International Mnc Essay

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With regard to host-country characteristics, MNCs are more likely to employ PCNswhen the level of education in the host country is low, since in that case qualified localpersonnel will be scarce. Further, a high level of political risk in the host country is likely tomake direct control through expatriates more important because the risks of loss of income orassets might be substantial. It also makes the speed and clarity of communication facilitatedby the use of PCNs crucial (Boyacigiller, 1990). As we have seen above, one of theadvantages of having HCNs in top management positions is that they are less expensive toemploy than PCNs. This motive is more important when the cost of living in the host countryis higher than in the home country. In this case, an expatriate will expect to get additionalcompensation to maintain his/her previous lifestyle. Local managers have probably adjustedbetter to the high cost of living and would not require additional compensation.

Finally there are several subsidiary characteristics that impact on the choice betweenHCNs and PCNs as managing director. Subsidiary age will be negatively related to the likelihood of using PCNs as managing directors. When a subsidiary has just been established,HQ will feel a higher need to ensure its operations are in accordance with HQ policies andwill hence use trusted PCNs. Furthermore, MNCs might have difficulty in attracting high caliber locals for employment in recently established subsidiaries. When subsidiaries becomemore established, local recruitment may be easier and some transfer of knowledge andtraining of local managers will already have been effected (Boyacigiller, 1990; Gong, 2003b).

In this regard, Hébert, Very and Beamish (2005) even point to negative implications of using

PCNs for a MNC’s operational efficiency once the company has developed detailed host countryexpertise because PCNs entail substantial costs and resource commitments.

Furthermore, the parent company’s lack of knowledge of the local labour market and a lack ofrecruitment potential will also be major reasons for greenfield establishments to appoint PCNsto top management positions. In contrast, acquired subsidiaries often already have anestablished local managerial cadre. When a subsidiary is very important to HQ, keeping itsoperations under control through PCNs will be felt to be more necessary (Belderbos&Heijltjes, 2005). Large, majority-owned subsidiaries that report directly to the HQ orsubsidiaries that possess resources necessary for the parent to execute its strategy successfullyare more important to the HQ. Finally, control of the subsidiary will also be more importantwhen a subsidiary is under-performing, and direct HQ intervention by means of a PCN isnecessary.

Source: International Assignment by B. Sebastian Reiche& Anne-WilHarzing

Version September, 2008.