In the age of globalisation and the overwhelming rise in the activity of multinational enterprises (MNE), human resource managers report that they experience significant problems with selecting high-skilled employees.
Maintenance of equal standards regarding the recruitment policy is a cost-worthy procedure for any multinational enterprise, as employment abroad faces difficulties in the knowledge of the volumes of salaries that should be paid off, differences in the markets, consumer preferences and several others.
In fact, human resource managers should be able to adapt to any changes in the employment sphere to avoid future challenges and problems with the quality of the employees’ performance.
Any HR manager is obliged to navigate the complex global economy in such a manner that their company will be the most attractive to the best employees in any given sector.
Several multinational companies have struggled to select employees for subsidiaries if the head office is in a different cultural environment.
Perhaps, the most important thing to every MNE today is to have enough resources to cope with the challenges applied to the recruitment process.
In this respect, the current research paper aims to explore problems of the subsidiaries and headquarters in the development and implementation of effective recruitment policy.
During this research, the directors of an MNE will be approached to discuss their experience in overcoming challenges about the hiring of the best employees.
The analysis in this study is focused on the theoretical observations of the scholars as to the potential strategies to be used by head office or subsidiary in order to keep effectiveness of the employees.
These findings are tested in reference to the experience of the business units in achievement alignment of the strategies.
Introduction
Globalisation is not a new term. In the ‘Wealth of Nations’ by Adam Smith, his theory of the development of the economy involves the principle that markets are integrated over time (Smith 1910 p. 23). As output expands, the search for specialisation facilitates rise of export import volumes and unite people from differing parts of the world together. However, in the last twenty years, we have seen a technological revolution that has increased the global interchange of capital, trade, and knowledge (The Economist 2013). As global markets increased, there was also the growth in the opportunity for investment which catalysed the sheer number of multi-national corporations/enterprises (MNC/MNE) that we see in today's world. An MNC is a firm operating with use of the foreign direct investments. Inevitably, the need for control leads to employment opportunities, as firms seek to recruit individuals who have local knowledge and means to find resources, which would manifest in an increase in the rate of return of the investment for MNCs.
Most MNCs expand their business due to the open nature of the global economy, which creates new opportunities (Ghauri and Santangelo 2012 p. 149). Markets within developed countries are already oversupplied so that MNCs will look to emerging economies as business growth potential. Although this is standard practice, little research exists about employee selection and recruitment within developing countries (Cooke and Lin 2012 p. 208).
Overseas recruitment creates problems. Most enterprises have a companywide recruitment policy, but international recruitment poses barriers: different currencies mean disparity in wages, separate legal systems, and labour policies. These barriers indicate that the various recruitment structure have to co-exist and the issue of cultural differences is sure to further the need for the discrepancy in companywide recruitment (Aravamudhan and Krishnaveni 2015 p. 62).
This research paper will investigate whether multi-national corporations are more likely to recruit using the headquarter recruitment structure, or if international subsidiary companies set their recruitment policies and the problems this may lead.
To explore further, an interview was carried out with the chief executive officer of a booming multi-national enterprise, who for this dissertation, will be called ‘Multi-National Enterprise-A' (‘MNE A').
Background to ‘Multi-National Enterprise’
‘MNE A’ was founded in 1978 with one store in Blackpool. In 2004, the company had 21 stores, and it was purchased by investors who aimed to provide "great products for fantastic value so that they [the customers] return". In 2012, the company opened its 300th store, and a large investment firm acquired a stake in ‘MNE A’ with the previous CEO of Tesco joining its board of directors. In 2014, ‘MNE A’ listed on the Stock Exchange to allow for the generation of new capital streams to support the company's growth plan, while also purchasing a majority stake in a German discount retailer. In 2017, ‘MNE A’ also acquired a discount chain operating in North England. The group’s original company now has over 560 stores, employs over 28,000 staff across the UK and in 2016 it was averaging 3 million customer transactions each week.
