Analysis of ethnocentric approach to hrm

1 Introduction

Human resource management (HRM) refers to the activities an organization carries out to utilize its human resources effectively, including determining the firm’s human resource strategy, staffing, performance evaluation, management development, compensation, labor relations. The staffing activity is concerned with the selection of employees who have the suitable skills required to perform a particular job. To perform staffing function effectively, there are three main approaches within international business identified: the ethnocentric approach, the polycentric approach, the geocentric approach (Dowling PJ, Festing M and Engle AD, 2008). In the article, the ethnocentric approach will be comprehensively and deeply analyzed, and then the advantages and disadvantages of ethnocentric approach will be figured out. Combined with analyzing the case of Hilton Group, we will see that the reason why the ethnocentric approach to HRM for multinational company (MNC) is out, that how an international human resource management (IHRM) effectively plays its part under the global context.

2 The ethnocentric approach to HRM for MNC is out.

2.1 General situation of Hilton International Group

Whichever major city you find yourself in you may have a big shot to coming across a Hilton Hotel. Hilton International Group is a leading global hotel brand; the company operates 380 hotels all round the world and has subsidiaries located in 66 countries. Its 80,000 strong workforce looks after and serves an average of 8 million guests every year (Article, 2002; Annual Report, 2003). The quality of the Hilton brand is base on the customer service and its operational excellence is higher than in most industries. The same as all service businesses, the contribution of people is of central importance to Hilton’s success. Hilton International is quite decentralized: splitting into countries, cities and individual hotels. This meant that hundreds of its managers have to be convinced about the initiative – an exercise in which Skill-Soft plays a fundamental role to tackle different issues arisen from its 66 country subsidiaries. (Article, 2002)

2.2 Recruitment analysis of Hilton International Group

The broad recruitment strategy determines the nature of the international manager development program and the type of IMD, suggested by Perlutter (1969) and later on by D’Annunzio-Green (1997). Besides the ethnocentric approach which tends to use expatriates in key positions abroad, there are other two different approaches available for managing and staffing companies’ subsidiaries, the polycentric approach and geocentric approach. The polycentric approach tends to use local nationals wherever possible and the polycentric approach tends to use a mixture of nationals, expatriates and third country nationals (Treven S., 2001; Datamonitor, 2004). For the ethnocentric approach, the cultural values and business practices of the home country put a predominant influence on the subsidiaries. The corporation headquarter determines all the standards of evaluation and controls the branch’s management practice in the form of orders and commands (Miles, 1965; Malkani, 2004). For the polycentric approach, it is just direct opposite to the ethnocentric approach. The corporation headquarter allows its subsidiaries to develop locally but the corporation headquarter will supervise the local managers. However, this results in little communication between the corporation headquarter and its subsidiaries. For the geocentric approach, it combines the advantages of ethnocentric approach and polycentric approach. The selection of manager is based on competency rather than nationality and organizations try to combine the best from both the corporation headquarter and its subsidiaries.

With regard to Hilton Hotel Group, it tries to integrate different parts of the group through the cooperation between headquarter and subsidiaries, and then implement combined standard of both universal side and local side for evaluation and management (Johnson, 2003). And at the same time, Hilton has attempted to recruit and develop a group of international managers from diverse countries for many years.

These international managers constitute a mobile base for a variety of management facilities as the need arises.

2.3 The phenomenon Hilton Group unfolds and implies: the ethnocentric approach to HRM for MNC is out

The recruitment approach of Hilton hotel indicates something that reveals the shortages of the other two approaches. As this article aims at the ethnocentric approach analysis, it can be concluded that the Hilton Group did not adopt the ethnocentric approach as the staffing strategy for some reason. Here what is needed to be explored is that what the reason is. Underling the phenomenon of Hilton Group not adopting the ethnocentric approach, there may exists some common truth shared the multi-national corporation, like Hilton Group. Is the ethnocentric approach out to human resource management for Multi-national Corporation? The answer to this question definitely is yes; the explanations and its analysis will be stated in the following paragraph.

