The significant improvement in communication technologies marked the arrival of the newmillennium. It is one of the most important innovations which shrunk the geographical distances between nations and redefined the physical boundaries of trade. According to Tye and Chen (2005), to cope with the changes of business environment, companies need to maintain their competitive advantage by operating on a global level. Globalization is no longer simply a trend but the norm in the world economy nowadays. To take advantage of the new global economy, companies are branching out around the world with offices and divisions in one or more countries. The growing economic interdependence of countries has proved to be beneficial as movement of labor force between nations resulted from such increasing global trade has expanded our geographical reach.
With the rise of the global economy, managing a global workforce becomes the greatest challenge to human resource management. International Human Resource Management (IHRM) is becoming increasingly important and needs to be integrated in a companys strategy. IHRM is about the management of human resources around the globe (Adler and Ghadar, 1990). Nowadays, companies can benefit from the access to a greater labour pool. Meanwhile, MNCs need to be aware of the local culture of the subsidiary employees. As the overall employment of the whole company is becoming more culturally diversified, formulating HR policies and practices proved to be a challenge for a lot of companies due to the different cultural contexts.
Companies can incorporated one of the three approaches into their international strategy, which influences the way they manage and staff their subsidiaries (Francesco and Gold, 1998; Treven, 2000):1. EthnocentricWith this approach, key decisions are made at the headquarters in the home country and the management practices from the home country are transferred to the subsidiaries. To ensure consistency of these practices, managers from the home country occupy important positions in the subsidiaries.
2. PolycentricEach subsidiary manages on a local basis with a local manager at the head. Local managers have more knowledge about the local circumstances than a manager from another country would have and are familiar with the local business ethics. The local management develops its own management practices that are appropriate for their subsidiary.
3. Geocentric or globalThis is a globally integrated approach. MNCs will try to combine the best of headquarter and local practices in order to come up with HR-practices that can be implemented globally. With this approach, selection of employees is based on competency rather than nationality.
The type of management approach will influence the recruitment and selection procedures of a company. If a company uses an ethnocentric approach, the top positions at the headquarters and subsidiaries will be reserved for home country nationals, citizens of the country...