Research Questions
The identification of the research question is essential to ensure the quality of the research project. Identified questions limit focus of the study and establish a methodology that should be utilised. The same is applied to the stages of the research project. Given the subject-matter of the paper, there are following research questions:
What relationship exists between the recruitment policy of headquarters and subsidiaries?
What are main barriers in the recruitment process of multinational companies?
Whether subsidiaries of the multinational companies should follow recruitment policy of the central office?
What measures should be taken to run a selection of the employees smoothly?
The research questions serve the role of a roadmap to this study and allow the author to consider the research question from different perspectives.
Research Aims
The aims of the research paper show what outcomes are expected at the end of the project. Also, research aims reflect intentions of the study and emphasise the critical aspects of the project. Regarding the research questions and subject-matter of the paper, the research aims and objectives are:
To consider pros and cons of the global recruitment policy of the multinational companies;
To compare benefits and gaps in the maintenance of the separate recruitment policy by the subsidiaries of the MNC;
To identify barriers and challenges in the promotion of the global recruitment policy by the MNC;
To approach managers of the multinational corporation and consider their experience with applying specific recruitment policy;
To develop recommendations as to the use of particular recruitment policy.
At the end of the research study, the author will conclude whether the aims and objectives have been achieved.
Literature Review
This part of the paper covers the evaluation of the existing literature on the effectiveness of the global recruitment policy, and the extent to which it can be used by every company. The literature review analysis extends to the available data on different recruitment strategies and synthesises information about barriers and challenges that are faced by the MNC during the implementation of its recruitment strategy. Also, the literature review critically analyses available studies to identify what limitations and gaps exist in the research field.
Analysis
Before considering multi-national corporations (MNCs) and subsidiaries in detail, this research paper believes it must first define and explain the theory behind the recruitment process. Recruitment has been identified as "not just a process of filling vacancies, but as a part of workforce planning generally" (Kanopy Streaming 2014). This involves auditing the employees of an organisation, along with their skills, to find gaps that require filling for both the short and long-term plans of certain company. This is because people are a key asset of any business, so recruiting the right people is essential. This thesis is backed up by Lionel Parrott (1998) who states that the recruitment process is very costly and time-consuming, which implies that it must be done correctly the first-time (Parrott 1998, p. 232). Parrott (1998) claims that there are five questions that the employer should consider when a vacancy opens. Answering these questions links directly to the "workforce planning" mentioned by Kanopy Streaming (2014) above:
1. “Has the previous jobholder been given an exit interview?
2. Has the need for the job been subjected to rigorous scrutiny?
3. Can the job be eliminated?
4. Can the scope of the job be enhanced or reduced?
5. Can the work be redistributed?”
David Lahey (2015, p. 4) continues this by discussing the incentives that drive individuals, and discovered that some common themes should be considered when recruiting:
1. Goals – all humans set themselves targets as a form of motivation
2. The pursuit of pleasure/avoiding pain – human nature naturally looks for positive outcomes and attempts to sidestep negative ones
3. Control and mastery – this is preferred to uncertainty as it boosts confidence and efficiency within the workplace
4. Variety and interest – humans naturally veer towards stimulating occupations, rather than repetitive and boring jobs
5. Social context – social interaction is enjoyed by nature, so individuals are motivated to get along with co-workers, clients and such like (Mahmood 2014, p. 45).
It is stated that we are incentivised by each of these factors to some degree and using behavioural science can help to create, and tailor, job adverts to a particular type of candidate. Furthermore, this science can also aid the interview process, allowing the interviewer to develop critical questions that reflect the core competencies of the role being offered (Lahey 2015, p. 23).
