– Case studies of motives, processes and factors influencing selection decisions of managerial positions for foreign markets

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M A S T E R ' S T H E S I S

Staffing Policies of Swedish MNCs

– Case studies of motives, processes and factors influencing selection decisions of managerial positions for foreign markets

Josefin Wäppling Bernárdzon

Luleå University of Technology D Master thesis

Industrial marketing

Department of Business Administration and Social Sciences Division of Industrial marketing and e-commerce

2010:032 - ISSN: 1402-1552 - ISRN: LTU-DUPP--10/032--SE

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This Master's thesis has been conducted for the program of International Business at Luleå University of Technology during the late fall of 2009, it involved a lot of hard work but it has also been rewarding and interesting. This thesis has provided me with an opportunity to develop my skills within the area of international management in general and human resource management in particular and I hope that it can contribute to present research as well as serve as an inspiration for future studies. However, this thesis would not have become reality if it was not for a number of people who all contributed to make this study possible.

Foremost I would like to thank my supervisor, Professor Manucher Farhang at the Department of Industrial Marketing and e-Commerce at Luleå University of Technology, he has through his guidance, advice and constant support, contributed to improve the quality of this thesis. Further, I would like to thank the respondents at the companies who participated in this study; Niklas Safi at IKEA, Nadim Penser at Atlas Copco, Eva Hansdotter at SKF, and Holger Wiklund at Sandvik. Without their participation it would have been impossible to achieve the desired results. Finally, I would like to thank my beloved family and friends who has not only stood by for advice, support and encouragement during this intensive time, but foremost because they never stopped believing in me. Thank you.

Luleå University of Technology, January, 2010

Josefin Wäppling Bernárdzon

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ABSTRACT

In today’s global economy, the area of International Human Resource Management has gained increased interest due to the significance of having ‘the right people at the right place’

in order to gain a sustainable competitive advantage. The purpose of this study is to investigate the staffing policies of Swedish MNCs for top managerial positions in foreign markets. This purpose has been addressed through a qualitative multiple-case study research where; (a) the factors influencing staffing decisions, (b) the actual selection process, and (c) the motives for MNCs to recruit locally in the foreign market as opposed to dispatching expatriates from home or a third country are investigated. The companies selected for this study are four Swedish MNCs with a long record of international activity; IKEA, Atlas Copco, SKF, and Sandvik. The findings of this study show that; (a) the mindset of an organization determines which candidates are considered during the selection process and the reason for the companies to engage in international transfers of managers is connected to their overall international strategy, (b) the selection process is often strategic and formalized, and vacant positions are announced publicly, (c) applying the concept of “grandfather approval” – i.e. the recruiting manager’s superior has to approve the selection decision- can be an effective way to decrease the risk of subjectivity in the selection process, (d) MNCs consider the Nationality of the selected manager to depend on the selection requirements along with the amount of cultural differences between host- and parent country, (e) MNCs view the cost of sending an expatriate abroad as not of importance as long as it is results in “having the right person at the right place”.

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SAMMANFATTNING

I dagens globala samhälle så har International Human Resource Management fått ökad uppmärksamhet eftersom man har förstått värdet av att ha ”rätt person, på rätt plats” för att kunna nå långsiktiga konkurrensfördelar. Syftet med denna studie är att undersöka den bemanningspolicy som svenska multinationella företag tillämpar vid tillsättning av chefspositioner i utlandet. Detta syfte har bemötts genom en kvalitativ, flerfall studie forskning där; (a) faktorer som påverkar bemanningsbeslutet, (b) den faktiska urvalsprocessen, och (c) motiven för multinationella företag att rekrytera lokalt på den utländska marknaden jämfört med att skicka expatriater från hemlandet eller ett tredjeland, har undersökts. Fallföretagen i denna studie är fyra multinationella svenska företag som varit aktiva på den internationella marknaden länge; IKEA, Atlas Copco, SKF, och Sandvik.

Studiens resultat visar att; (a) organisationens internationella tankesätt styr vilka kandidater som tas i beaktning under urvalsprocessen och motivet bakom företagets internationella förflyttningar av chefer är kopplat till deras övergripande internationella strategi, (b) bemanningsprocessen är ofta strategisk och formaliserad, och lediga platser annonseras offentligt, (c) tillämpa ”farförälder principen” – dvs. den rekryteringsansvarigas chef måste godkänna bemanningsbeslutet - kan vara ett effektivt sätt att minska subjektiviteten i bemanningsprocessen, (d) multinationella företag anser att valda chefers nationalitet beror på urvalskraven och mängden kulturella skillnader mellan värd- och hemlandet och att (e) multinationella företag inte anser att kostnaden att skicka en expatriat utomlands är relevant så länge som de resulterar i ”rätt person, på rätt plats”.

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FIGUR INDEX

Figur 1.1 Thesis outline ... 5

Figur 2.1 Dimensions of Transfer Policies ... 11

Figur 2.2 Flowchart of the Selection-Decision Process ... 13

Figur 2.3 Strategic Analysis of Global Assignments ... 16

Figur 2.4 Global Assignment Selection Process ... 18

Figur 2.5 Typology of international manager-selection systems ... 21

Figur 2.6 Likelihood of a PCN manager in top management ... 23

Figur 2.7 Thesis Conceptual Framework ... 30

TABLE INDEX

Table 2.1 Selection Methods ... 18

Table 2.2 Advantages and Disadvantages of PCNs, HCNs, and TCNs ... 25

Table 2.3 Factors that influence the staffing decision ... 27

Table 2.4 The Selection Process ... 27

Table 2.5 Motives for Recruiting a HCN manager as Opposed to a PCN- or TCN manager ... 28

Table 5.1 Factors Influencing the Staffing Decision ... 57

Table 5.2 The Selection Process ... 58

Table 5.3 Motives for HCN recruitment as opposed to PCN/TCN recruitment ... 59

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1 INTRODUCTION

Due to globalization the nature of business has been transformed and today most companies conduct business internationally. More and more companies have established units on foreign markets and this has resulted in fierce competition and increased demand for competent international managers. This chapter provides a background to the thesis topic, and is followed by a problem discussion, the purpose of the study, and the research questions to be investigated.