3 Advantages and disadvantages of ethnocentric approach to HRM

3.1 The ethnocentric approach

To analyze the question and answer above, firstly let us see what does ethnocentric approach mean and why the people use it to human resource management. Ethnocentric approach means the home country practice prevails within the company (Albrecht MH (Ed), 2001); headquarters from the home country makes crucial decisions; employees from the home country hold important positions, and the subsidiaries follow the headquarter management practice. The companies that adopt ethnocentric approach hold three reasons: firstly the company believes that there is a lack of qualified individuals in the host country to fill senior management positions(Dickman M, Brewster C, Sparrow P, 2008); secondly, the firm regards an ethnocentric approach as the best way to maintain a unified corporation culture; thirdly, the company believes that the best way to create value by transferring core competencies to a foreign branch is to transfer home-country nationals who have sufficient knowledge and competency for the branch. However, recently the ethnocentric is on the wane in most international business, for two main reasons: leading to “cultural myopia” and limiting advancement opportunities for host country nationals.

3.2 Advantages and disadvantages of ethnocentric approach

As to the issue whether ethnocentric approach to HRM should be used in Multi-national Corporation, both the advantages and disadvantages of ethnocentric approach deserve to be analyzed and evaluated. The advantages of ethnocentric approach include: offers multi-national orientation opportunities to employees through the working experience at parent company; cultural similarity with parent company guarantees various transfer of business and management practices; permits tighter control and closer coordination of international subsidiaries for the headquarters (Grandrose CS, 1997); establish a big pool of international experienced executives for the parent country. The disadvantages of ethnocentric approach include: the subsidiaries may create problems of adaptability to the local environment and culture; the corporation may involve high transfer fee and salary costs; sending managers to subsidiaries may result in personal and family problems; it may be more possible to lead to high failure rate; it may has disincentive effect on local-management morale and motivation; the subsidiaries may be subject to local government restrictions, and others.

For Multinational Corporation, the ethnocentric approach shows a centralized authority management style. The local subsidiaries do not have so many decision-making rights compared with the geocentric approach subsidiaries. However, the business surroundings vary from one country to another. One management decision works out in a country but may not work out in another. Obviously this is unsolvable problem faced by the corporation headquarter that adopted ethnocentric approach to HRM. Surely there are other tough issues confronted with the MNC which adopts ethnocentric approach. But all the issues are arisen from the ethnocentric approach. Thus I think the disadvantages of the ethnocentric approach put a heavier negative role on the MNC management than the positive role put by the advantages of the ethnocentric approach. Combined with Hilton hotel’s operational environment differences, Hilton Group made a right decision of not adopting the ethnocentric approach.

3.3 Deeply analyzing the reason why the ethnocentric approach to HRM for MNC is out.

Since it is a right decision for Hilton Group not to adopt the ethnocentric approach, then put it in another way, it is a wrong decision for Hilton Group to adopt the ethnocentric approach, at least at the time of present. Then it can be concluded that the ethnocentric approach to HRM for Hilton Group is out. However, can the conclusion be applied universally into other multi-national corporation like Hilton? If the answer is yes and the ethnocentric approach to HRM for Multinational Corporation is out, then what is the reason and how does it happen. The following is to deeply analyze the reason why the ethnocentric approach to HRM for MNC is out.

On the related theme, if the foreign subsidiaries of MNC intend to succeed in a particular market, they must hire, train, and afford attractive career path to the local managers in the subsidiary country (Lucas R et al, 2006). Having those who know the language, the culture, and the business customs to operate the subsidiaries is quite crucial to reach the success of the subsidiaries. All these requirements above in this paragraph cannot be realized by the ethnocentric approach. For MNC, the ethnocentric approach denies advancement to the subsidiary country nationals, which probably breed resentment and diminish the corporation public image; the expatriate managers may become insular in their attitudes and prone to the cultural myopia, and the latter may lead to management overlooking niche market opportunities.

The ethnocentric approach also frequently comes into conflict with host-country laws, norms and traditions (Schuler R. and Jackson S., 2003). It is clearly that the ethnocentric approach to management is not best suited to a global market place. And as more and more companies realize that the ethnocentric approach does not yield success, gradually this approach will be abandoned in favor of a more multinational approach.

