Choosing Host-Countries for Subsidiary/Headquarter Transfers

Choosing Host-Countries for Subsidiary/Headquarter Transfers


1. Abstract
2. Introduction
3. Theoretical assumptions of selecting host-countries nationals
4. The peculiarities of the process of selecting host-countries nationals
5. Conclusion
6. Bibliography


The paper discusses the problem of selecting of host-countries nationals for local subsidiaries and for transfers to headquarters. In the first part of the paper the theoretical aspects of the problem are discussed, namely the conditions of selecting personnel in international arena, widely spread approaches to the process are critically discussed and both advantages and disadvantages are analyzed. In the second part of the paper the practical side of the problem is emphasized, namely the main steps of the selection process are critically evaluated.


The contemporary economy forces many companies to change the traditional ways of business and overcome existing stereotypes. One of the reasons is the process of globalization that leads to the internalization of economy and consequently leads to the development of companies on the international basis.
Obviously for many companies it is a very difficult process which engenders a number of problems but in the situation when the international success of the company predetermine the general positive development than such company have little to choose from. This is why they have to solve such problems as the promotion in foreign markets, which are often new for companies, adoption of companies’ services or products to the local markets, etc. But one of the main and first problems is the problem of the selecting and recruiting of host-country nationals for local subsidiaries and for transfers to headquarters.
Theoretical assumptions of selecting host-countries nationals
Naturally international business is a very complicated phenomenon and it is particularly important to be very careful in choosing employees when the company works in different countries of the world. Traditionally it is highly recommended to pay a particular attention to local conditions and not only economic but cultural as well because culture is also of a paramount importance for business success. For instance, Czincota defines culture as “an integrated system of learned behavior patterns that are the characteristics of all the members of any given society” (1996, p.298). it is obvious that the knowledge of society is absolutely essential for any company that is operating in a definite market while culture is a part of any society.
As a result, when the company is entering a new market in a new country its managers and administration has clearly understand the cultural specificity of the country or the region since cultural differences may be absolutely contradictive to each other even in neighboring countries. In fact there have been developed several models explaining the difference between cultures and their influence on business and one of the most efficient is considered to be the model developed by Sheth and Sethi, which has been developed on the premise that “international business activity should be seen as innovation and producing change within the organization, both in the parent organization, the host country operations and in the people within the organization” (1977, p.233). According to this model, the change is determined by three factors: the dominant cultural lifestyle of individuals in the organization; change agents and strategic opinion leaders, both institutions and individuals; and communication of innovation whether this is from commercial organizations, government or social interactions.
The researches of Hofstede seem to be worthy of a particular attention since he attempts to define four factors that influences the understanding of the local market and should be taken into consideration when selecting employees for local subsidiaries. He singles out four dimensions of culture differences: power distance (the degree to which individuals within a society accept differences in the distribution of power as reasonable and normal, for instance the extent to which an unequal distribution of power in society is accepted as legitimate); uncertainty avoidance (the extent to which the members of a society feel uncomfortable with and try to avoid the situations which they perceive as unstructured, unclear or unpredictable, for instance the degree to which society is threatened by uncertain situations); individualism-collectivism (the extent to which individuals concern themselves with their own interests and those of their immediate families as opposed to the interests of a larger group, for instance the loose- or tight-knit nature of society); and finally masculinity-femininity (the extent to which a society emphasizes traditional male values such as assertiveness, competitiveness and material success rather than traditional female values such as passivity, cooperation and feelings, for instance dominance and submission) (Hofstede, 1986).
These four dimensions of culture are particularly important and the company should take them into account because for instance in western countries there is not so strong masculinity-femininity difference as it is in eastern countries where the society is as a rule has a well-structured gender hierarchy. Practically the same may be said about individualism-collectivism because oriental cultures always tend to collectivism while in the west individualistic values have always been the priority.
So, these are basically the factors which influences the company’s selecting policy and now it is necessary to dwell upon basic approaches that are used by different companies on the basis of these factors.
Basically there may be singled out several main approaches, which are used by companies while selecting host-countries nationals for subsidiaries or for transfers to headquarters. One of the most efficient is polycentric approach, which “uses natives of the host countries of a business to manage operations within that country and natives of the parent country to manage at headquarters” (Schroeder 1993, p.197). In such a situation the managers of the host country rarely advance to corporate headquarters because natives of the parent country are proffered as managers of that level.
