increases acceptance of the company by the local community

Recruiting locals for starring requirements of the corporate also leads in creating a
good-will of the company among the general public. This makes the corporate
accepted among the community at a high rank.

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d. Maximizes the number of options available in the local
environment
With recruiting of local people for the staffing requirements the corporate spreads the
job opportunities to the local environment.

e. Re-create operations in the image of home-country operations.

Lead to spread and create home country philosophy among the subsidiaries also.
Expatriate managers infuse branch offices with the corporate culture; this is important
for a strong set of shared values in each international office implementing global
strategies. The image of home-office operations can ease the transfer of special know-
how. Some firms feel managers sent from the home country will look out for the
company’s interests more than host-country natives.

f. Cultural similarity with parent company ensures transfer of

business/management practices

g. Organizational control and coordination are maintained and

facilitated / Permits closer control and coordination of the subsidiaries
Subsidiary control and coordination with the head quarters can easily manage and
facilitated with the acquiring of parent company nationals who are with the corporate
vision and values.

h. PCN may have the special skills and experience in doing the job
Subsidiaries may easily manage to achieve the corporate vision by recruiting parent
company nationals. These employees may embed with special skills and competencies,
specially manufacturing skills, that HQ needs to ensure of achievement of corporate
objectives.

i. Assurance of subsidiary compliance with corporate objectives,

policies, etc.,
Involvement of parent company nationals in subsidiaries makes sure that the
subsidiaries follow the common path of the corporate in aligning with the corporate
objectives, policies and procedures.

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 j. May lead to reduce risk involved in the early stages of
internationalization
For multinationals having a own person, in whom they can place a degree of trust to
‘do the right thing’, can moderate the perceived high risk involved in foreign activities.

k. Able to maintain a unified country controls

With utilization of parent country nationals where the Head Quarters of the MNC is
situated, corporate may easily maintain a unified mechanism of controlling and
coordinating among the HQ and the Subsidiaries.

l. May fill any competency gap in Senior Management level

Locally qualified people are not always available. In developing and newly
industrialized countries, there is often a shortage of qualified personnel resulting in a
highly competitive local labor market. Utilization of parent country nationals specially
for Senior Management level may fill any gaps and lack of competencies of the
subsidiary countries as their involvement in achieving corporate objectives is very
high.

m. Companies that operate in highly nationalistic markets and those

worried about industrial intelligence use an ethnocentric approach.

• Disadvantages
a. Makes it difficult to balance local demands and global priorities

b. Leads to postponement of difficult local decisions until they are

unavoidable, when they are more difficult, costly than they would have been if
implemented earlier

c. May make it difficult to recruit qualified personnel

d. May reduce the amount of control exercised by headquarters

e. Relocating managers from the home country is expensive.

Bonuses for relocating, plus relocation expenses for families, increase the cost of a
manager. Cultural differences and long periods away from relatives and friends
contribute to the failure of international assignments.
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f. Can create barriers for the host-country office.
Home-country managers in the host country encourage a “foreign” image of the
business; lower-level employees feel that managers do not understand their needs.
Expatriate managers may not overcome cultural barriers or understand the needs of
their local employees or their local customers.

g. Limit the promotional opportunities if Host Country Nationals

May lead to reduce productivity and increased turnover among the group

h. Adaptation to home country culture may take a long time.

Expatriate mangers adaptation to host country often takes a long time, during which
PCNs often make mistakes and poor decisions, as the culture, systems and work
environment of the host country is not familiar to them.

i. PCN may impose an inappropriate HQ style

j. Creates problems of adaptability to foreign environment and

culture

k. May lead to employee dissatisfaction as the compensation for

PCN and HCN are different
When the compensation packages are compared the often considerable income gap in
favour of PCN is viewed by the HCN as unjustified. This may lead to dissatisfaction of
host country managers.

l. Increases the »foreignness« of the subsidiary

m. Involve high transfer and salary costs / Expensive to maintain

Generally expatriates are very expensive to maintain in overseas locations. Their total
compensation package includes the overseas traveling of not only self but with the
family, accommodation, medical, educational requirements, etc.,

n. May result in personal and family problems

o. Leads to high failure rate

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 p. Has disincentive effect on local-management morale and
motivation
q. May be subject to local government restrictions

• Question 5
What Are The Main Advantages And Disadvantages Of Polycentric Staffing
Approach?