Although these factors are a good starting point, there are many other aspects of recruitment that must also be considered. Not least the cultural effects of the country an individual is working in, and how this may alter proceedings. This is especially the case in MNCs where, in general, a companywide recruitment structure exists but must be adapted depending on the country utilising it. MNCs structure must include national, international, transnational models based on Bartlett and Ghosal’s (1986) thesis. Global structures tend to converge HRM methods as they involve regular meetings with subsidiary managers and horizontal movement within the corporation so that employees can be incentivised by international opportunities (Ferner et al. 2012 p. 169). Again, this links to Lahey’s (2015) emphasis on variety and excitement of the job acting as a stimulus for employees. If an MNC utilises multi-domestic structures, subsidiaries are less likely to have similar HRM practices with their headquarters, which will increase the chance of divergence (Pudelko and Harzing 2008 p. 20). With globalisation becoming an increasing trend, companies want to exercise increased control over subsidiaries regarding their HRM methods. For this reason, structures with higher levels of power are recommended to assure that there is a co-ordinated approach (Ferner et al. 2012 p. 172). This would imply that headquarters require less disparity with regards to the selection process, and therefore, they exert more influence over subsidiary organisations to ensure convergent recruitment practices.
Building on the rise of international markets and globalisation, Welch (2005) realised that language must be examined as a source of power within enterprises. This was built on by Gaibrois (2018), who stated that language skills are essential for accessing information and the “organisational functionality" within MNCs. For this reason, MNCs and subsidiaries must be cautious during the recruitment process, as they are not only looking for individual traits but also looking to ensure the functionality of the team that the individual will be working within. In laymen's terms, the individual must not have any barriers to communication between the individual and its' team. This is often ensured by using a "common platform" language, usually English (Gaibrois 2018 p. 82). This links back to Lahey’s (2015) factors, emphasising the social nature of humans, and more generally, the social life of a globalised economy.
As previously stated, little research exists for developing countries because of a host of reasons and this dissertation will now investigate this further: first, some MNCs begin as global companies from their inception. This translates to unified human resource management (HRM) method for both headquarters and subsidiaries (Rugman, Verbeka and Nguyen 2011 p.42). Because of this, limited research has been performed in MNEs-from-birth, as recruitment is company specific and this depends on the core values of the company; so, there is not a generalised rule but rather companywide policy (INE 2017).
Furthermore, many headquarters will have an indirect or direct influence on how the enterprise’s subsidiaries are managed. For example, ‘Toys R Us’ UK wrote-off a £585m loan to a related company based in the British Virgin Islands, just months before it filed for bankruptcy (Meddings 2017). Although this example does not relate to recruitment, it shows how headquarters can, and will, manipulate their subsidiary companies and have an influence on how they are managed. To investigate a headquarters' influence on subsidiary management, many scholars follow one of four perspectives (Ambos and Birkinshaw 2010 p. 455):
1. The strategy-structure relationship perspective
2. The production integration and headquarter-subsidiary interdependency perspective
3. The subsidiary role perspective
4. The international human resource policy orientation perspective
All dimensions of the correlation between the business performance of the headquarters and subsidiaries are relevant for consideration of the scope of the impact of the recruitment decision making the process of the headquarter of subsidiaries. Review of the strategy-structure relationship perspective and production integration are essential for this research study as it enhances understanding about specific skills and requirements that should be applied to the employees of all elements in the supply chain of the multinational corporation.
The Strategy-Structure Relationship Perspective
Every business unit performs its activity by accounting for the organisation’s strategy and structure. The policy of the company serves the role of planning for business units in the subsequent use of the resources of the organisation. The importance of the connection between company’s organisational elements of the strategy were considered by Chandler (1962). Although, at the end of the twentieth century, researchers lost interest to the consideration of the congruency between structure and strategy (Chandler 1962 p. 54). The scholars’ interest shift is explained by the search for alternative approaches available to the international organisation (Chandler 1962 p. 56).