1.1 INTERNATIONALIZATION OF THE FIRM AND THE NEED FOR HUMAN COMPETENCE

Today the impact that multinational companies' foreign direct investments has on the growth of the world economy is even more important than that of international trade (Harzing, 2004a). Many companies are at the evolutionary stage of the internationalization process where they are physically present on the foreign market, either through sales branches and subsidiaries, assembly, or production abroad (Phatak, Bhagat, & Kashlak, 2005). Whereas the sales of foreign subsidiaries of MNCs, in 1990, were roughly the same as the world exports, in 2001 the sales of subsidiaries was twice as high as the world exports (Harzing, 2004a).

It is said that the world is shrinking due to globalization; another way of looking at it is that the world is getting bigger, because due to advances in technology companies are expanding their operations into new markets and regions where they have not been before (Black, Gregersen, Mendenhall, & Stroh, 1999). Therefore the individuals in charge of a company’s international operations must function well across cultural boarders (Dowling & Welch, 2004).

Intensified international competition has lead to that companies subsequently aim at creating sustainable competitive advantages (Phatak et al., 2005). For a sustainable competitive advantage to be difficult for the competitors to imitate it should be based on the company's competences (Johnson, Scholes, & Whittington, 2005). 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 et al., 2005).

1.1.1 The International Manager

Black et al. (1999) argue that the key for a company to compete successfully in the global market place is people. This is linked to that people are the ones that put together and implement strategy, construct and design organizational structures, and they also innovate and utilize technology. The international manager therefore plays an important role since it is the manager that carries the corporate culture to new locations around the world (Wilson &

Dalton, 1998). An international manager today must work with people from many cultures whereas previously an international manager could focus on coaching people merely from one country (Hurn, 2006). As a result of this, a demand for successful communication within multinational corporations, MNCs, despite differences in culture, values and beliefs has arisen (Harris & Brewster, 1999). In order to effectively manage an organization, the people in charge must be in possession of a global perspective. Black et al. (1999) recon, that an

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international assignment is the most powerful tool in shaping the mindset of an effective global leader. They further point out that one important mission for an organization is to recognize international assignments as an important function in order to develop capable future leaders.

For most international companies finding suitable candidates for international assignments is a major challenge for the human resource department (Black et al., 1999) and engaging in international activities is still connected to a high degree of risk for the company, much of which comes from the threat of expatriate failure (Phatak et al., 2005). The failure of an international assignment does not only mean that the manager has to return home, but can have far more wide spread consequences in terms of effects on the business operations in the host-country (Harris & Brewster, 1999). Therefore the expatriate manager, - that is a manager who works in another country or culture than that of his/her own, is dealing with enormous pressure to succeed in his/her mission (Wilson & Dalton, 1998). The ‘right person’ for an international assignment is found after a thorough analysis of the task, the foreign market and the personality characteristics of the potential candidate (Tung, 1981), and finding the right person decreases the risk of expatriate failure (Dowling & Welch, 2004).

According to Harzing (2004b) most articles on expatriate management begin with stating that expatriate failure rates are (very) high. It has however been argued that there is a lack of empirical proof to support the claim of expatriate failure. This could be connected to that expatriate failure has been measured in terms of those who returned prematurely. On the other hand, those managers who stay in the foreign country but fail to perform their assignments adequately could cause more severe damage to the organization, than those who returned home (Harzing, 2004b). The area of human resources has proven to have a key impact in achieving worldwide competitiveness for MNCs, which in turn has created an increased interest in the area international human resource management (Harzing, 2004a).

1.2 MANAGING PEOPLE ACROSS BORDERS

Human resource management (HRM) are those activities that a company undertakes in order to make use of its human resources in an effective way (Dowling & Welch, 2004). HRM include a number of activities such as human resource planning, staffing, performance management, training and development, compensation and benefits, and industrial relations.

However, HRM only involves people within one national boarder. International human resource management (IHRM) deals with more or less the same issues as HRM but, on top of that, also has to deal with the cultural aspects of operating in many different nations and regions (Dowling & Welch, 2004).

The IHRM system of a company, according to Taylor, Beechler and Napier (1996), is defined as “...the set of distinct activities, functions, and processes that are directed at attracting, developing, and maintaining an MNC’s human resources.” (p. 960). The human resources of an MNC have become a key in order to gain competitive advantage (Johnson et al., 2005).

This is connected to an increase in the international mobility of human resources as an effect of the rapid growth of internationalization (Black et al., 1999). These factors have together

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created a demand for ‘successful’ international business managers that are effective and efficient on an international level. It is worth noting that Tung (1998) point out that the distinction between HRM and IHRM is becoming vague. According to Tung (1998) this is connected to the growing convergence of the requirements for effective domestic and international managers. Previously the domestic manager was excluded from the interaction process with nationals from other countries, but today the also the domestic manager must have a multi-environment experience combined with cross-cultural skills to be effective (Tung, 1998).

In order to determine who is an effective business manager the concept must be defined.

However, research has showed that international human resource managers cannot agree on one definition. Wilson and Dalton (1998) conclude that effectiveness seems to be ’in the eyes of the beholder’. Effectiveness can, according to Wilson and Dalton (1998), be measured by at least two components, the first one is adjustment and the second one is job performance.

However the level of effectiveness is coloured by who is judging it, the parent- or the host country boss, the organization itself or external stakeholders, subordinates or the expatriate him-/ herself. Therefore, the staffing decision with its selection process presents a great challenge for the people in charge of selecting managers for international assignments (Black, et al., 1999).

1.3 STAFFING MNCs: Problem Discussion

Managerial selection is defined as the “process of gathering information for the purpose of evaluating and deciding who should be employed in particular jobs” (Dowling & Welch, pp.83, 2004). Black et al. (1999) argue that in order have successful international operations, it is fundamental that the organization select an individual who will stay the full duration of the assignment and also accomplish the strategic and tactical purpose of the mission. In the MNC’s recruitment process technical competence is often the primary decision criteria when selecting employees for international assignments (Dowling & Welch, 2004; Scullion &

Collings, 2006).

