May 16, 2011The advantages and disadvantages of using expatriates rather than host nationals to staff foreign subsidiaries The aim of this report is to discuss the topic of control in the foreign subsidiaries of multinational corporations (MNCs). The purpose is to find answers why companies prefer to select either the host country state manager or the expatriate manager. The report focuses on the topic of management in the foreign subsidiaries of multinational corporations. Foreign subsidiaries are normally located outside the home country of the multinational corporation and thus the management of such subsidiaries poses distinct challenges compared to controlling the subsidiaries located inside the corporation’s home country.
Several factors such as variations in cultures of the subsidiary and the parent MNC contribute to these distinct challenges of management in a foreign subsidiary. We are going to refer to a case study of Canon Inc. Canon Inc. is a Japanese multinational that was founded in 1937. Its headquarters are in Tokyo, Japan. Canon INC. is a manufacture of business machines, cameras and optical products. In 2008, Canon Inc. had annual net sales of 30.6 billion euro and approximately 25,400 employees.
Canon Inc has subsidiaries positioned in every continent. Canon Inc. lists its core values as learning & teaching, continuous improvement, openness and trust, facing reality, participation then commitment and pride in achievement. Multinational Corporation (MNC) is defined as a group of diverse organizations that are geographically dispersed in various locations (Volkmar, 2003). The corporation comprises of headquarters and subsidiaries. A foreign subsidiary is defined as any operational unit that is managed by the multinational corporation and located outside its home country borders.
Host country national manager refers to the native citizen of a particular foreign subsidiary (Volkmar, 2003). The expatriate manager on the other hand is a manager chosen from the home country of the MNC and sent to manage a subsidiary in a foreign country. Merits and demerits of using host country National Manager in staffing foreign subsidiary (Host Country Nationals (HCNs))AdvantagesDisadvantagesLower employment expensesExhibits confidence in local citizensboosts approval of firm by local societyFirm is recognized as part of local economysymbolizes local attitudes in decision-making These managers have knowledge on the local business scene. Avoids language barriers. Keeps low profile in the subsidiaryImproved morale of local staff. Easy to work in the subsidiary culture. Better opportunities for local staff. Leads to rescheduling of complicated local decisions (such as layoffs)complexity in recruiting competent human resourcesdecrease the amount of control by headquartershard to balance local demands/global main concernsPossible conflicting national loyalties that may be present. Less knowledge of the parent company’s values. Less knowledge of the processes of the parent company. Less communication with the parent communicationLess technical and international expertise. The option of host country national to control the subsidiary of a multinational corporation is referred to as the polycentric staffing policy (Storey, 2007).
There are several advantages associated with polycentric staffing policy. Scullion and Collings (2006) proposes that the advantages that the host country national managers possess results from the knowledge of the home business scene. The host country national manager becomes an attractive option when knowledge concerning the subsidiary country is little. Host country national managers normally enjoy the already established local associations and have profound understanding on how to operate in the subsidiary. When a host country national manager is selected to lead the subsidiary, he or she will not have problems with the local language or with the adjustment to the subsidiary.
Furthermore, when a host country manager is chosen to lead the subsidiary, the morale of the local staff is boosted. Vaghefi et al. (1991) suggests that the improved local staff morale results from their apparent better opportunities to get promoted to higher positions in the company. Sporadically, the option of host country national managers may be autonomous from the requirements of the multinational.
For instance, the immigration laws in several nations demand the employment of local nationals. Generally, the option of host country national manager allows the multinationals to maintain lower profile in the subsidiary. Schniederjans (1998) notes that the costs of host country national managers are generally lower than having to bring in an expatriate to lead the subsidiary.