Host country effect is the change that a company has to adopt in terms of hr practices, legal bindings, business policies etc when it sets up its business in another country or the host country. Host country is the country where a multinational company establishes its subsidiaries to grow its business.
Every country has its own culture and legal bindings which shapes the business operations in that country. A company formulates its strategy based on the origin country. If a company expands its business in other countries, it has basically 3 strategic choices to adopt: Ethnocentric, Polycentric and Geocentric. Human resource management system is largely influenced by the host country culture, practices and legal bindings. The 3 strategic choices are explained below in terms of human resource management:
Ethnocentric: Here the company does not changes its workforce as well as keep its practices and culture same as parent country. Here the employees are of the parent country origin and are called as expatriates in the host country. In this strategic approach, it becomes easy for the company to maintain integration of operations to the headquarters in the parent country.
Polycentric: In this strategic choice, the company in host country hires employees of the same country. It saves them cost that they spend on expatriates. This approach helps better to understand the culture of host country. There could be some officers in the top management in host country which could be expatriates but majorly the workforce is of host country.
Geocentric: This strategic choice is used by multinational companies when they do not care about the origin country of the employees while hiring them. The employees are hired based upon their skills, talent and suitability to the role. Maintaining the integration among the businesses may be difficult but it leads to high productivity and creating a global culture.
Some of the countries adopt hybrid structure and human resource practices. The host country generally have different legal influence and culture effecting the MNCs. For management of human resources of the host country, MNCs have to infuse the local practices.
Hence, this concludes the definition of Host Country Effect along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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