Technical ability is something which can be evaluated through the candidate’s past, and most companies select managers for international assignments based on domestic track records (Black et al., 1999). On the other hand, prior performance may not at all be connected to future achievements of the candidate in a new environment (Dowling & Welch, 2004).

Companies who take this approach rarely have a strategic perspective on the staffing decision for international assignments. Failure is more often connected to problems with cross-cultural adjustment than lack of technical skills (Harris & Brewster, 1999). According to Scullion and Collings (2006) the reasons as to why many MNCs still rely on technical information is that a large part of the international assignments are concerned with filling a position. It is also connected to the fact that interpersonal and cross-cultural skills are difficult to recognize and determine.

When companies are moving through the stages of internationalization it is important to consider international strategy in relation to staffing decisions (Phatak et al., 2005). The

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company must plan the selection strategically since increased internationalization demand more skilled international managers (Black et al., 1999). In order for the company achieve success within their international operations they must be aware of the critical success factors involved in the operation (Dowling & Welch, 2004). According to Black et al. (1999), the manager in charge must have a vast experience within the organization including different previous positions if the goal is to improve the headquarters’ control of the foreign subsidiary.

However, if the international assignment is to improve the communication between the subsidiary and the headquarters then the manager must possess excellent cross cultural skills since the information flow must be two way (Black et al., 1999).

Research has showed that MNCs generally recruit parent-country nationals (PCNs) for international assignments (Harzing, 2004b) while the main reason for expatriate failure often is connected to problems with cross-cultural adjustments (Black et al., 1999). With the advances in educational level in many countries around the world lack of technical skills is no longer an excuse to exclude host-country nationals (HCNs) from the selection process (Harzing, 2004b). The strategic decision based on the nationality of the manager serves many strategic purposes such as establishing global integration and maintaining control (Edström &

Galbraith, 1977), through mobilizing the corporate knowledge globally (Colakoglu, Tarique,

& Caligiuri, 2009), and as a result of the conditions in the host-country (Harzing, 2001). The mindset of the organization affects the global staffing decision, whether or not the organizational attitude favours the use of PCNs, HCNs or if the nationality of the manager is unimportant (Perlmutter, 1969).

Global staffing is defined as “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 headquarters and subsidiary operations” (Scullion & Collings, 2006, p.3), and staffing policy is defined by Wild, Wild, and Han (2008) as “The customary means by which a company staffs its offices” (p.441).

As explained above the area of IHRM involves a number of issues, however this study will only consider the aspect of ‘global staffing policies’. Global staffing is important due to the fact that international growth has placed a demand on management to succeed with the staffing decisions for top managerial positions on foreign markets (Black et al., 1999). To investigate global staffing policies factors that influence the staffing decision should be considered (Scullion & Collings, 2006). The global staffing decision can, according to Dowling and Welch (2004), be understood by reviewing the actual selection process for top managerial positions in foreign markets. Global staffing policies have a significant impact on the functioning of the subsidiary and, Harzing (2004b) point to that it is, in the light of this is surprising that there is such paucity in the research regarding the motives to select HCN-, PCN- or TCN managers.

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1.4 PURPOSE

In view of the above, this study aims at gaining a deeper understanding into the managerial staffing policies of MNCs; more specifically the purpose of this study is:

“To investigate the staffing policies of Swedish MNCs for managerial positions in foreign markets.”

This purpose will be reached by addressing the following research questions:

RQ1. How can the factors influencing staffing decisions for key managerial positions for foreign markets be described?

RQ2. How can the MNC selection process for top managerial positions for foreign markets be described?

RQ3. How can the motives for host-country recruitment as opposed to dispatching of expatriates from the MNC’s home country or third-country be described?

1.5 OUTLINE OF THE THESIS

In Figure 1 below the thesis outline is displayed and the six chapters which construct the thesis are presented.

As shown above in this first chapter the topic has been introduced and MNC’s problem of managing people across borders is highlighted in order to justify the research purpose and the research questions for the present study. In chapter 2 theories on the topic are reviewed and the conceptual framework that will be applied in this thesis is presented. This is followed by chapter 3 where the research methodology will be presented, along with a discussion regarding the reliability and validity of the study. In chapter 4 the collected empirical data will be reviewed. Later, in chapter 5, the empirical data is analysed through the conceptual framework. In the sixth and last chapter of this thesis the conclusions drawn and the findings of this research is presented along with implications for further research.

Figure 1.1 Thesis outline

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2 LITERATURE REVIEW

In this chapter existing research and theories on the thesis topic will be reviewed in the following order: first the research approach followed in this study, second theories regarding factors that affect staffing policies, third theories of the selection process for international managerial positions, fourth, theories regarding the motives as to why companies hire PCN, HCN, or TCN managers. Finally, a conceptual framework which aids data collection and data analysis will be presented.

2.1 RESOURCE BASED VIEW VERSUS INSTITUTION BASED VIEW OF IHRM

According to Johnson et al. (2005) the resource-based view argues that an organization’s strategies of should be built on the identification of its unique capabilities. Whereas Hatch (2002) state that the resource-based view is founded on the assumption that an analysis of relationships within the organizational network will help managers to realize, and control, the power- and dependence relationship between the organization and its stakeholders. Hatch (2002) further argues that knowledge of the effect that the relationship has will enable the managers to predict potential influence from the surrounding environment and create counter dependence and thereby reduce the effect.

The institution based view of organizations is, according to DiMaggio and Powell (1983), not only shaped by the organizations internal goals but also by the value and belief systems of the society in which they are operating, this is referred to as ‘coercive isomorphism’. DiMaggio and Powell (1983) further states that when an organization is shaped by rules, regulations and professionalism it is referred to as ‘normative isomorphism’. Hatch (2002) highlight that when an organization adapt itself according to institutional demands it will receive social support and its survival is thereby assured. DiMaggio and Powell (1983) define ‘mimetic institutional effect’ as when the organization strives after becoming like other organizations, which result in coping of structure, actions etc. DiMaggio and Powell (1983) further view ’the aspect of social acceptance’ as an input to the organizations value chain that the organization, together with other resources, are depending on.