The Polycentric approach is in direct opposition of ethnocentric staff approach. In the

company that applies this approach, the assumption is that each country is different from all the
others and that the subsidiaries in each country should develop locally appropriate practices under
the supervision of local managers.

MNC’s which adopts Polycentric approach of staffing treats each subsidiary as a distinct national
entity with some decision making autonomy. Subsidiaries are usually managed by local nationals
(HCN) who are seldom promoted to positions at the Head Quarters.

Most companies use expatriates only for key positions as senior managers, high-level professionals,
and technical specialists. Since expatriates tend to be very costly, it makes little financial sense to
hire expatriates for positions that can be competently filled by foreign nationals. In addition, many
countries require that a certain percentage of the work force be local citizens, with exceptions
usually made for upper management.

• Advantages
a. Gives employees a multinational orientation through experience
at parent company

b. Establishes a pool of internationally experienced employees

c. Easily eliminate the barriers and avoids adjustment problems

Recruiting local managers to control and manage the subsidiaries makes the business
process easy, as these local staff needs not to send under expensive cultural awareness
training programmes and easily adjust to the corporate culture along with the country
culture. This leads to eliminate many barriers exists in foreign operations.

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 d. Allows corporate to take a lower profile in sensitive political
situations

e. Places managerial responsibility in the hands of people familiar

with the local business environment.
f. Managers with deep cultural understanding of the local market
can be an enormous advantage.

g. They need not overcome cultural barriers created by being an

outsider, and they have a better feel for the needs of employees, customers, and suppliers.

h. Eliminates the high cost of relocating expatriate managers and

families.

i. Firm is less likely to suffer from cultural myopia

j. Less expensive to implement / Reduced cost of value creation

• Disadvantages
a. With natives of each country managing, a company becomes a
collection of national businesses.

b. For a firm following a global strategy, a lack of integration,

knowledge sharing, and a common image may negatively affect performance.

c. Host country nationals have limited opportunities to gain

experience outside their own country and thus cannot progress beyond senior positions in
their own subsidiaries.

d. A gap can form between host country managers and parent

country managers

e. Lack of management transfers can lead to lack of integration

f. Difficult to transfer core competencies or realize experience curve

and location economies

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 • Question 6
Why Do Firms Pursuing A Broadly Polycentric Approach To International Staffing
Continue To Use Expatriates To Manage Their Foreign Operations? Identify And
Discuss The Main Reasons.

Expatriates are the citizens of one country, who are working in subsidiaries of
multinationals, which are in foreign countries. In short Expatriates are people who leave their own
country and work in some other country. These expatriates are sent to a foreign country by MNCs
with the intent to control their operations and to provide technical and administrative services
basically.

In an increasingly changing business world, MNCs establish subsidiaries and enter into joint
ventures and strategic alliances to create a presence in international competition and to take
advantageous production resources. Many opportunities and challenges of the globalizations
processed are creating the need for Expatriates to locate managers and skilled workers in
international locations.

However, the task of expatriate employment is complicated by profound differences between

countries in labor markets, culture, legal and economic systems. In the international environment,
the quality of expatriate employees and management seems to be even more critical than in domestic
operations.

The reasons to use Expatriates in international business context can be identified as follows;

• To Complete Strategic Tasks

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 As organizations become globalize, there is an increasing challenge to use expatriates
on international assignments to complete strategically critical tasks. Expatriates from parent
company nationals may have a wide and a thorough knowledge on the strategic business aspects of
the MNC better than the local staff. Therefore they may direct and lead the subsidiary team in order
to achieve organizational objectives as one unit.

• For Controlling Purpose as an agent of Direct Control

Multi National Corporate MNC’s use expatriate staff to have a better controlling and
coordination among the subsidiaries and the head quarters. This may be regarded as a mechanism of
bureaucratic controlling, where the primary role is that of ensuring compliance through direct
supervision.

If the subsidiary practices a Polycentric approach in staffing, they may have many locals working in
the business unit. This may create a localism in the subsidiary which may lead to deviate from the
corporate alignment. Therefore Expatriates may be used as controlling agents in the subsidiary so
that the alignment of the subsidiaries to the corporate objectives and path is assured. Firms try to
incorporate the headquarters' culture into the foreign operations, which in some cases may create
cultural problems. Especially MNCs tend to demand administrative and financial control in their
foreign operations through using expatriates in order to enable strategic objectives for local
operations to be achieved.

