Academic journal article Management International Review

A Transaction Costs Perspective on International Staffing Patterns: Implications for Firm Performance

Academic journal article Management International Review

A Transaction Costs Perspective on International Staffing Patterns: Implications for Firm Performance

Article excerpt


The central versus local dilemma, or how to reconcile pressures for local responsiveness and customization with countervailing pressures for global centralization and coordination, is a source of problems and opportunities for the international firm. "The most difficult challenge management faces is administrative: the structuring of the company's internal decision-making process to allow the organization to sense, interpret and respond to tensions and the resolution of the often contradictory demands for global competitiveness and national responsiveness" (Doz/Bartlett/Prahalad 1981). A number of organizational and strategic issues take on additional complexity as a result of this dilemma. Finding the right balance between competing interests - corporate versus business unit, headquarters versus field, strategic versus operational - can be problematic for any firm, and all the more so for the international firm (Torbiorn 1997).

International human resource management (IHRM) is particularly sensitive to the central vs. local dilemma. Within this general area of concern, one important consideration is the staffing practices of multinational firms, and their impact on firm performance. Certain aspects of staffing have significant implications for the cost structure of the firm, either decreasing or increasing overall costs. If these effects can provide a basis for gaining significant competitive advantages, they may enable the firm to outperform its competitors.

Our objective in this paper is to identify some, of the risks associated with particular kinds of international staffing decisions. These risks are defined in terms of the strategy of the firm, and can be evaluated in terms of its strategic priorities. How the firm manages them can greatly enhance or diminish its long-term performance.

The analysis presented in this paper extends the competence-based approach to human resources (HR) strategy, by linking transaction cost economics and strategic management to the analysis of HR practices in international firms. However, it is not a review paper per se. Building on the conceptual work of others, we develop a model and apply it to the analysis of specific international staffing arrangements (Erdener/Torbiorn 1997).

The discussion of strategy in this paper closely follows the comprehensive analysis by Hill and Jones, 1995 (drawing on Bartlett/Ghoshal 1989). The discussion of the competence-based approach to HR strategy is based on the integrative synthesis of the literature on that topic by Torbiorn (1997). This paper builds on conceptual foundations that have not been previously integrated and applied to HRM issues in the management literature. Concepts from competitive strategy and competitive advantage, transaction cost economics, intracultural management, and international firm strategy provide the foundation for analysis.

Competence-Based HRM

One important basis for sustained competitive advantage is through the coordination of resources (Henderson/Cockburn 1994, Marino 1996). Human resources are one component of the firm's capabilities, in that they can be combined in unique ways to enhance the overall competence of the firm.

The competence-based approach places HRM issues within the larger context of strategy and strategic management. This provides a conceptual framework that is broad enough to encompass the full range of the firm's activities, core competencies, strategic objectives, etc., on the one hand, and its Human Resource (HR) practices and concerns on the other. HRM strategy is analyzed and evaluated in terms of its relevance to the competitive advantages and competitive strategy of the firm. In essence, the competence-based approach requires that HR objectives and strategies be derived from the firm's corporate and business level strategies and goals, and also that they support the strategies of its other internal functions and operations. …

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