Local/National Essay

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Local nationals (or locals) are the citizens that reside in a multinational corporation’s host country. When an organization decides to venture out into global markets,  it  may  elect  to  send  some  of its  current employees to start the business with the intent of integrating local nationals into the process. However, the management  team will have to address political, economic, and cultural issues that may arise in the designated country. In order to address the different types of inequities that may arise, those in the international business arena must develop policies and procedures that address these issues and create a sense of fairness for everyone involved. Many believe that  that  there should be standards for social responsibility and ethics in order  to make sure that  developing countries are not exploited. Having a formal global approach to these types of challenges can ensure a sense of fairness for everyone involved in the process.

Organizations  need to decide if it is best to establish the international business function  internally or externally. It is important for organizations  to assess their current workforce to determine if they will need to rely on expatriates  to establish a presence  in the host company or whether  it is more feasible to hire employees from the host country  in order  to minimize cultural and language barriers.

If the organization  elects to start internally, it may assign a team to set the budget, ship products,  and develop the international marketing  plan. However, this can become expensive, so the organization  may evaluate  two  other  options.  One  option  is to  hire employees from the host countries.  Many organizations elect this option  in order to minimize cultural and language barriers and secure labor that is cheaper than its current  workforce. If the organization  elects to hire employees from the host country, it is important that it assimilates these new hires into its corporate culture so that they will have an understanding of what the organization values and how it operates.

Representational Approaches

In 2007 Farzad Khan introduced a conceptual framework that identified four representational approaches to understanding how social inequities surface in developing countries  as they attempt  to venture into international business. When the model was created, it was established that there are many parties involved in the process. Since representation ranged from local workers  to international mass-media  organizations, each party was defined in terms  of geography. The two categories introduced are locals and foreigners. Locals were defined as individuals or entities that are primarily located in the developing countries. Locals are very diverse and have different perspectives and interests.  Individuals falling into  the  “foreign” category are those that do not fit into the “local” category. Significant players in the foreign group would include international businesses that are directly involved in specific situations and their critics.

Both of these groups are considered  to be “represents” as they work to resolve issues that arise. Each situation is analyzed and evaluated on the represents’ role in the situation and the worldview of the situation. The approaches  attempt  to conceptualize  the representation of the ethical issues involving international business in the developing world. The four different approaches are:

  • Approach 1 (No-speak): Foreigners are the represents and the issue is expressed from a foreign world viewpoint. The local residents  have no voice and they have no input into the worldview. Local worldviews  have  no  place  in  the development  of issues and the local experience is not considered relevant in social equity issues. Most of the international business research follows this approach  (i.e., Hofstede’s Culture’s Consequence).
  • Approach 2 (Us-speak): The commonality between this approach and the first approach is that the foreigners are the represents. However, the difference is that the worldview incorporates the local experience. This approach attempts  to represent local realities (local view) in a way that the local inhabitants understand the situation. In many instances,  the represented places himself in the locals’ position and attempts  to articulate the viewpoint based on the locals’ perspective.
  • Approach 3 (Same-speak):  The locals are  the represents and the worldview is the same as the foreigner’s perception.  Locals represent themselves  based on one  or more  worldviews that  originate  from the West  (i.e., modernism, post-structuralism, secular nationalism).  Many of the most influential representations of ethical issues that affect international business in developing countries are based on this approach.
  • Approach 4 (Other-speak):  Locals are the represents,  and international business issues are explained  in  the  context  of local  viewpoints. When   evaluating   this  approach,   representation is being explained by locals using local concepts.

The approaches provide an explanation as to how foreigners and locals perceive the severity of social issues, which is important to the interactions  in the business community. Multinational corporations have to understand the culture and values of the countries where they do business. Otherwise, the corporation may suffer as a result of conflict on social and business ethics issues. There has to be some sense of social responsibility on the part of the multinational corporation.