• To Enter New Markets in Global Business

Multi National Corporations (MNCs) use expatriates, not only for corporate control
and expertise reasons in vital global markets, but also to facilitate entry into new markets.
Expatriates from a third country may be used as a link to the third country so that new business
opportunities may be identified and the MNC can diverse their business into new markets.

• To Develop Management Competencies

Expatriate staff is also used to develop international management competencies.
Expatriates always have more skills and competencies than the locals, merely by working for several
countries and business environments. Therefore these expatriates can be used as trainers to develop
international business competencies among the locals in the subsidiaries.

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While it is recognized that Human Resource Management activities are more complex in the
international environment, there is also increased evidence to suggest that the management of
international human resources is increasingly being acknowledged as a major determinant of success
or failure in international business. For renowned and established MNCs, failure to be able to
communicate and coordinate their activities in international business has the potential to plunge
them into a crisis. Therefore, non-usage of expatriates or expertise knowledge and skills may
threaten the organization’s performance and capabilities in the international arena. Therefore, what
ever policy is in action for staffing, many MNC’s use Expatriate staff for the key positions in their
subsidiary business processes.

• To Transfer Of Technology/Filling Positions

Multinational & International companies send/use the expatriates abroad in order to
transfer their technology to the foreign subsidiary. I.e. in countries where qualified people are not
available, companies send the PCNs to fill out the positions.

• To Create Opportunity For International Experience And Management Development

Multinational companies find international experience highly important before
promoting their employees. Foreign transfers are here important in order to learn foreign cultures
and environments. In such situations qualified HCNs are available but managers are still transferred
to foreign subsidiaries to acquire knowledge and skills.

• To Secure Organizational Development

Expatriates can be used for transfers which can take place from headquarter to
subsidiary, from subsidiary to headquarter, or from subsidiary to subsidiary. This leads to interaction
between managers of different nationalities. Therefore this link brings the transfer of institutional
knowledge, work practices, crisis management experience, etc., which leads to overall
organizational development.

• To Socialize the Subsidiary

Expatriates can be used as an agent of socialization in the subsidiaries. In the usage of
expatriates there is an implicit expectation that expatriates assist in the transfer of shared values and
beliefs. Through expatriates corporate attempts to instill corporate values and norms ritualized in the
form of certain expected behaviors often have negative results at the subsidiary level.

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International assignments always assist in knowledge sharing and competence transfer and
encourage adoption of common work practices, aspects of which may comprise elements of
corporate culture. In this the expatriates also play a vital role in aligning all these with the corporate
strategic path.

• To Build Network
International assignments are always viewed as a way of fostering interpersonal
linkages that can be used for informal control and communication purposes. Naturally as employees
move between various subsidiaries their network of personal relationships changes, leading to
building relationship webs. In this scenario, expatriates can be called as Spiders. This link or web
may bring additional value to organizations in various points of views.

• To Bridge Organizational Contexts As Boundary Spanners

Expatriates can be used as Boundary Spanners for activities such as gathering
information that bridge internal and external organizational contexts. This is facilitated by
expatriates as they can collect host country information, act as representatives of their firms in the
host country and can influence agents. For an example attending a social function at a foreign
embassy can provide the expatriate with an opportunity to build a network, gather market
intelligence and promote the firm’s profile at a high level.

MNCs of all sizes, that have subsidiaries in foreign counties, are facing the problem of training,
selecting, compensating as well as the reintegrating expatriate managers. Despite the problem, these
expatriate managers are contributing significantly to the achievement of the MNC's goals and as a
result, their importance should not be overlooked.

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 • Question 7
Identify The Most Important Roles For Corporate Human Resource Management In
A Highly Decentralized International Firm.

Human Resource in multinationals becomes complex as the activities involved with the
internationalization is differ to what is needed in domestic environment.

There are number of activities of the corporate HR department in the international MNC context
discernable. These focus particularly on high-grade management positions and high potential staff
worldwide, managing issues such as employer branding, talent development, performance
management, project team-working, and rewards and succession planning to develop a cadre of
international managers, etc.,

However, in considering the situation of a Corporate Human Resource department, the activities
may differ on the autonomy of the corporate, i.e. whether the corporate is governed by centralized
management or decentralized management.