Colakoglu et al. (2009) advocate that when analysing an organization through an institutional view it is important to consider how the organization adapts itself to its institutional context.

Whereas Hatch (2002) state that it is the sources of the institutional affect must be analysed and the shape of the effect must be taken into consideration weather it is normative, forcing, mimicking. According to DiMaggio and Powell (1983) it must further be considered how the decision processes are shaped due to the institutionalization rather than rational choices. To summarize it all; the resource based view look at the organization from the perspective of top management, while the institutional view is founded on environmental level and try to explain why many organizations are similar.

According to Colakoglu et al. (2009) the resource-based theory view, the valuable, scarce, inimitable and foremost non-substitutable resources of a company, such as employees, as the most important sources to create, and sustain, a competitive advantage. This study is

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researching the staffing policies of Swedish MNCs from a corporate perspective and therefore a resource-based view of the companies will be applied.

2.2 FACTORS INFLUENCING STAFFING DECISIONS

According to Edström and Galbraith (1977) depending on the staffing strategy applied different types of knowledge stocks are bound to emerge among the upper level management in the host-country. This is, according to Colakoglu et al. (2009), connected to that any expatriate assignment, independent of motive; automatically result in transfer and flow of tacit knowledge. An empirical model of multinational staffing strategies was conducted by Perlmutter (1969), which stated that the level of multinationality is determined by the organizations orientation towards foreign people and resources. The key in Perlmutter’s study was to determine the multinationality of a company, but since it was researched through the company’s orientation towards people and resources, it is of interest to this study.

2.2.1 Mindset of the Organisation

Three different states of mind of the international executive were distinguished by Perlmutter (1969), the first one is ethnocentric (home country orientated), the second one polycentric (host-country orientated) and the third one is geocentric (world-oriented). These three headquarter attitudes never appear in pure form but are still clearly distinguishable.

An Ethnocentric Mindset

A company with an ethnocentric view argues that PCNs are superior to any other nationals in headquarters or subsidiaries. According to Perlmutter (1969) this results in that only PCNs are considered for key positions in headquarters as well as in subsidiaries. Dowling and Welch (2004) state that an ethnocentric manager will manufacture more ‘simple’ products abroad while the complex operations are kept on the home-country market in order to keep the secret of manufacturing among the trusted PCNs. Dowling and Welch (2004) further point to that an ethnocentric company therefore often emphasize its nationality –‘this is a Swedish company’.

According to Wild et al. (2008) this results in that ethnocentric companies formulate strategies that should apply to ‘all markets’ since it should be applicable in all countries which the company operates in. The communication flow in an ethnocentric organization is one-way from the headquarters implying that “This works at home therefore it should work in your country” (Perlmutter, p.12, 1969).

According to Dowling and Welch (2004) a company often pursues an ethnocentric staffing strategy when there is a lack of qualified HCN managers. Another reason, proposed by Dowling and Welch (2004), for applying an ethnocentric staffing policy is if there is a strong emphasis on communication and control towards the headquarters, which is common in the initial stages of the internationalization process to reduce the perceived high risk. Wild et al.

(2008) state that a company that aims at maintaining a tight control over the decision making process in foreign subsidiaries tend to apply this approach. Another reason to apply an ethnocentric staffing approach, which Wild et al. (2008) suggests, is that managers who have worked in the organization in the home country tend to bring the corporate culture with them and establish it in the foreign market.

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The disadvantages to an ethnocentric approach are, according to Dowling and Welch (2004);

because HCNs are excluded from the process it can lead to reduced productivity and increased turnover of HCN employees due to lack of promotional opportunities, the adjustment process of PCN managers takes time, and the income gap to PCNs are viewed as unjust by HCNs. Wild et al. (2008) argue that ethnocentric staffing is expensive, due to costs connected to relocating managers and their families, a PCN manager can also create barriers in the host country because it creates an image of a ‘foreign’ company and employees might feel that their needs are not understood by management due to cultural differences.

A Polycentric Mindset

According to Perlmutter (1969) a polycentric state of mind is dominant when the company has recognized the differences between countries and acknowledged that host-country cultures are difficult to understand. Permutter (1969) further states, that a polycentric organization therefore sees HCN managers as best suited to understand the local market.

According to Wild et al. (2008) this approach is appropriate for organizations who wish to give its foreign subsidiaries a degree of autonomy in the decision making process. The headquarters executives tend to stay in the background as long as the HCN managers deliver profits from the foreign subsidiary. However, according to Permutter (1969) in a organization with a polycentric mindset a foreign manager can never be considered for a top management position at headquarters due to that HCNs are regarded as more suitable.

However, this approach does not mean that HCN managers are left on their own. According to Wild et al. (2008) it is common that polycentric organizations conduct extensive training of HCN managers at headquarters in order to introduce them to the corporate culture. An advantage of a polycentric approach is, according to Dowling and Welch (2004), that language barriers are eliminated, as well as the ‘adjustment problem’ and PCN manager would experience and therefore also reduce the need of cultural awareness training programs.

Another benefit, which Wild et al. (2008) highlighted, is that the extensive knowledge the HCN managers possesses of the local market can be beneficial for the whole organization.

Further, Wild et al. (2008) point to that the employment of HCN managers is less expensive than that of PCN managers because there are no costs connected to relocating the manager and family.

