International human resource management structures and their effect on the Australian subsidiary

Jane Maley and Robin Kramar

Macquarie University, North Ryde, NSW, Australia

Introduction

There is a growing body of evidence that subsidiaries of multinational corporations (MNC) play an increasingly vital role in the creation and maintenance of global competitive advantage (Birkinshaw, Hood and Young 2005). In fact, they have been termed the contemporary gladiators of the competitive environment (Brock and Siscovick 2007). Initially the subsidiary reports to headquarters (HQ) but, as the international operations continue to expand, the international business will predictably be divided into smaller, more manageable geographical regions, which means that the subsidiary will eventually report into a regional office. For an Australian subsidiary, this usually involves reporting to Singapore, Hong Kong and, less frequently, Japan, as opposed to the European, UK or US HQ.

Regionalising subsidiaries, it is argued, offers the MNC efficiencies and sensitivity to local cultures (Dowling and Welch 2004), but it is also claimed to limit the role of the manager of the subsidiary, who has been termed the inpatriate manager (Harvey and Buckley 1997). The limitations for the inpatriate manager include: a loss of autonomy (Enright 2007; Tavares 2001); cultural asymmetry with her/his supervisor (Harzing and Noorderhaven 2005); and restricted career development (Dowling and Welch 2004; Harvey, Speier and Novicevic 2002; Heenen and Perlmutter 1979). It is asserted that when regionalisation occurs the subsidiary is often reduced to implementing the mandates of regional management (Enright 2007).

The consequences on the subsidiary of changing structures and, in particular, the effect of these changes on the inpatriate manager have received scant attention from management researchers (Casson 2000; De Cieri, Wolfram Cox and Fenwick 2007). The exceptions here are Birkinshaw and Hood (1998) and Birkinshaw and Morrison (1995). Birkinshaw and Hood (1998) claim that structure is one of the cornerstones of strategic management and that improving our understanding of the dynamics of changing structure could illuminate the most effective way to manage the inpatriate manager.

This paper explores the impact that different IHRM structural approaches have on medium-sized Australian subsidiaries. In particular, it considers the consequences of increased regional command allied with reduced subsidiary responsibility, from the perspective of the inpatriate manager. The study compares and contrasts the working experiences of two groups of inpatriate managers in a sector of the healthcare industry using qualitative methodology, specifically grounded theory. The first group of inpatriate managers reports into the MNC’s parent HQ, while the second group reports into MNC’s Asia Pacific regional office. Evidence from the study indicates a significant difference in the work experiences of the two groups of managers and suggests that a regional structure may not always be the optimal structure for the subsidiary. As a result, the regional structure and its influence on the work experiences of the inpatriate manager are considered in more detail.

The first part of the article examines subsidiary evolution and the varying levels of independence from HQ that are associated with each development phase of the subsidiary. It also takes into account the influence of culture and language. The second part describes the methodology used to explore the nature of the inpatriate manager’s working experiences in Australian subsidiaries of healthcare MNCs. The third part includes data analysis and an overview of the findings. In the last part of the paper, the research problem will be addressed.

From the empirical results a multifaceted conflict management framework was derived that may guide future research in the field of IHRM and, in particular, may contribute to the literature by providing an effective mechanism for improving communication between inpatriate managers and their supervisors. As a consequence, this research may have potentially important implications for the development of effective global managers, and also the future function of the Australian subsidiary in the Asia Pacific region.

Given that the framework of grounded theory is chiefly intended to evolve during the research, the research questions and are therefore intentionally broad (Glaser 1978; Glaser and Strauss 1967; Strauss and Corbin 1990). Given the above points, the key research question is:

What are the main factors that influence the working experiences of the inpatriate manager when reporting into either the HQ or the regional office?

This research focused on the inpatriate manager; specifically it addressed the following sub-question:

What are the causes of these factors?

Subsidiary evolution

In order to assist MNC theory and research many typologies have been applied to IHRM (De Cieri, Wolfram Cox and Fenwick 2007). Nonetheless, the most enduring typology is the international staffing orientation of Heenen and Perlmutter (1979). They first identified MNC HQ orientation towards subsidiaries based on how executives in firms thought about doing business around the world (Dowling and Welch 2004). The international staffing orientation (Heenen and Perlmutter 1979) is usually described as four approaches: the ethnocentric, polycentric, geocentric and regiocentric approach. During the subsidiary’s progress through these evolutionary phases, autonomy is gradually granted from the HQ to the subsidiary. However, when the subsidiary becomes part of a region, autonomy is not only curtailed, it is restricted to within the region. In spite of this, a regiocentric policy has been argued to be the optimum structure for the MNC because it allows functional rationalisation, reflects sensitivity towards local conditions (Heenan and Perlmutter 1979) and has been described as a critical component of an effective global strategy (Taveres 2001).

