Home Headquarters versus Host Company Offices

1. Introduction

The worldwide approach to foreign markets forces Multinational Enterprises (MNE) to produce and market their products in more than one country, through foreign direct investments (FDI). By opening so-called host country offices and production facilities in foreign countries (host countries), MNEs usually have their headquarters located in the home country, the country where the business was started - sometimes decades or centuries ago. For example Nestle, the world’s largest food company, has its headquarters in Vevey, Switzerland, the home country where the company originally was founded, but operates globally through a large network of host company offices – and plants – in multiple host countries all over the world. MNEs often face challenges in host countries, such as lack of political stabilization, currency risks, legal requirements, and human resources issues. This paper will focus on human resources management with regard to the home country of a MNE, and its host country offices. The challenges and obstacles will be explained and analyzed.

2. Discussion and Analysis

2.1 Designing of the Work Force

The first obstacle a MNE has to overcome is the decision about its work force design in a host company office. It has to be defined how many people are needed, what their characteristics should be, and what salaries will be paid. The most difficult decision is usually the design of the sales force. Sales representatives are the most necessary factor when it comes to a successful marketing of a company’s products. “The sales person is a company’s most direct tie to the customer; in the eye of most customers, the salesperson is the company” (Cateora et al, 502). At the same time, management in the home country needs to understand what the requirements and expectations of potential employees are, if people need to be hired. Many German companies do not understand what the interpretations of defined titles in the U.S. are. A German manufacturer of food cutting machines could not find a sales executive for more than two years. The company asked the recruiter to hire a sales manager, even though the recruiting company tried to explain that for this particular job the title Vice President Sales would be much more appropriate. After two years the recruiter finally gave up.

Many MNEs try to hire as many local employees as possible. “[…] The picture is clearly biased in favor of the locals because they transcend both culture and legal barriers” (Cateora et al, 505). At the same time, the mindset of locally hired personnel may not be in line with the host country office/headquarters, since the host country culture, the specific business acumen and customs can differ significantly. Employees in the U.S. usually only take a thirty-minute lunch break, while French and Spanish employees consider a two-hour lunch break absolutely normal – including the consumption of alcohol. Another issue is the misunderstanding of hints, suggestions, and comments by local nationals of how to do business, how to approach a potential customer, and how to deal with executives of a potential customer company. The mindset in the host-country office might not be open enough to see business opportunities, while employing different business acumen. It is not sufficient to visit a potential customer in Brazil only once, since a true business relationship is almost considered a friendship, whereas in the U.S. business is solely profit oriented and usually based on the “time is money” approach. “The main disadvantage of hiring local nationals is the tendency of headquarter personnel to ignore their advice.” (Cateora et al, 506).

If a company opens a new host country office, one usually finds a mix of local nationals, also called host country nationals (HCNs), expatriates, and third-country nationals. The tendency of hiring third-country nationals, employees from foreign countries who work for a foreign company in a third country, is increasing. These employees are considered “truly global executives” (Cateora et al, 507), since they usually have vast international experience and an understanding of foreign cultures. For example Burrough’s Corporation hired six third-country nationals for six host country offices in Europe and South America, and was apparently very successful by doing so.

Expatriates, also known as parent-country nationals (PCNs), are employees who are citizens of the nation in which the parent company is headquartered (Ball et al, 543; Daniels et al, 778). The advantage of expatriates is the knowledge of the parent company, its product lines and communication systems, and the usually received technical training, besides the already proven dependability. The disadvantages of expatriates are the enormous costs associated with the move to a host country, the salary and expenses, but also cultural, legal, and language barriers. The chemical company BASF has reduced its staff of expatriates significantly over the last three years – for cost reasons and the obviously increasing legal hurdles to receive working permits and visa for the PCNs. Another issue is the high failure rate of expatriates who are not willing or not capable of dealing with a foreign environment that is hardly known and certainly challenging at times. The failure rate of BASF-expatriates in Asia is the highest by far, since many have to face a culture that is totally different from the European (German) one.

2.2 Host-country restrictions

Many host countries do not necessarily welcome foreign direct investments, and the associated intrusion of foreign workers in the host country. France has restrictions about how many expatriates can be employed by a company, based on the size and the amount that will be invested. But even if a company follows the legal rules implemented by the country, it might face severe resistance. After having bought the French company Ricale, the German packaging provider Bericap intended to send a German sales manager to Paris in order to manage the sales force in its new Paris office. Not only did the French staff refuse to work with the expatriate, but the French union also protested, even though there were no legal grounds for doing so. Bericap finally hired a local national. The fear of foreign corporate domination, local unemployment and other issues, such as the fear of losing national identity, force nations to restrict the number of non-nationals allowed to work in the host country (Cateora et al, 508). Also, the U.S. has imposed restrictions, especially after September 11, 2001. Meanwhile, granted work visas are limited, and the possibilities to extend a work visa multiple times are low.

2.3 Culture

As already briefly discussed in 2.1, the understanding and interpreting of culture plays a major role when it comes to host country offices. The identification of Geert Hofstede’s four cultural dimensions that differentiate countries, are very helpful tools for MNEs. Employees of individualistic societies, such as the U.S., have to overcome major hurdles and issues to understand employees in a host country like Japan – and vice versa -where the collectivistic society is embedded in the culture. High versus low power distance plays a larger role in South American countries, even though these barriers seem to shift slowly but surely. One reason is certainly the influence of MNEs, operating in these countries. Masculine versus feminine, and weak versus strong uncertainty avoidance (Kotler et al, 610) are the two additional factors identified by Hofstede that have to be kept in mind when working in a host country, and leading a host country office.

3. Conclusion

Besides the knowledge of foreign markets, the way these markets operate, and the competitive landscape, it is of utmost necessity for a MNE to understand the local workforce in the host country. A ‘healthy mix” of expatriates and local nationals in the host-country office is recommended. In order to overcome unnecessary barriers, such as miscommunication, misinterpretation of rules, behavior and attitudes, both the home country office/headquarters, and the host country office have to find a common working ground in order to be successful in the long run. In order to establish this common ground, the executive management has to implement a policy that fosters cooperation and communication, by establishing a sensitive and sophisticated human resource management. Highly successful MNEs base their success on a distinguished human resource management that is embedded in a company’s strategy, and is understood as a major pillar of a company mission.

References:

• Ball, Donald E, Wendell H. McCulloch Jr., J. Michael Geringer, Michael S. Minor, Jeanne M. McNett. International Business: The Challenge of Global Competition. 11^th ed. New York, New York: McGraw-Hill Irwin, 2008. Print.

• Cateora, Philip R., Marcy C. Gilly and John I. Graham. International Marketing, 14^th ed. New York, New York: McGraw-Hill Irwin, 2009. Print.

• Daniels, John D., Lee H. Radebaugh, and Daniel P. Sullivan. International Business: Environments and Operations. 12th ed. Upper Saddle River, New Jersey: Pearson Education, Inc., 2009. Print.

• Kotler, Philip, Keller, Kevin Lane Keller. Marketing Management.13^th ed. Upper Saddle River, New Jersey: Pearson Education, Inc., 2009. Print.