Cultural Issues

George England and the Meaning of Working (MOW) International Research Team conducted  a study that explored  what  work  meant  to  people  all over  the world.  Participants   came  from  countries   such  as Japan, Yugoslavia, Israel, the United States, Belgium, the Netherlands,  Britain, and Germany. The meaning of work was evaluated on three core concepts, which were work centrality, societal norms  about working, and work goals. Work centrality measured the importance and value of work as it related to the individual’s life. Societal norms  about working addressed beliefs and  expectations   regarding  special  privileges  and duties  associated  with  work.  Work  goals explored the  work-related  outcomes  that  were  preferred  by the participants  across the span of their career. The researchers discovered that the higher the mean work centrality  score,  the  more  motivated  and  committed the workers are in society. Looking from a global human resource planning initiative, the results of the study provide organizations  information  about  why employees value work and what they need in order to be satisfied with their jobs.

However, management  teams have to be cautious with  these  results  and  explore  other  research  that deals with global workforces. One will need to assess the importance  of work as it relates to having a quality of work life. For example, Americans are known to work the longest hours in a year and value job duties over family responsibilities. However, that practice is not the norm in all cultures. Therefore, organizations will have to determine  what is important to the local nationals in each country that they desire to enter.


There are different levels of international employees around the world. An expatriate is an employee who is sent by a company in one country  to manage the operations  of the same company in another  country. There are three  types of expatriates: parent  country nationals  (PCNs),  host  country  nationals  (HCNs), and third country nationals (TCNs).

Parent  country  nationals  (PCNs)  are  employees who are born  and live in the parent  country.  These employees tend to be responsible for starting up operations at locations in another country. A hiring manager is responsible for staffing these operations  with employees who can adapt to the new environment and be self-motivated. Some of the highly desired characteristics of a candidate include work experience with other  cultures,  knowledge  of multiple  foreign  languages, and extensive overseas travel. However, some multinationals are concerned  about hiring too many PCNs given the additional expenses that are incurred by the company. For example, the multinational will have to consider  costs such as relocation  expenses, cultural training, housing assistance, taxation  allowances, incentives and rewards, and family issues.

Host country nationals (HCNs) are employees who are born and raised in the host country. Multinationals have found  that  hiring  managers  from the  host country  is an opportunity to build good public relations with the natives of that country. This approach shows an economic  commitment on the part of the multinational by providing locals with the opportunity to gain employment  and fueling the local economy. Another  incentive is that hiring an HCN is not as costly as hiring a PCN.

Third  country  nationals  (TCNs)  are  employees who were not  born  or raised  in either  the  host  or parent  country, but work in the host country. These candidates tend to be sought when there are jobs that require  a certain level of expertise and skills to perform certain jobs.

Different countries  will utilize different combinations of these employees to staff their  international operations.  Four  of the  major  approaches  utilized include the following:

  1. Ethnocentric staffing approach:   The  staffing plan  is dictated  by the  multinational’s values, attitudes,  practices,  and  priorities.  The corporate office is responsible for establishing human resource policies and practices as well as selecting candidates who are equipped to provide leadership to the subsidiaries in other countries.
  2. Polycentric staffing approach:   Although   the corporate office may make all of the hiring decisions, there is consideration for the needs of the local subsidiaries. In addition,  the policies and practices are developed at the local level to meet the needs of the locals filling the jobs. Although locals are selected  for managerial  positions,  it is rare for these individuals to be promoted  to the corporate office. These employees tend to be promoted  to positions at the local level only.
  3. Regiocentric staffing approach: Human resource policies and practices are dictated by the needs of the region. The  approach  utilized  is similar to what occurs in the polycentric staffing approach. However, there is a broader territory—it is regional versus local. Therefore, there are opportunities to hire and promote  workers to regional levels.
  4. Geocentric or global staffing approach: The multinational’s focus is to look at the “big picture” and develop a plan that provides optimal utilization of all resources, not just human resources. Local and regional concerns are not given priority; rather, they are given equal weight as some other factors  in  the  decision-making  process.

Staffing practices  are developed  at the  corporate level and the selection process is based on a global pool without regard to a person’s country of origin or cultural background.

When considering these approaches, the organization must consider issues such as the following:

  • National concerns: Multinationals are expected to  work  within  the  legal  parameters   of  the host  country.  Therefore,  it  is  essential  to  be aware of the local employment  law policies and practices.
  • Economic concerns: The multinational has  to consider  cost  of living expenses  (i.e., housing, food, incentives, and rewards).
  • Technological concerns:  Given  the  increased use of technology in business operations,  multinationals  need to determine  if the host country’s workforce  has a skilled pool of potential candidates.
  • Organizational concerns:  The  multinational’s level of internationalization as well as the product life cycle are two important factors evaluated when determining  staffing needs.
  • Cultural concerns: It is imperative that the corporate office considers  the differences between the corporate and subsidiary cultures when making staffing decisions and policies.


