Page 235 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes 12.3.1 Types of Staffing Policy

Research identifies three types of staffing policies in international businesses: the ethnocentric
approach, the polycentric approach, and the geocentric approach. We will review each policy
and link it to the strategy pursued by a firm. The most attractive staffing policy is probably the
geocentric approach, although there are several impediments to adopting it.
1. The Ethnocentric Approach: An ethnocentric staffing policy is one in which all key
management positions are filled by parent-country nationals. This practice was very
widespread at one time. Firms such as Procter & Gamble, Philips NV, and Matsushita
originally followed it. In the Dutch firm Philips, for example, all important positions in
most foreign subsidiaries were at one time held by Dutch nationals who were referred to by
their non-Dutch colleagues as the Dutch Mafia. In many Japanese and South Korean firms,
such as, Toyota, Matsushita, and Samsung; key positions in international operations have
often been held by home-country nationals. According to the Japanese Overseas Enterprise
Association, in 1996, only 29 percent of foreign subsidiaries of Japanese companies had
presidents who were not Japanese. In contrast, 66 percent of the Japanese subsidiaries of
foreign companies had Japanese presidents.
A firm pursues an ethnocentric staffing policy for three reasons:
(i) The firm may believe that the host country lacks qualified individuals to fill senior
management positions. This argument is heard most often when the firm has
operations in less developed countries.
(ii) The firm may see an ethnocentric staffing policy as the best way to maintain a unified
corporate culture. Many Japanese firms, for example, prefer their foreign operations
to be headed by expatriate Japanese managers because these managers have been
socialized into the firm’s culture while employed in Japan. Procter & Gamble until
recently preferred to staff important management positions in its foreign subsidiaries
with US nationals who had been socialized into P&G’s corporate culture by years of
employment in its US operations. Such reasoning tends to predominate when a firm
places a high value on its corporate culture.

(iii) If the firm is trying to create value by transferring core competencies to a foreign
operation, it may believe that the best way to do this is to transfer parent-country
nationals who have knowledge of that competency to the foreign operation. Imagine
what might occur if a firm tried to transfer a core competency in marketing to a
foreign subsidiary without supporting the transfer with a corresponding transfer of
home-country marketing management personnel. The transfer would probably fail to
produce the anticipated benefits because the knowledge underlying a core competency
cannot easily be articulated and written down. Such knowledge is acquired through
experience. Just like the great tennis player who cannot instruct others how to
become great tennis players simply by writing a handbook, the firm that has a core
competency in marketing-or anything else-cannot just write a handbook that tells a
foreign subsidiary how to build the firm’s core competency anew in a foreign setting.
It must also transfer management personnel to the foreign operation to show foreign
managers how to become good marketers. The need to transfer managers overseas
arises because the knowledge that underlies the firm’s core competency resides in
the heads of its domestic managers and was acquired through years of experience
and not by reading a handbook. Thus, if a firm is to transfer a core competency to a
foreign subsidiary, it must also transfer the appropriate managers.

Despite this rationale for pursuing an ethnocentric staffing policy, the policy is now
declining in most international businesses for two reasons. First, an ethnocentric staffing
policy limits advancement opportunities for host-country nationals. This can lead to
resentment, lower productivity, and increased turnover among that group. Resentment

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