According to Wild et al. (2008) employment of HCN managers enable the organization to avoid the high turnover of key managers that an ethnocentric approach results in. Whereas Perlmutter (1969) point to problem areas such as, a language barrier between HCN managers and the headquarters, the issue of differing national loyalties, and that the company might become a ‘federation’ with independent national units with minimal linkage to the headquarters. Wild et al. (2008) suggest that this would mean that headquarters lose control of its operations in the host country. Further, Dowling and Welch (2004) highlight that problems with resource allocation might occur since headquarter managers will have a limited exposure to foreign assignments since they never operate outside their ‘home’ market. However, Wild et al. (2008) state that this will not be a problem if the company has an approach where they need to act local in each market. On the other hand, according to Wild et al. (2008), it will be

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a problem if they have a global strategy, because then the preformance will be affected due to lack of knowledge sharing, integration and a common image of the company.

A Geocentric Mindset

When the organization is world oriented, which Perlmutter (1969) refers to as geocentric, top manager positions are filled regardless of nationality. According to Wild et al. (2008) the ultimate goal for a geocentric organization is to have a worldwide approach both at subsidiaries and at headquarters. Perlmutter (1969) suggest that this approach would further require a reward system to stimulate subsidiary managers to work towards global objectives.

According to Wild et al. (2008) PCN, HCN, and TCN managers are found in key position throughout a geocentric organization, and the selection of managers is based on the operation’s specific needs. Dowling and Welch (2004) highlight three major advantages with this approach; the company develops an international executive team that has a global perspective on the company’s operations, the ‘federation’ issues are eliminated, and it supports cooperation and sharing of resources.

According to Dowling and Welch (2004) the disadvantages with a geocentric approach is that;

the host government may use immigration regulations in order to increase the number of HCN managers, may be expensive to implement due to standardized international base pay which often is higher than the rate in many foreign countries. Further, Wild et al. (2008) point to that the manager and their families might be relocated so often as every other year, which result in inconsistency. Dowling and Welch (2004) propose that to have a truly geocentric approach the company must have a centralized control of the staffing policy in order to ensure that large numbers of PCN, HCN and TCN managers operate in foreign markets. This will, as Dowling and Welch (2004) show, result in a loss of autonomy for the subsidiary and they may resist this decrease of independence.

Ethnocentric- Polycentric- Geocentric

According to Harzing (2004a) organizations which are global, or to a lesser extent international, will foremost have an ethnocentric state of mind. On the other hand, Harzing (2004a) suggest that, a company with a polycentric attitude tend to be multi-domestic and a transnational organization has a tendency to be geocentric. Pearlmutter (1969) argue that companies start out as ethnocentric, and thereafter grow to polycentrism before they reach the final state of mind with geocentrism. This is in the lines with Harzing (2004b) and the evolutionary stages of the internationalization process as discussed by Phatak et al. (2005).

However, it does not explain the motive as to ‘why’ companies engage in international transfers.

2.2.2 Edström and Galbraith’s Framework for International Transfers

Three major reasons have been proposed by Edström and Galbraith (1977) as to why organizations engage in international transfers.

Fill Positions

The first one is to fill positions in developing countries; this is done when there is a lack of individuals with sufficient skills in the host country. According to Edström and Galbraith (1977) the human resource department in this kind of organization works reactively to fill

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positions, the expatriates tend to be young and is foremost selected for their technical skills.

The subsidiary in the foreign market recognizes the need of a manager and subsequently also initiate, manage and pay for the transfer. Edström and Galbraith (1977) suggest that the cause of this could be connected to an increased need of administrative and financial control, a PCN manager would almost instantly correspond to these requirements and further pass on know- how, technical skills, administrative systems etc. On the other hand, Edström and Galbraith (1977) state that a HCN manager would require training in order to bring consistency to the way ‘things are done’ in the organization to result in a more smooth internal bureaucracy.

Develop Managers

The second motive, according to Edström and Galbraith (1977), is for the organization to develop managers for positions of responsibility; this means that an organization would send an expatriate even if there were qualified HCN managers because they want to provide a manager with potential with vast international experience. Edström and Galbraith (1977) highlight that in this organization the human resource department must be powerful to convince the subsidiary of the superiority of selecting an expatriate over a local manager.

Further, they must have an extensive information system in order to indentify positions and people needing training. An organization with this approach would, as stated by Edström and Galbraith (1977), send many managers on international assignments so that those who are successful can later be sent on further international assignments.

Organizational Development

The third and final motive suggested by Edström and Galbraith (1977) was organizational development which is when transfers are done in order to modify and sustain the organizations structure and decision processes. This approach involves, as showed by Edström and Galbraith (1977), a strong human resource department and the decision to send expatriates are strategically tied to the organizations main objectives. According to Edström and Galbraith (1977) the idea behind this is that transfer of managers will socialize them, create international networks, and make them less ethnocentric but still establish an organizational control. These factors are summarized by Edström and Galbraith (1977) in Figure 2.1 on the next page.

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Figure 2.1 Dimensions of Transfer Policies

Source: Adapted from Edström and Galbraith (1977)

According to Harzing (2004b) organizations with ‘the fill-positions’- or ‘the organizational development’ motive to recruit international managers have an agenda of organizational control. In the first perspective Harzing (2004b) advocate that it is through transfer of the parent company routines and knowledge and in the second one through acculturation which is achieved through socialization and interaction between managers of different nationalities.

According to Scullion and Colling (2006) these motives are not mutually exclusive but rather, that it is important that companies realise the strategic advantage of using expatriates as a strategic tool to reach organizational goals. Today’s international business environment is far more complex than the environment which Edström and Galbraith studied in 1977, and Scullion and Colling (2006) state that today there is rarely one single objective to why the organisation engage in international transfer of manager but rather many different reasons.

2.3 THE SELECTION PROCESS FOR INTERNATIONAL MANAGERS IN FOREIGN MARKETS The state of mind of an organization, as described by Perlmutter (1969), and Edström and Galbraith’s (1977) motive for international transfer, affects an organizations selection base of potential candidates, which in turn will affect how the selection process is conducted. Tung (1981) argue that it is important to apply a contingency approach to the selection process since strategies that only focus on one particular criterion, and not taking the environment and task into consideration, has proven to reach little success. According to Tung (1981) the

‘right’ person for an international assignment is found after a thorough analysis of the task, the foreign market and the personality characteristics of the potential candidate.