Subsidiary autonomy

A lack of autonomy and excessive control on the subsidiary has been found to lead to distortion and gaps in perception between the supervisor and the subordinate (Birkinshaw 1997; Birkinshaw et al. 2000; Chini, Ambos and Wehle 2005; Pfeffer and Salancik 1978; Roth and Ricks 1994). These perception gaps have been found to cause unnecessary friction, suboptimal decisions, disillusionment on the subsidiary level and general tensions (Birkinshaw 1997).

Excessive control mechanisms could be more problematic for the Australian subsidiary. For instance, Gupta and Govindarajan (1991) argue that the type of control mechanism applied by the MNC may have a much greater influence on the free-spirited entrepreneurial Australian subsidiary. Similarly, Harzing and Noorderhaven (2005) found that Australian subsidiaries enjoy higher levels of autonomy than subsidiaries in other countries. Irrespective of this desire for independence and self-sufficiency, it is paradoxical that Australian subsidiaries have been shown to require more feedback than subsidiaries of almost any other nationality (Maley and Kramar 2007; Milliman, Taylor and Czaplewski 2000). Therefore, the Australian inpatriate manager’s preference for direct knowledge inflow, informal communication, additional autonomy and supplementary feedback may be lost as the subsidiary moves from a geocentric structure to a regiocentric structure. This loss of autonomy may then be more likely to have a detrimental impact on the Australian inpatriate manager, not only because of the Australian inpatriate manager’s need for liberation from autocratic management but also because the Australians prefer to have the freedom to explore entrepreneurial and pioneering domestic business opportunities.

The loss of autonomy in management has been well documented as being a retrograde and career limiting process (Birkinshaw et al. 2000; Dowling and Welch 2004; Taveres 2001). Nonetheless, when a MNC implements a regional structure, the subsidiary almost always loses some degree of control (Tavares 2001) and it has been suggested that one of the chief ramifications of this loss of subsidiary autonomy is the detrimental effect on the inpatriate manager’s motivation and commitment to the organisation, which may affect her/his level of trust with the MNC (Harvey, Novicevic and Speier 1999). A deterioration in trust between the inpatriate manager and the MNC may be damaging for the subsidiary and may lead to an increased turnover of inpatriate managers (Harvey, Novicevic and Speier 1999).

Influence of culture

In addition to changes in subsidiary structure and the associated levels of autonomy, the inpatriate manager and her/his supervisor is particularly at risk of being influenced by cultural differences. For example, in Australia, when an inpatriate manager reports to HQ, she/he will be reporting to a manager who is most likely culturally close (Harzing and Noorderhaven 2005). In contrast, in a regiocentric structure the inpatriate manager will almost certainly report into a regional office, where her/his manager will probably be culturally distant (Harzing and Noorderhaven 2005).

There is considerable evidence supporting the proposition that cultural differences impede information flows and communication between individuals and, consequently, between firms and subsidiaries of MNCs (Hofstede and Hofstede 2005; Kogut and Singh 1988; Sheriff 2007). For example, Gupta and

Govindarajan (2000) reported that national cultural differences between people within a MNC will undermine the facilitators of intra-MNC communication and exacerbate the barriers to intra-MNC communication. Furthermore, Li (1994) demonstrated that cultural distance has a negative effect on service providers in the Asia Pacific region, while Lee (1998) found cultural distance to be a major factor in opportunistic behaviour in international business. Cultural asymmetry has also been found to influence trust. For example, Sheriff (2007) points to cultural differences lowering trust in international business and Boyacigiller (1990) argues that people from different cultures who work together face increased levels of misunderstanding and consequent loss of trust. Similarly, Hitt et al. (1997) found cultural disharmony can lead to frustration and mistrust.

The significant cultural differences between Australia and Asian countries are well recognised (DFAT 2005; Huntington 1996). Sheriff (2007) has established that these differences in international business are largely related to basic values such as justice, honesty and loyalty. These basic values have been argued to affect differences in openness to change and self-enhancement (Ralston et el. 2008). Kogut and Singh’s (1988) composite index of cultural distance points to major differences between Australia and Asian countries and similarities between Australia and the other Anglo countries. House et al. (2004) have demonstrated that major differences exist in respect of Anglos and Asians. Therefore, it appears that, in pursuing opportunities in Asia, Australians could be disadvantaged as a result of the added complexities of cultural differences (Sheriff 2007).