This approach has a number of advantages since locals manage in the countries for which they are best prepared and it is also cheaper for companies since locals, who requires few incentives, are readily available and less expansive to hire. This approach is particularly helpful in politically sensitive situations because the managers are culturally sensitive locals, not foreigners.
However, this approach has a number of disadvantages as well. For instance there remain a cultural gap between subsidiaries managers and headquarter managers that limits that opportunities for advancement since “natives of the host countries can only advance within their subsidiaries, and parent country natives can only advance within the company headquarters” (Womack 1990, p.245). As a result, the company decision makers can have little or even not international experience but still their decisions have a major effect on the subsidiaries.
The peculiarities of the process of selecting host-countries nationals
Generally speaking it should be pointed out that nowadays many companies prefer to higher host-countries nationals but it is obvious that before taking such a decision it is necessary to carefully and critically analyze the situation. As any other selecting process the selecting of host-countries nationals has its own advantages as well as disadvantages, which would be discussed in this chapter.
First of all, speaking about the advantages it should be pointed out that language barriers are eliminated. Furthermore, the familiarity with socio-political, economic and legal environment and with business practices in the host country is provided. At the same time, hiring costs are reduced and no work permit are required. Using host-countries nationals also provides opportunities for advancement and promotion for local nationals, and consequently, increases their commitment and motivation. Finally, continuity of management increases since host-country nationals stay longer.
As for disadvantages, difficulties in exercising effective control over the subsidiary’s operation can appear. Furthermore, still there may remain difficulties in communication with home office personnel. And finally, as a rule there is lack of opportunities for host-countries nationals to gain international and cross-cultural experience.
Nonetheless, the employment of host-countries nationals is quite popular and efficient nowadays. Naturally, on analyzing the theoretical aspects, it would be logical to analyze in details the main practical steps of this process.
Basically there may be singled out several steps: 1) determining staffing needs, 2) recruiting potential employees, 3) selecting qualified employees, 4) training and development of employees.
The first step, determining staffing needs, is the basis for selecting process, since initially it is necessary to define what specialists are needed, including both professional and personal characteristics, and where the knowledge and experience will be used as well as it is necessary to know the types and number of employees needed. In such a situation “through selection or hiring and reduction or terminating process, companies balance the demand foe and supply of employees” (Hendry 1992, p.210). Once the company assess its overall staffing needs, managers begin to fill individual jobs. When the information about the employee’s educational level, personal characteristic and similar information is gathered, specific job data are gathered, including “assigned tasks, performance standards, responsibilities, knowledge, skill and experience requirements” (Vernon 1981, p.365). On analyzing this information, the job description is prepared, including job identification, statement, duties and responsibilities, requirements and specifications.
The second step is recruiting potential employees. As a rule the company “officially announces a job by circulating the job announcement and job description through appropriate channels” (Heinz & Koontz 1993, p.328). In practice it means that if an unskilled or semiskilled worker is needed, then local public outlets such as Job Service orbits equivalent may be used. If a skilled technical or managerial employee is needed, then public or private outlets may be used. Finally for unusual or high-ranking managerial employee specialized recruitment firms may be used.
Next step is selecting qualified employees. When the company recruited a sufficient number of candidates this step may be started. Traditionally companies use a variety of method to select the best applicant, which may be defined as “the person with the highest potential to meet the job expectations” (Torrington 1994, p.284). Among the most widely spread selection methods that are currently used may be named careful examination of the applicant’s past accomplishments, relevant tests, and interviews. In the process of screening applicants, companies are usually concerned about three broad factors, such as competence, adaptability and personal characteristics.
Finally, when an appropriate employee is selected the last but not the least step has to be undertaken, it is training and development of the employees, especially when the company deals with high technologies and is oriented on selecting host-country nationals. Naturally in such a situation the company has to be sure in its employees high qualification.
Furthermore, specialists indicate at the fact that “training and development employees to work at their best maximum potential are in the best interest of the company in the long run” (Mendenhall and Oddou 1985, p.78). And in fact, in the world where technologies permanently develop, it is necessary to remain in the current of recent achievements that is practically impossible without training and development of employees, especially if they are host-countries nationals, which often are less qualified and experienced than that of parent countries.


Thus, taking into account all above mentioned, it is possible to conclude that the process of selecting host-countries nationals is a very complicated phenomenon. In order to create a successful team, it is necessary to take into consideration local settings, including socio-political, economic and cultural situation. The latter may be better understood only by local people. This is why the choice in favor of host-countries nationals is relevant since they are more experienced in local situation. On the other hand, they may be less qualified than parent countries nationals but this problem may be overcome through trainings and development.

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