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2.3.1 Tung’s Framework for the Selection Process

Tung (1981) pointed to that most of the research in the area of concerning the selection process for foreign assignments has been fragmented and foremost focused on developing a list of criteria that an international manager should possess. According to Tung (1981) the identification of criteria is important, but unless it is joined together in a comprehensive framework it is not useful in practice. In the light of this Tung’s (1981) conceptual framework for the selection process was developed highlighting three major factors; 1, variables crucial to success or failure; 2, the relationship between those variables; and 3, the weight of each those variables depending on situation. According to Tung (1981) the framework was developed with a contingency approach because it demonstrates the misleading notion that there would be one universal ‘best way’ to finding a manager for foreign assignments, this approach argue that the success of a manager is depending upon a unique set of circumstances at a specific point in time.

Tung (1981) lifted forward four general areas that have proven to contribute to the mangers success in foreign markets; technical competence - distance to headquarters might make this a crucial factor if there is an absence of colleagues to consult in the subsidiary; personality traits or relational abilities –ability to deal with clients, colleagues, and superiors but it also concerns the ability to operate in a culture distant from one’s own; environmental variables – skills of the individual when it comes to identify and handle governments, unions, competitors, etc.; and family situation –the ability of the spouse to adjust living in a foreign environment.

A comprehensive selection paradigm must, according to Tung (1981), take into consideration the various factors that contribute to the success of international assignments, and it is of uttermost importance to consider the situation specific criteria connected to the country in which the future manager will operate. Therefore not only the characteristics of the individual must be analysed but also the environment along with a clear identification of the task. The first step is to identify the assignment and determine the level of interaction with the local community that will be required. After this the environmental variables of the host-country must be identified and to which extent they differ from the home-market along with the candidate’s willingness to relocate. The human resource department should further investigate whether the host country national possess the required skills for the assignment as the recruitment of an HCN manager is connected to knowledge of the culture, eliminated language barriers, decreased costs, etc. Tung (1981) argue that the search for a PCN or TCN manager should only be launched if a suitable HCN manager is not to be found. Tung’s research is summarised in Flow Chart of the Selection-Decision Process which is demonstrated in Figure 2.2.

According to Tung (1981) the first step in the selection process is to identify the assignments that the manager will be required to handle. After that is done, the selectors need to determine who would be most suitable for the job, a PCN-, HCN-, or TCN manager. If it is found that a PCN- or TCN manager should fill the position, the search should be conducted among those who are already present in operations in the foreign market or within competing industries.

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Figure 2.2 Flowchart of the Selection-Decision Process Source: Tung (1981)

After this the selectors, according to Tung (1981), need to determine the degree of interaction with the host market that will be required from the manager, this is done to establish the importance of relational abilities. Another important factor, brought to light by Tung (1981), is that the selector must asses is if the candidate is willing to go abroad. If the there are great differences between the culture of the parent country and that of the host country then the selection decision should rely to great extent on relational abilities, if there is not a significant cultural difference between the countries then factors relating to the actual assignment will be of more importance. (Tung, 1981)

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Tung’s reviewed framework of the selection process

Tung’s contingency framework of the selection process was developed nearly thirty years ago and the global business environment has changed since then, Tung (1998) conducted a new study to determine if the framework developed 1981 still is relevant, the research focused on the aspect of seven major changes that have taken place since the early 1980’s.

1. Shift in calculus of Global Competition

Competition originates from new sources; emerging markets and newly industrialized economies.

2. Formation of Global Strategic Alliances

Result in an increased level of international movement of people (managers).

3. Global Integration versus Local Responsiveness

“Think globally and locally, act appropriately.”

4. Emergence of Network Organizations

Geographic location loses its importance in network organizations.

5. Growing Diversity in the Workforce at Home and Abroad

Diversity come with new workplace conflicts sprung from differences in race, gender and culture.

6. Growing Convergence of Core Competences required of Domestic and International Managers

The domestic manager is also confronted with problems that come from an international environment.

7. Increasing Use of Overseas Assignments for Career developing Purposes

As the demand for international knowledge also among domestic managers foreign assignments has proven to have a positive career impact.

The contingency framework for the selection process which was developed by Tung (1981) proved to still be relevant according to Tung (1998), with the following supplements; in global strategic alliances it is important to take the corporate culture into the analysis since it might vary between the different companies; the expatriate must possess strong negotiation skills and be flexible due to today’s multi company/industry environments; and have great sensitivity to the needs of others.

2.3.2 Black, Gregersen, Mendenhall, & Stroh’s Strategic approach to the Selection Process

Black et al. (1999) has created a framework of recommendations as to how MNCs strategically should approach the selection process for top managerial positions in foreign markets. Their recommendations of steps in the selection process consist of two parts, firstly they emphasize a strategic analysis of global assignments, and thereafter the selection process for a specific assignment is considered.

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Strategic Analysis of Global Assignments

This analysis is required to be done in order to make an assessment of the company’s overall needs and thereby define its current candidate pool. However, according to Black et al. (1999) it is of uttermost importance to the company’s future performance that they also assess to which extent its candidate pool can supply its future needs for effective global managers.

Analyzing Current Needs

According to Black et al. (1999) current needs must be analysed to determine the organizations level of globalization. The organization must determine from a strategic perspective what they actually need. Black et al. (1999) suggest that this can be done by answer questions such as; “Does the firm need to send people from headquarters for purposes of coordination and control? Does the company need to raise the level of communication between headquarters or between subsidiaries? Does the firm need to develop more future executives by giving them global assignments as developmental experiences?”

Defining the Candidate Pool

The human resource department is must be aware of the organization’s current candidate pool. Black et al. (1999) propose that this can be done by initializing a comprehensive database that lists managers current assignments, technical skills, cross cultural knowledge, previous international experience, etc.

Assessing Future Needs

According to Black et al. (1999) the company’s future needs for global managers the need must be assessed. However, the organization must also consider which will be its key strategic functions in the future in order to assess future needs accurately.