4 The right way to perform IHRM and help MNC develop.

4.1 How IHRM works in a MNC

Under the context of global economic integration, if the MNC wants to achieve success in the world market, it has to adopt a more multi-national competitive strategy for human resource management, rather than the ethnocentric approach. To explore deeper what constitute the success of a MNC for HRM, the characteristics of IHRM will be stated and analyzed here.

Broadly defined, international human resource management (IHRM) means all the process of procuring, allocating, and effectively utilizing human resources within a multinational corporation. If the IHRM is a art of managing different people with various cultures, then the emphasis of IHRM should be focused on dealing with the changes among the differences from both the people and the culture (Warner M and Joynt P, 2002), and then to realize the goal of managing workforce efficiently and effectively across boundaries for the company, in other word, during the process of managing, people with different culture, ethnicity, values and ethos will be well coordinated and organized. Compared with the domestic traditional HRM, there are two somewhat conflicting strategic objectives that are needed to be achieved by international human resource managers (Sparrow P. et al, 2004). Firstly, the IHRM managers need to integrate the HR practices and policies across the subsidiaries in different countries so that the corporation objectives can be achieved. Secondly, the approach to IHRM must be flexible enough to allow for many differences in the type of HR policies and practices that are very effective in the different business and cultural environment.

4.2 The approach for IHRM working in a MNC: geocentric approach

Based on the requirements of IHRM, according to the definition of the geocentric approach, and combined with the analysis of Hilton case, it can be seen that the geocentric approach is an effective approach to the international human resource management. The geocentric approach can not only help the corporation deal well with the local issues arisen in the subsidiaries, but also can demonstrate trust in local citizenry which is good for the public relations of a MNC and increase acceptance of the company by the local community. What is more, the geocentric approach can effectively represent local considerations and constraints in the decision-making process and maximize the number of decision options available in the local environment.

5 Conclusions

IHRM focuses on the management of human resources on a global basis. For a multi-national corporation, how to effective manage various differences from the subsidiaries located in different countries is a crucial part to its IHRM. Then choosing the right approach influences the great implementation of the major international human resource management functions. Those companies that take the ethnocentric approach attempt to impose their home country methods on their subsidiaries. But it results in bad outcomes in the subsidiaries. Various issues arisen from the ethnocentric approach are confronted by the corporations that adopt ethnocentric approach. The multi-national corporations have to find another approach to effective carry out the global competitive strategy and deal with the local tough issues in subsidiaries.

Hilton Group, though using large quantities of expatriates to manage its hotels, achieved a great success all round the world. It indicates that the ethnocentric approach to HRM for MNC is out. Then by analyzing the characteristics of multi-national corporations, the right approach–geocentric approach–is proved to be able to tackle the issues arisen in subsidiaries. However, varied with the business surroundings’ changes and differences, the approach to IHRM implementation also needs to be adjusted. Maybe one day the geocentric approach is out to IHRM, a newer approach appears to help the MNC achieve success globally; after all, all the approaches aim to make the company win.

References

Albrecht MH (Ed) (2001), International HRM: managing diversity in the workplace, Oxford: Blackwell

Article, 2002, A skillsoft case study: Hilton hotels, http://www.skillsoft.com/EMEA/documents/Hilton%20Case%20study.pdf

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Datamonitor, 2004, Hilton Group plc: company profile, April, pp. 1-9;

Dickman M, Brewster C, Sparrow P (2008) International Human Resource Management: A European Perspective, London: Routledge

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Grandrose CS (1997), Cross-cultural Work Groups, London: Sage

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Lucas R et al (2006) Human Resource Management in an International Context, London:CIPD

Miles R., 1965, Human relations or human resources?, Harvard Business Review, Vol.43 Issue 4, July/August, pp.147-189;

Schuler R. and Jackson S. (2003) Managing Human Resources in Cross-Border Alliances London: Routledge

Sparrow P. et al (2004) Globalizing Human Resource Management London: Routledge

Warner M and Joynt P (2002) Managing Across Cultures. London: Thomson