• Champions Of Processes
In general, Corporate HR plays a significant role in monitoring the implementation of
corporate HR policies throughout the subsidiaries. This differs from centralized operation to
decentralized operations. In a decentralized scenario HR just oversee the processes of the sub units
through small HR departments or units established in the sub-units. HR can thus become
“champions of processes”, build the commitment of top management, providing training for

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managers, and monitoring these processes. These activities are done through the HR departments in
the units itself and the Corporate HR facilitates and keep track via the small HR units.

• Guardian Of Culture
HR has a social responsibility to ensure future leaders are sensitive to and equipped to
deal with global challenges. This creates a new role for HR as ‘guardian of culture’, overseeing the
implementation of global values and systems. This is much easily done in a decentralized scenario as
the host country culture and business environment are easily and well experienced and identified by
their own HR department so the developing of future talents are done without much hassle.

The extent of decentralization of the organization structure impacts on the uptake of these activities.
Decentralized companies have a smaller corporate head office, hence a limited number of corporate
HR executives with a more limited range of activities, but still with the primary focus on an elite set
of top management and expatriates.

• Influencing Operating Units

In a Decentralized HR department the key activities involve with influencing operating
units to support international assignments. The Corporate HR department in this case keep tracks
with the subsidiary HR units processes and thus lead and direct the HR units to apply and follow the
correct strategies to be used in aligning subsidiary activities to achieve the corporate objectives.

• Effective Political Influencer

Decentralized working environment result in creating a less strategic role for HR and
more reliance on informal and subtle management processes. Particularly in this environment, there
is thus a need for HR to become an “effective political influencer” to be able to manage the internal
labour market for global managers.

• Network Leadership
Network leadership is a further requirement for HR: having an awareness of leading
edge trends and developments (being well networked internally and externally), the ability to
mobilize the appropriate resources (bringing people together to work in project teams), and a sense
of timing and context (sensitivity to what is going on at both local and global levels).

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The stage of internationalization also has an effect on the required HR role. There are three
progressive stages of HR roles:
• The Builder
Building appropriate HRM basics at the start of the internationalization process. This
may be done in a very practical manner with the small HR units linked to the corporate HR
department. In this the subsidiary HR departments may develop the policies and procedures aligned
to the corporate strategies and develop practical action plans to suit the host environment.

• Change Partner
Realigning HRM to meet the needs of the changing external environment as the
company increases its overseas operations. With the constant and regular coordination with the
corporate HR this may be achieved.

• The Navigator
Developing the capabilities of the organization and its people, managing the balance
between short-term and long-term, global integration and local responsiveness, change and
continuity in the global environment. Subsidiary HR units should develop the global strategies in a
manner to suit the host environment.

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 • Question 8
Outline The Benefits Of Seeking To Develop Host-Country Managers Through
Developmental Transfers To Corporate Headquarters.

International assignments are always recognized as an important mechanism for

developing international expertise. International assignments lead in creating management
development-individual development and also organizational development.

• Individual Development of Host Country Managers

Host country managers, as Expatriates to Headquarters can be compared with job
rotation; a management development tool which provides employees with opportunities to enhance
their abilities by exposing them to range of jobs, tasks and challenges. This definitely leads to
individual development of managerial skills. These developed skills of host country managers may
overcome their underperformances and learn of ways and means of improving work systems
aligning to corporate strategies.

• Facilitate Business Diversity

Also using of host country managers as expatriates to HQ, helps in developing a better
understanding of the host country managers of the diversity of business environments. This may
bring him better knowledge on how the business changes are facilitated and strategic options
available to face similar situations. This knowledge may be used in the host country, to suit its
culture to change any loose points.

• Develop Global Managers & International Teams

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 International assignments or transfers often become the ‘training ground’ for
expatriates. Formation of international teams become much important in the multinational context
as fostering innovation, organizational learning and the transfer of institutional knowledge can easily
manage with it. Host country manager transfers to HQ leads in spreading the institutional knowledge
among the host country and also spread the organizational learning among the other layers of the
subsidiary.

• Cross Culture Compliance

Transfers to HQ and international assignments always give the opportunity to
managers of studying and learning of various management practices in across the borders. This
knowledge can be used for the development of host country activities and processes. Also the
practical knowledge and experience gain by the managers through transfers to HQ or other
subsidiaries make the host country subsidiary comply with the other subsidiaries and HQ in its
practices and strategies. This enables strategic alignment of all subsidiaries and achievement of
corporate objectives.

• Corporate Compliance
Transfers of managers of subsidiaries as Expatriates to HQ not only takes the
subsidiaries align and comply to across border cultures but also to comply with the corporate
strategies.

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