Developing the Candidate Pool for Strategic Success

Black et al. (1999) state that the final strategic step in preparing the organization for future demands of international managers is to develop a candidate pool for strategic success.

According to Black et al. (1999) this is done through continuous assessment of the managerial- and cross-cultural skills of the candidates. These cross-cultural skills can be assessed through surveys such as G-A-P-S (Global Leadership Institute) in order to be able to develop the skills of the managers if they are considered weak. The process is graphically displayed on the next page in Figure 2.3.

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Selection Process for Specific Assignments

When the assessment of the global strategic assignments is done and the organization’s needs for the future are determined, the selection of an individual for a specific assignment must be done. This is, according to Black et al. (1999) best done by following the five steps which they propose.

1. Creating a Selection Team is the first step and the team should consist of at least three members; a PCN manager, a HCN manager and a human resources representative.

The PCN- and HCN managers ensure that the objective of both the parent company and the subsidiary is served. The human resources representative can make sure that a wide range of selection criteria are utilized and also provide a broad selection of potential candidates for the position.

2. a) Defining Strategic Purposes for Global Assignments is important in order to be able to select the right candidate. Black et al. (1999) point to that today most international assignments are short-term and problems solving, therefore companies must be more reflective when they determine the strategic functions of an assignment before the assignment is made. Assessing the Context is done in order to determine the extent of interaction with the culture of the host country, which is important to do in order to Establishing Selection Criteria. When that is done the technical-, managerial, and cross-cultural skills required for the assignment is determined, if there is a difficult host-country culture then the selection criteria should emphasize flexibility and ethnocentricity according to Black et al. (1999).

Figure 2.3 Strategic Analysis of Global Assignments Source: Black et al. (1999, p.77)

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b) In order to decrease the level of subjectivity the selectors must Review Pool of candidates in order to make sure that it does not only consist of candidates who happen to know a given individual. The company can also create a list through internal surveys for which individuals within the organization that are willing to go on international assignments.

3. Defining the Candidate Pool is done when the selection criteria has been developed and the organization can use this information in order to match potential candidates with specific assignments, if there is a ‘global candidate pool database’ available the selectors can use this to identify candidates.

4. Utilizing Standardized Tests and Feedback Instruments can be costly but since sending a manager on an assignment in a foreign market is connected with large costs for the organization, the use of feedback instruments such as G-A-P-S can be a seen as an investment since it attempts to insure that they are selecting the right person for the mission. One-on-one interviews is a common selection method but also one that is not reliable, it is therefore important that the selectors decide which methods are the most effective for that specific assignment. Interviewing the candidate and spouse is done when the candidate pool is narrowed down to one or two potential candidates. An interview should be in-depth and should provide an accurate and realistic assessment of how living in the foreign country could be like for the candidate. This is very important and should also be done with the spouse in order to provide a realistic image of what is expected of him/her.

5. Making the Offer should be done when the selectors can base their decision on relevant, factual, and comprehensive information which they have gathered via utilizing several selection methods and conduction interviews with both the candidate and the spouse. Making the Transition to Training and Preparation, if the selection process has been strategic it is usually, according to Black et al. (1999), done in such good advance that there is time for appropriate training and preparation in relation to the specific assignment.

The steps in the global assignment selection process are visualized in Figure 2.4 as proposed by Black et al. (1999).

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Figure 2.4 Global Assignment Selection Process Source: Black et al. (1999, p.80)

2.3.3 Selection Methods

After that the selection team has narrowed down which criteria that they find important for the specific assignment, the candidates’ correlation with those criteria must be assessed.

Technical skills can be evaluated through previous achievements or actual tests, while the personal characteristics of a candidate are much more difficult to accurately measure in a reliable way (Dowling & Welch, 2004). To enable to organization and its selection team o evaluate the skills of the candidate there is a range of available selection methods, which are more or less effective (Black et al., 1999). In a research report by Farhang (1999) the most frequently used methods for selecting managers for foreign assignments are summarized, the summary conducted by Farhang is displayed in Table 2.1 on the next page.

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Table 2.1 Selection Methods

Source: Adapted from Farhang (1999, p. 9-10)

2.3.4 Harris & Brewster’s Typology of international manager-selection systems

Harris and Brewster (1999) identified four different variations of the selection system for international managers. The first two dimensions, that Harris and Brewster (1999) found, are

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connected to the existence of formal and informal systems at organizational level. The other two dimensions that Harris and Brewster (1999) identified are connected to whether the selection process is open or closed. An open system is characterized by the fact that all available positions are clearly announced and that anyone with the required qualifications may apply and the candidates are interviewed with varying degrees of formalized tests, thereafter the selection decision is taken by consensus. In a closed system the selectors choose or nominate suitable candidates. In a closed scenario there may only be one manager involved in the selection process and there is a high risk of subjectivity.

Closed/ Informal

In a system that is closed/ informal the individual preferences of the selectors are of significance. This can lead to recruiting the wrong people if the preferences are inconsistent and incoherent with the characteristics of an effective international manager. The importance of the selector’s preferences is tied to the absence of a formal structure and that there is no open debate regarding the criteria, in this scenario the employees are unaware of the process taking place.

Open/ Informal

On the other hand, in the open/ informal system employees have access to information regarding the available positions and are aware of the process taking place, but the selection decision is still based on personal recommendation and reputation. In such a system the selection decision is often made before any formal interview takes place. Formal selection criteria are formulated; however, the extent to which the match between criteria and the candidate are discussed is limited.

Closed/ Formal

A discussion regarding the match between the candidate and criteria is taking place in a selection process which is closed/ formal. Here the candidates are evaluated through formal criteria. However, the pool of candidates is determined by the selectors and gives room for individual preferences to omission suitable candidates. In this system networking and reputation play an essential role and there is a high risk of subjectivity.

Open/ Formal

The level of subjectivity is decreased in a system which can be characterized as open/ formal.