Localization  has  different  meanings  depending  on the  audience.  Some view the  concept  to  mean  the removal of expatriate allowances but retention of the home-country base  salary and  long-term  benefits, whereas others believe that it means to remove expatriate allowances as well as shift the employee’s base salary to the host-country levels while the long-term benefits remain the same as the home country’s plan. When  creating  a compensation system for international employees, one must  take four basic components  into consideration:  base salary, indirect  monetary compensation (benefits), equalization  benefits, and incentives.

The base salary is the  foundation  of an international compensation system because it represents the minimum rate at which a candidate will work for your company. Some organizations have elected to develop an international compensation system based on the policies and procedures  of the parent company’s country, whereas others have created an international compensation program  based on  the  host  country. Regardless of which practice  is utilized, it is important  for the  compensation professional  to  consider what happens  to the employee’s pay once they leave that assignment. On average, the typical international assignment usually lasts from three to five years.

Indirect monetary compensation means benefits. Although  most  benefits  packages are  the  same  as what is offered in the home  country,  organizations must  consider  how  to  address  situations  where  a host  country  may require  certain  benefits that  are not  offered in the  home  country.  It may be in the organization’s best interest to consider offering such benefits in order  to keep employees motivated  and maintain positive attitudes.

Equalization  benefits are those  benefits offered in an effort to minimize any financial hardships  that an employee may experience  as a result  of considering an international assignment.  Some of these  benefits include  housing  allowances, educational  allowances, language and culture  training, employment  opportunities for spouses, and emergency leave.

Some organizations have found that it is beneficial to offer incentives to expatriates. Some of these incentives include an assignment completion bonus, cash bonuses, stock options, and performance-based bonuses.

One  of the  most  popular  theories  addressing  the compensation  field is  equity  theory.  Equity  theory implies that individuals evaluate whether  or not they are being treated fairly by comparing their situation to others. In this scenario, it is common for an employee to compare his/her pay to the pay of other employees, especially those coworkers performing the same duties. Many researchers and practitioners in the field strongly believe that work attitudes  and perceptions  are based on whether or not an employee believes he/she is being fairly compensated  in comparison  to the  perception of what other  employees are being paid. This theory applies to both internal and external structures.

Organizations  tend to address these concerns  via market pay surveys (external equity) and job evaluations (internal equity). In order to ensure that external equity and internal  equity issues are addressed, human resource professionals should consider the following tools when preparing an international compensation package: (1) an international compensation management  grading  system  that  is comparable  to the domestic grading system; (2) a base salary delivery process that is integrated into the home country’s base pay system but that also takes local country laws into consideration; (3) an incentive and reward system that  motivates  employees worldwide; and (4) a performance management  system that rewards employees regardless of their geographic location.


  1. Ando, D. Rhee, and  N. Park, “Parent Country  Nationals or Local Nationals for Executive Positions in Foreign Affiliates: An Empirical Study of Japanese Affiliates in Korea,” Asia Pacific Journal of Management (v.25/1, 2008);
  2. Gowan and C. Ochoa, “Parent-country National Selection for the Maquiladora  Industry  in Mexico: Results of a Pilot Study,” Journal of Managerial Issues (v.10/1, 1998);
  3. Herrmann and J. Werbel, “Promotability of Host-Country Nationals: A Cross-Cultural Study,” British Journal of Management (v.18/3, 2007);
  4. Khan, “Representational Approaches Matter,” Journal of Business Ethics (v.73, 2007);
  5. Robert T. Moran, Philip R. Harris, and Sarah V. Moran. Managing Cultural Differences: Global Leadership Strategies for the 21st Century. Managing Cultural Differences Series (Elsevier/Butterworth-Heinemann, 2007);
  6. Toh and A. DeNisi, “Host Country  National  Reactions to  Expatriate  Pay Policies:  A  Model  and  Implications,” Academy  of Management  Review (v.28/4, 2003);
  7. Vance and Y. Paik, “Forms of Host-country National Learning for Enhanced MNC Absorptive Capacity,” Journal of Managerial Psychology (v.20/7, 2005).

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