With that, the organisational structure of the company sets the use of the different departments of the company, which contribute to the general strategy and business approach. If any business unit aims to succeed in its industry, the structure and policy should be aligned (Chu 2014). In the meantime, the organisational structure represents company’s view of the hierarchy and division of the responsibilities between employees and managers of the departments. The correlation of the structure and strategy should be achieved in a manner so to avoid overlapping of the workforce. Chu (2014) highlights that two decades ago structure was considered as a separate element from the strategy. Although construction and plan are intimately connected, the formation of a company structure is not possible without the adoption of the fruitful approach (Chu 2014 p. 11617). According to scholars, the organisational structure of the company depends on the outcomes of the application of the strategy of the company. The scope of the relationship between policy and structure is dependent upon the complexity of the procedure itself. If an organisation has clarity regarding its values and objectives, the deficiencies in the construction of the company become clear. Any amendment to the plan implies that the role of the employees in the organisation will be affected. Moreover, the relationship between policy and structure of the organisation is seen in the fact that any strategy should be adjusted to the organisational structure. Otherwise, implementation of the new plan of the company will not be sufficient (Bryan and Joyce 2007 p. 27).
For several years, strategy and structure have been considered by researchers as inseparable elements in the corporate performance of the company. Investigating structure and strategy of the company is believed to facilitate proper evaluation of the decision-making process and organisational performance of the business unit. In addition to Chandler (1962), Ansoff (1965) states that maintenance of the active structure is essential for the satisfaction of the aims and objectives of the organisational strategy. With that, Ansoff (1965) concluded that structural features of the company imply complexity and centralisation, while their references to policy are focused on proactivity, reactivity and ability to defend the MNE (Ansoff 1965 p. 54). In conclusion, this scholar states that any relationship between strategy and structure of the company should be considered on a case-by-case basis (Ansoff 1965 p. 57).
The Production Integration and Headquarter-Subsidiary Interdependency Perspective
Given globalisation and rising power of the multinationals, researchers pay more attention to the challenges and limitations that subsidiary managers encounter (Patterson and Brock 2002 p. 259). The available studies were the first to consider the headquarters-subsidiary relationship, specifically the subsidiary’s scope of autonomy. Most scholars concluded that subsidiaries of the MNC should be provided with individual autonomy and power (Patterson and Brock 2002 p. 260). There are several theories used for determination of the potential rise of the role of the subsidiary in collaboration with the headquarters (Gërxhani and Koster 2015 p. 790). The product integration and market positioning of the subsidiary are considered by scholars as a standard instrument for attaining the required respect from the headquarter of the global supply chain. The emergence of the notion of the worldwide customer implies that subsidiaries do not have to work correctly for the needs of the individual market (Mudambi 2008 p. 708). In turn, subsidiaries must deprive themselves of outsourcing and offshoring to maintain its cooperative relationship with other global companies.
Accordingly, researchers define constant conflict that exists between two units as headquarter and subsidiary of the central office. The battle takes roots due to the high rates of the incompatibility and interdependence of these separate units. Although, different international strategies may be invoked by the managers of these units to solve this discrepancy (Roth and Nigh 1992 p. 287). The ‘global integration’ approach is an effective method for the resolution of challenges faced by the subsidiaries in communicating with headquarters. The subsidiaries should integrate diverse activities in pursuit of sustainable competitive advantage within a new market. In this respect, the ‘production integration’ of the subsidiary should be achieved by competitive advantage, the location of specific benefits and market power advantages (Roth and Nigh 1992 p. 288).
