One of the most important reasons why host-country nationals (HCNs), are chosen for top management positions in subsidiaries is their knowledge of the local market, business practices and cultural preferences. (Banai, 1992; Kobrin, 1988; Tung, 1982). This seems to be logical since even with a broad international outlook, it will be very difficult and extremely time-consuming for Parent country national (PCNs) to become as intimately aware of local circumstances as HCNs are. It is also quite expensive to send PCNs on international assignment (Banai, 1992; Kobrin, 1988; Root, 1986).
Expatriates need to be compensated for removal and relocation costs, and they also expect financial allowances for (international ) education for their children, club memberships, return trips, loss of spousal income, maintenance of of property in their home country, etc. And then of course as in the case of transfers to developing countries, there is also the question of hardships to be endured with less amenities of life available as in the first world. Finally, PCNs often have difficulty in adapting to local circumstances causing them to “fail” on their international assignments.
(Banai, 1992; Kobrin 1988). This might result in disturbed local business relationships or a premature return of the expatriate to the home country. However, Harzing (1995) argues that this is by no means as likely as is often claimed. This motive had been argues to be fueled by, the need to transfer technical or managerial knowledge, lack of qualified local personnel and training of local nationals. However various factors determine the severity of such a need. First, these functions are likely to be more important when the level of education in the host country is low (Boyacigiller, 1990; Scullion, 1991).
Secondly, MNCs with a Research intensive product would more likely need to transfer at least some of this knowledge to their subsidiaries and to train local managers (Hamill, 1989; Ronen, 1986). For recently established subsidiaries, MNCs would lack intimate knowledge of the local labour market or might find it difficult to attract sufficient talent. There again Position filling will be required. When subsidiaries become more established, local recruitment may be easier and some transfer of knowledge and training of local managers would already have been effectuated (Boyacigiller, 1990; Franko, 1973; Hamill, 1989).
Figure 3. 1 summarizes these findings. This was the second most important reason identified for the delegation of PNC’s to MNC subsidiaries, where the most important objective to develop and international mindset among future top managers. This would therefore be an important concern for highly internationalized MNCs with a futuristic vision. Such organizations would realize the importance of creating global awareness more than their less internationalized counterparts.
Thirdly, larger MNCs would have a formal management development program in operations that involves managerial transfers around the world; whereas, for smaller MNCs, the management development program would be an ad hoc basis arrangement. The Control Function is more important for companies that come from a national culture that scores high on uncertainty avoidance (Hofstede, 1980, 1991). These cultures display a strong preference for being “in control”. Foreigner managers are subjected to suspicion and it is felt that initiative of subordinates should be kept under control.
Managers should be experts in their fields and should generally be selected based on seniority (Hofstede, 1980, 1991). Under these circumstances the most favoured option is the appointment of a PNC as a senior manager. Cultural Distance between home and host country also determines the need for direct control over subsidiary operations. This would be more important when the cultural distance is high. In such a case managers at the head office might not trust the level of commitment of local managers and would therefore doubt the information received.
The higher the level of political risk in the host country, the higher is the requirement for a direct control due to substantial risk of loss of income or assets. Furthermore, several subsidiary characteristics might induce a higher importance of transfer for control or coordination reasons. When a subsidiary is very important to headquarters, keeping its operations under control will be felt to be more necessary (Boyacigiller, 1990). Direct control will also matter more when a subsidiary is under-performing, and direct headquarter intervention is necessary.
If the level of cultural distance between head quarters and subsidiary is high, transfer of PCNs would be essential to create or improve flow of information between the two. Communication between people from different cultural background can be very difficult (even if they speak the same language) and the opportunity for misunderstandings is usually high (Boyacigiller, 1990). Therefore, in most cases, headquarter managers would prefer to have at least some home country managers in important positions, to facilitate the flow of information.
This is even more important in host countries with a high level of political risk, since speed and clarity of communication are of vital importance in crucial circumstances (Boyacilliger 1990). Furthermore, transfer of for communication reasons is more likely to be more important for recently established subsidiaries, since the communication network with headquarters has to be built from scratch (Harzing, 2001). “There is never a single perfect research design that is best for all marketing research projects, or even for a specific type of marketing research task” (Malhotra 1993).
According to Saunders (2003), choosing a research approach is based on the theoretical knowledge before the research, which determines whether the researcher should use a deductive approach, where the researcher develops a hypothesis and tests it during the research process, or an Inductive approach, where data is collected to develop a theory on analysis. Malhotra (1993) categorises Deductive and Inductive approaches as either Exploratory or Conclusive. However a multi-approach is also viable which involves a blend and mixing and matching of the given options.
This enables the researcher to ensure triangulation; a phenomenon which helps accurate interpretation of data leading up to feasible conclusions and recommendations. An exploratory research entails developing an insight into the area of interest after testing a hypothesis in the target market using qualitative forms of research. According to (Robson, 2002:59), Exploratory studies are a valuable means of finding out ‘what is happening; to seek new insights; to ask questions and to assess phenomenon in a new light’. Descriptive research, on the other hand, aims to provide an accurate profile of persons, events or situations ((Robson, 2002:59).
This research has been carried out as a preliminary investigation in a short time span as it would not have been possible to cater to a conclusive study. Therefore, the exploratory research design seemed to be suitable for the purpose of this research. This research was carried out with an open frame of mind leaving wide options for exploring cultural and logical explanations in the recruitment of PCN or HCNs in the cultural settings of Pakistan. Exploratory research also allows for the development of a hypothesis and the use of secondary data as a basis for comparison, which was essential for the purposes of this research.