Language

Cultural asymmetry is often aligned with a difference in the native language of employees and managers. Clarity of cross-cultural communication is important, but can be difficult to achieve. (Lindholm 1999). In an Australian subsidiary, when the inpatriate manager reports directly to HQ in the UK or US, she/he is likely to report to a supervisor who is a native English language speaker. However, when the inpatriate manager reports into the Asia Pacific region, English is less likely to be the regional supervisor’s first language, and miscommunication may be more likely. Language is a vital component of communication within an MNC and this miscommunication could be a source of immense dissatisfaction for both the parties involved (Marschan-Piekkari, Welch and Welch 1997). The dissatisfaction and uncertainty in interpersonal interaction has been found to be inversely correlated with language competence, and this uncertainty has been found to lead to lack of trust and to increased anxiety, which in turn leads to avoiding interaction with members from different groups (Gudykunst 1995). In a recent study, Harzing and Freely (2008) argue that language has an immense influence on the way MNCs manage their subsidiaries. Drawing on social identity theory, they propose an integrative model that consists of two coupled vicious cycles: the communications cycle composed of the eight aspects of the language barrier and the management cycle. The management cycle suggests implications of the language barrier for various aspects of the subsidiary relationships involving: strategic decision-making, organization and personnel selection, global integration strategies and autonomy and control procedures.

In summary, this overview of the literature has revealed that as the international operations continue to expand, the inpatriate manager will eventually report into a regional office (Dowling and Welch, 2004). When this occurs, there is more probability for cultural asymmetry (Harzing and Noordhaven 2005) and communication complexities (Lindholm 1999) to arise between the inpatriate manager and her/his supervisor. The communication difficulties have been argued to create perception gaps that typically result in a loss of autonomy for the inpatriate manager (Birkinshaw and Hood 1998). Autonomy control issues have been established to erode trust (Kickul, Lester and Belgio 2004) and the consequence of this loss of trust almost certainly will have a detrimental effect on the relationship between the inpatriate manager and the MNC (Harvey, Speier and Novicevic 2001). These fundamental findings have exposed many uncertainties in respect to the perceived benefits of a regional structure and call for further investigation and deliberation. This study explores the influences of the working experiences of the inpatriate manager by examining the implications of reporting into either HQ or the regional office from the perspective of the inpatriate manager. In the next section of this paper, the method of data analysis is described.

Methodology

Industry background

The focus of the study was inpatriate managers currently employed by medium-sized Australian subsidiaries of a significant sector of the healthcare industry. The area researched includes companies whose products are used in medical diagnostics, devices, life science and equipment industries. The range of products is diverse, extending from everyday items used in large quantities, such as bandages and syringes, to sophisticated and costly items of capital equipment, such as x-ray, imaging and radiographic equipment, implants, and fine measuring devices. This study specifically examined the non-pharmaceutical sector of the healthcare industry and excluded large pharmaceutical companies.

Healthcare covers many sub-disciplines and it was beyond the scope of this study to examine the whole healthcare market in Australia.

Healthcare companies are among the top industry performers and in the US the market is worth US$ 1.6 trillion and in Europe US$ 700 billion. In Australian the industry has been estimated to be worth A$ 4.5 billion in local sales (CSI 2004). The ageing population and increasing need for sophisticated diagnostic procedures and medicines guarantees industry longevity. However, success is complex and often dependent upon strong relationships with key decision-makers. Success of the industry depends not only on sufficient government funding but also on obtaining complex Australian Therapeutic Goods Administration (TGA) approval, and tortuous reimbursement submissions, which make the industry unique. In a manner similar to many high technology industries, healthcare products require sophisticated marketing techniques, including specialised selling skills.

Key participants

Twenty-four inpatriate managers, from different healthcare MNCs, were asked whether they would agree to be interviewed and 18 accepted. Inpatriate managers from the US (six), UK (three), Denmark (two), France (one), Norway (one), Sweden (two), Switzerland (one), and Germany (two) were represented in the study. The organisations represented all four subcategories of structure (Heenen and Perlmutter 1979): namely ethnocentric, polycentric, geocentric and regiocentric. The participants were selected for the study based on certain criteria:

• They currently held a position as inpatriate manager of a medium-sized Australian subsidiary of a Healthcare MNC (subsidiary turnover between A$10–A$100m).

• They reported directly overseas.

• They had held their position for more than two years.

• They had had at least two performance appraisals as inpatriate managers.

Procedure

The research questions were explored using grounded theory.

The grounded theory approach involves both an inductive and deductive approach to theory construction and attempts to achieve one or more of the objectives of both qualitative and quantitative research given by Denzin and Lincoln (1994), namely: 1) to initiate new theory; 2) to reformulate theory; 3) to refocus theory; and 4) to clarify existing theory. Grounded theory is a useful approach when relatively little is known about the topic, or few adequate theories exist to accurately explain or predict outcomes. This was clearly the case in this study.