The Subsidiary Role Perspective
For several years, literature contained evidence on the implicit and explicit position as to the autonomy of the subsidiary in the relationship with the headquarter. Martinez and Jarillo (1991) raised a concern that activity of the subsidiary forces managers of the headquarters to take urgent measures in exercising stricter control over the performance of the subsidiary (Martinez and Jarillo 1991 p. 438). Holm and Pedersen (2000) considered the role of the subsidiary from other perspectives, where it may exercise influence on the different elements of the MNE supply chain. Hence, the autonomy of the subsidiary is regarded as a tool of impact on the strategic development of the headquarter of the MNE. Also, one should be informed that Martinez and Jarillo (1991) concluded that active subsidiaries would be much more interested in the application of massive coordination mechanisms (Martinez and Jarillo 1991 p. 433). In turn, Taggart and Hood (1999, p. 226) were the first researchers to address determinants of the subsidiary autonomy. They concluded that the autonomy levels are affected by the level of the R&D complexity and whether export activities align with market structure and volumes of sales (Najeeb n.d. p. 85). In conclusion, the speed of growth and integration of the multinational enterprise may affect the scope of the autonomy provided to the subsidiary of the MNC (Taggart and Hood 1999 p. 234).
The International Human Resource Policy Orientation Perspective
It is worth noting that labour market policies can also alter recruitment strategies (Sengul 2017 p. 172). These policies can give rise to changes in recruitment policies, where companies should look at the qualities of an employee. For example, more interviews mean the chances of finding the right worker are increased – a fact that is overlooked. So, if the policy makes it more difficult to fire an individual, the employer will be more likely to conduct a higher number of interviews to ensure that the values and work ethic of the candidate are in tandem with those of the company. This means that the recruitment strategy must be adapted to allow an increased number of interviews. For example, the Spanish Prime Minister, Mariano Rajoy, decided to relax labour regulations and make it easier to fire somebody. His philosophy is that if it is easier to shoot somebody, it is easier to hire somebody too. But this meant that companies did not conduct due diligence before hiring, as they had little or no financial punishment for firing an employee (Legidos 2017). This led to an incredibly high labour turnover rate, a rise in the use of temporary contracts and an unemployment rate of 18.6% (INE, 2018). However, there is no generic rule to show the relationship between recruitment and policy change, as it merely depends on whether the policy favours job creation or destruction (Sengul 2017 p. 173).
Psychometric Testing
Psychometric tests “focus on personality tests and cognitive ability” (Demasi 2013 p. 61). These tests should be standardised and objective to improve their reliability. Many corporations utilise these tests as part of the recruitment process as they are cost-effective and their validity in cognitive predictions is extremely strong (Demasi 2013 p. 61).
In 1993, Patrick Kyllonen wrote an article discussing the benefits of these tests, how they work and where improvements must be made. This was over twenty years ago, and even with advances in science and technology, his research is widely regarded as the framework for the analysis of different learning strategies. This would either imply little breakthrough in psychological research, or very little change in human behaviour. But if the study that was conducted 20 years ago is still relevant today, then this research piece believes that it would imply a resistance to change within humanity. It is still unclear whether this has an impact on psychometric testing (IZait, 2013).
Kyllonen (1993) states that there is a "four-sources model of human abilities," thus, any individual differences are due to differences in:
- Working-memory capacity
- Information-processing speed
- The breadth of declarative knowledge
- The extent of procedural knowledge
So, it led Kyllonen (1993) to argue that psychometric testing is about sophisticated categorisation and clustering, rather than a psychological empathy of how people learn and think. This led to widespread calls for these tests to be replaced with ones with a more in-depth understanding (Ronning 1987 p. 271).
However, Lahey (2015) disagrees with Kyllonen’s assertion and claims that behavioural testing is equally as important as other recruitment methods. It allows candidates to give a real insight into how they function without the pressure of a formal process, such as an interview. Furthermore, it serves a dual function as it also gives employers current information to determine which buttons to push, “By identifying people’s motivations and drives, leaders can put workers in roles that are most suited to them and their core personality” (Lahey 2015). Essentially, Lahey believes that these tests provide insight into the long-term behaviour of an individual and it can aid the removal of subjectivity within the recruitment process, and instead utilise objective and scientific methods to whittle down the number of candidates. This is especially the case as he states that our behaviour is based on instinct and conditioning (learned behaviour). Conditioning starts early in our lives, and this is what leads to habit. Lahey (2015) argues that "all things being equal, a particular individual will behave in the same way today as he did yesterday (and will behave the same tomorrow)." (Lahey 2015 p. 122) This leads to the conclusion that a person's characteristics have a visible impact on their work performance and so must be delved into deeper before hiring said, individual. This contradicts Kyllonen’s philosophy that psychometric testing is not about how people think and learn.