This is done via that the candidates are evaluated against formalized criteria together with comparison of own, and other selectors, assessments in order to determine the best ‘fit’. These lines of action decrease the effects of the individual selectors’ preferences and provide a more objective view of an effective international manager. Harris and Brewster (1999) summarized these factors in the model Typology of international manager-selection systems which is displayed on the next page in Figure 2.5.

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Figure 2.5 Typology of international manager-selection systems Source: Adapted from Harris and Brewster (1999)

According to Harris (2001) an open/ formal system is preferable when it comes to create equality of opportunity, between males and females as well as between PCNs, HCNs, and TCNs, within international management selection process. Harris (2001) state that the reason for this is that all employees have access to the selection process and that the risk of subjective judgements is constrained.

Selection and Requirement Process Explored in Practice

Harris and Brewster (1999) concluded in their study that there is a lack in the literature on how the international manager selection process is done in reality. They introduce something which they refer to as the “Coffee Machine system”, which in their study proves to be a common form of expatriate selection. They explain the process as following; when executives chat around the coffee machine the need to find someone to fill an international assignment is casual arisen.

`How’s it going?’

`Oh, you know, overworked and underpaid.’

`Tell me about it. As well as all the usual stuff, Jimmy in Mombai has just fallen ill and is being ¯ own home. I’ve got no idea who we can get over there to pick up the pieces at such short notice. It’s driving me crazy.’

`Have you met that Simon on the fifth floor? He’s in the same line of work. Very bright and looks like going a long way. He was telling me that he and his wife had a great holiday in Goa a couple of years ago. He seems to like India. Could be worth a chat.’

`Hey, thanks. I’ll check him out.’

`No problem. They don’t seem able to improve this coffee though, do they?’

(Harris & Brewster, 1999, p.497)

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According to Harris and Brewster (1999) the following scenario take place; while they wait for their coffee a short informal list of potential candidates is formed and after that the company’s formal selection process is started in order to legitimize a decision that in fact already has been made around the coffee machine. In this scenario the interview will be informal and contain discussion of contract and benefits, after this, the human resources department step-in to settle things regarding the physical transfer and training of the expatriate.

2.4 MOTIVES FOR LOCAL RECRUITMENT AS OPPOSED TO DISPATCHING FROM HOME

According to Colakoglu et al. (2009) a multinational company can staff its subsidiary either with parent-country nationals, host-country nationals or citizens from a third country. The influence that the Nationality of the manager has on the selection decision can be established via a strategic staffing policy. Such a policy serves many purposes such as; establishing global integration and maintaining control, as a result of the conditions in the host-country, and through mobilizing the corporate knowledge globally (Edström & Galbraith, 1977; Harzing, 2001; Colakoglu, Tarique, & Caligiuri, 2009). A number of demands and factors affect who an organization will select to become an international manager in foreign markets. The motive as to whether a PCN-, HCN-, or TCN manager will be selected is, according to Colakoglu et al. (2009), depending the level of importance that the organization associates with the influencing factors.

2.4.1 The Role Of The International Manager

According to Dowling and Welch (2004) the most important reason as to why companies use expatriates is to establish a personal/cultural control which is conducted both directly (explicit) and indirectly (implicit). Harzing (2001) classify the role of the international manager in relation to control using the analogy of bears, bumble-bees and spiders. If the manager serve to replace or balance the process of centralized decision making together with surveillance of subsidiary performance, Harzing (2001) refer to this as the ’bear role’.

However, according to Harzing (2001) if the managers mission is to establish control based on socialization, they are referred to as ‘bumble-bees’ as they cross-pollinate the organization by “flying from plant to plant” (Harzing, 2001, p.369). If the manager on the other hand has the role of weaving informal communication networks and through those implement control then the managers are referred to as ‘spiders’. The role of the international manager as

‘bumble-bee’ or ‘spider’ is, according to Harzing’s (2001) study, of greater importance for organizations that show a great extent of local responsiveness and are not, or to a low degree, depending on the headquarters for purchases or sales.

2.4.2 Pcn-, Hcn- Or Tcn Managers?

According to Collings, Scullion, and Dowling (2009) there has recently been a shift from the traditional reliance on PCN managers towards implementing a strategic IHRM plan in the global environment. According to Scullion and Collings (2006) the age of the subsidiary is a factor that influences the nationality of individuals holding key managerial positions. Scullion and Collings (2006) further state that MNC’s subsidiaries which have recently been established on the foreign market tend to have a higher number of PCN managers than those who have been in the market for a longer period of time.

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The nationality of managers on foreign assignments was studied by Kopp (1994) where the international staffing policies of Japanese, European and US multinationals were compared.

Japanese companies proved to be those who had the highest number of PCN managers employed in their foreign subsidiaries, this confirmed Tung’s (1981) findings. The US multinationals showed the lowest number of PCN managers and the European companies in the study were somewhat in between these two extremes (Kopp, 1994). However, neither Tung (1981) nor Kopp (1994) take industry effect into account or differentiate between host countries, this is something that was taken into account by Harzing (2001) in her study.

Advantage and Disadvantages of PCNs, HCNs and TCNs

The advantages and the disadvantages by using PCNs, HCNs and TCNs for international managerial assignments were studied by Harzing (2001). Harzing created a framework with the factors influencing the staffing decision; the framework is displayed in Figure 7..

Figure 2.6 Likelihood of a PCN manager in top management Source: Adapted from Harzing (2001)

Harzing (2001) argue that in cultures with high uncertainty avoidance, according to Hofstede’s (1994) framework, the level of PCN managers on key positions for foreign assignments tend to be higher. Harzing (2001) argue that this is connected to a fondness of being ‘in control’ and that there, in such cultures, is an established mistrust against foreign managers. The selection process in this kind of culture favours the recruitment of a senior PCN manager for foreign assignments. This is, according to Harzing (2001), connected to that headquarters might not trust information from local managers and fear that the level of commitment is lower from an HCN or TCN manager. According to Scullion and Collings

– Case studies of motives, processes and factors influencing selection decisions of managerial positions for foreign markets

M A S T E R ' S T H E S I S

Staffing Policies of Swedish MNCs