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Where do MNEs hire foreign workers - at home or abroad?

Datum:09 oktober 2023
Auteur:Ngoc Hân Nguyen
Where do MNEs hire foreign workers - at home or abroad?
Where do MNEs hire foreign workers - at home or abroad?

The increasing scarcity of skilled workers in domestic labour markets has intensified the need for firms to attract and hire talented workers from abroad. Multinational enterprises (MNEs) have unique advantages in this regard. They can hire foreign workers in their home country or access the pool of skilled foreign workers in the workers’ home country and hire through foreign affiliates of the MNE. But are these channels of hiring foreign talent substitutes or complements?

Our recent research (Belderbos, Leten, Nguyen, and Vancauteren, 2023) sheds light on this issue. By using a longitudinal dataset of 1940 Dutch MNEs between 2008 and 2016, we modelled the two channels of recruiting foreign talent as simultaneous decisions by MNEs. Specifically, we found that MNEs' hiring decisions for foreign workers are influenced by various factors related to the characteristics of the company and the foreign country involved. Specifically, we looked at three mechanisms: knowledge complementary (how well the foreign workers’ unique knowledge complements the company’s needs); activity substitution (how to choose an optimal location for the MNE’s activities); and human capital substitution (how to coordinate the allocation of talent across the MNE’s locations). Hence, depending on the force of these three mechanisms, hiring foreign workers at home or abroad can be substitutes or complements.

Drawing on the knowledge-based view of the MNEs (e.g., Kogut and Zander (1993), which emphasizes that MNEs’ competitiveness rests on their ability to create and transfer knowledge across national borders, we argue that the knowledge complementarity benefits are substantial if there are differences in cultures, institutions, and languages between the MNE’s home country and the country of origin of their foreign workers.  Activity substitution is more powerful if MNEs expand to a foreign location primarily to source low-cost labour inputs, in which case foreign hiring will substitute for domestic hiring. Human capital substitution is a function of global talent management (e.g. Stahl et al. 2012), which suggests that the global coordination of talent recruitment becomes crucial for the skilled-intensive operations of MNEs. High-skilled workers are also more (internationally) mobile and adaptable to different work environments than low-skilled labour. Hence from a human capital perspective, a substitutive relationship between foreign and domestic hiring of foreign workers is more likely to occur if the MNE relies heavily on highly skilled labour.

Overall, our research suggests that MNEs, which have an advantage of accessing foreign talent both at home and abroad, are likely to choose the hiring channel that best suits their needs. By understanding the microdynamics of MNEs’ employment decisions across locations, we gain insights into the employment practices related to foreign workers. These practices can constitute key sources for MNEs’ competitive advantage through knowledge creation, knowledge transfer, and optimal knowledge allocation across diverse locations. We suggest that MNEs’ managers should carefully consider the heterogeneity in country-specific characteristics as well as the nature of their operations in deciding on coordinated hiring practices. Crucial principles for MNEs’ global talent management imply finding a balance between global and local needs, managing labour tensions between headquarters and subsidiaries, and dealing with labour scarcity.

References:

Belderbos, R., Leten, B., Nguyen, N. H., & Vancauteren, M. 2023. Multinational firms and the quest for global talent: Employing (skilled) foreign workers at home and abroad. Journal of International Business Studies .

Kogut, B., & Zander, U. 1993. Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation. Journal of International Business Studies , 24(4): 625-645.

Lewin, A. Y., Massini, S., & Peeters, C. 2009. Why are companies offshoring innovation? The emerging global race for talent. Journal of International Business Studies , 40(6): 901-925.

Stahl, G. K., Björkman, I., Farndale, E., Morris, S. S., Paauwe, J., & Stiles, P. 2012. Six Principles of Effective Global Talent Management. MIT Sloan Management Review , 53(2): 25-32. 

Author:

Ngoc Hân Nguyen (n.h.nguyen rug.nl)

Assistant Professor at Department of Human Resource Management and Organizational Behavior, the University of Groningen, the Netherlands.

Research interests: highly skilled migrant employment, global talent management, flexible employment, and innovation.