Also, it is not just researchers who believe that psychometric testing is of enormous benefit. Service Canada (2016) states “through proper use, pre-hire assessments will greatly increase hiring effectiveness as they improve the firm’s ability to make precise, objective and accurate hiring decisions about an applicant’s compatibility with the competencies required for a specific position” (Canada.ca 2016). This echoes Lahey’s (2015) idea that these tests are of tremendous help to companies and should not be underestimated.
This can be further highlighted by looking at the company ‘Predictive Index’. They compare candidates against a company’s pre-defined cognitive and behavioural job requirements to find the employee that will fit best (The Predictive Index 2018). This allows companies to understand an individual’s motivations and ability before they enter the office. Moreover, it would allow an interviewer to ask questions specific to an individual’s ability, which would allow for a more efficient interviewing process and therefore, a more efficient hiring process.
Migrant Effect on Recruitment within MNEs
The freedom of movement of people within the territory of the European Union served the role of the basis for the development of the migrant workers across the borders of different countries. Impact of migrant workers is carefully considered by scholars to measure their effects on the state of the economy, financial ratings, public financing (Rhee and Flynn 2017 p. 951). In fact, migrant workers may fill in the gaps in the host country because they bring unique and complementary skills that are not exercised by the workers of the host country. Scholars note the hiring migrant workers produces both positive and negative effects on the corporate performance of the company (Ghosh and Geetika 2007 p. 39). In some cases, hiring migrant workers leads to numerous challenges interconnected with integration and language barriers. If any of these barriers appear, the managers of the company have to invest resources so to resolve this issue in pursuit of higher productivity. Also, business units report that only some impacts of the migrant recruitment may be identified by the multinationals, while they are always connected. The first impact is referred to the burdensome training that should be accomplished by the migrant workers, while the second one is different in technical and industry backgrounds of the employees when they should form one team (Rhee and Flynn 2017 p. 951). The most suitable example of the actual volume of the migrant workers in the modern environment is reflected in Figure 1 below:
The Rise of E-Recruitment
The rise of the scope of the digital world has led to the appearance of the new dimension in recruiting policy (Irani 2017 p. 20). With the presence of the Internet, employers have gained an opportunity to save costs needed for selection of the best – fit applicants. Also, the process of the range of the right candidate for a particular office has become more transparent (Irani 2017 p. 22). Hence, a term "e-recruitment" is widely used today by the HRM managers. The other times of this tendency are online recruiting, social recruiting or Internet hiring (Irani 2017 p. 23). Scholars define e-recruitment as the process of attraction of the external employees to the office in case availability of the internal candidates is not sufficient. According to Holm's (2012), there is a significant difference between hiring policy of the employees. He notes that the main advantage of e-recruitment is the simplicity of the process, where recruiter only has to fill in information about candidates and select the most proficient (Holm 2012 p. 31). With that, social media is not indeed covered by the notion of e-recruitment as they constitute almost two different options for recruiting employees.
According to Carolien Handlogten (2009), there are numerous benefits of the use of e-recruitment by the companies today as follows:
- Cost savings
- Expansion of the scope of the search for candidates
- The effective hiring of the officers
- Maintenance of the competitive advantage against competitors (Handlogten 2009 p. 42).
According to Zahir Irani (2017), any problem related to absence of goal – congruence between employment policy of subsidiary and head office should be solved with use of psychometric testing (Irani 2017 p. 21). The author of the article believes this this method should be useful when hiring people in support of the cultural diversity at the workplace.