Data was collected from a variety of sources, including company documents, field notes, memos, performance appraisal documents, participant observation and, most importantly, semi-structured formal interviews with 18 inpatriate managers. The questions were semi-structured in order to give the interviews some direction, but at the same time permit sufficient flexibility in accordance with the guidelines of grounded theory.

Theoretical sampling

As the study progressed, theoretical sampling (Glaser 1978) was employed, with the researcher seeking informants and other data sources as directed by the initial findings of data analysis. Additional informants included a supervisor of inpatriate managers based in the UK, two international HR managers, two industrial psychologists, and two professional recruiters. The aim of this approach was to look for variation, and to seek data that shed more light on the developing theme, or emerging new properties of the categories or processes. Using this targeted interviewing approach (Silverman 1989) enabled significant specific issues to be pursued, as well as verification of information about issues that appeared to be controversial, sensitive, or about which there appeared to be some misinformation. Seven key informants were interviewed twice and two were interviewed three times. Re-interviewing enabled the verification, clarification, and elaboration of information obtained in the first interview or the cross-checking of information acquired from other sources. Interviews ceased when saturation of the main theoretical category (core category) had occurred, that is, no additional data were found to develop new theoretical categories or properties of the categories.

To a much lesser extent two further methodologies were employed in this study: participant observation and content analysis. Participant observation was used as an additional means of data collection. One of the investigators was employed for ten years as an inpatriate manager (1992–2002). During this period she observed the IHRM practices of five MNCs. A content analysis was performed on annual reports, which were acquired without difficulty from all participating companies. Examining the annual reports helped corroborate the informant’s interview and gave an insight into the MNC’s overall commitment to HRM. The financial performance of each firm was also evaluated. In addition, organisation charts and company mission statements, plus in-house newsletters played a role and supplemented the interview data. It was through examination of this data that not only was the information obtained from informants verified, but also the contextual information was validated and expanded.

Instrument

The constant comparative method of qualitative analysis in NVIVO software was used as a means of coding the data. Coding was done at a number of levels and in a number of ways. Substantive, open and theoretical coding, code mapping and memo writing were undertaken. Initial analysis was directed towards revealing the core or basic problem. Once this was done, the analysis was directed towards identifying the core category, in this case a process which formed the substance of the theoretical framework. The theoretical framework developed alternated between inductive and deductive thought. First, information was inductively gained through the data collection. Next, a deductive approach was used which allowed the researcher to turn away from the data and think rationally about the missing information. Theory generated from data was systematically analysed by a process of constant comparative analysis, so called because every datum is compared with every other datum, rather than comparing totals of indices (Glaser and Strauss 1967).

Results

Sixty percent (ten) of subsidiaries were found to report to the Asia Pacific region and 40 percent (eight) reported directly to HQ in Europe, the UK or US. Of the subsidiaries reporting into the Asia Pacific regional office, five reported into Singapore, three into Hong Kong and one into Tokyo.

Surprisingly, the reporting lines were found to be fairly independent of the four structures described by Heenen and Perlmutter (1979). Both HQ and regional reporting were scattered throughout the structural formats. There was a pattern of reporting to the region as the subsidiary progressed towards a geocentric/regiocentric structure; however, there were some anomalies to this trend, for example rapidly expanding fledgling MNCs. Regional reporting, followed by HQ office reporting, was explored and each was investigated through the informants’ comments on the positive and negative aspects of each type of reporting. The researcher asked each informant about their experiences in reporting to both HQ and the region, and their experiences formed the categories illustrated in figure 1.

Regional reporting

Inpatriate managers who reported into the region were categorised into five key codes, two of which were positive: ‘big fish/small pond’, ‘same time zone’ and three of which were negative: ‘blocks communication’, ‘loss of autonomy’, ‘lack of regional office in Australia’ and ‘no promotion outside the region’ (see figure 1).

‘Big fish/small pond’ conveys the informant’s belief that Australia is perceived as more significant if it reports directly into the region, because when reporting into the region Australia’s financial contribution was considerable and, as a consequence, the country gained more interest and attention from the supervisor.

Ninety percent (nine) of the informants who reported into the region had something to say in regards to their perceptions of restricted or limited communication with HQ, when they became part of the region. For most informants, it was all they wanted to talk about. The informants felt strongly that the region acted as a filter for communication, demanded a great deal of information, and sometimes the same information was also demanded from HQ. In 40 percent of cases (four informants), the regional supervisor forbade the subsidiary to communicate outside the region which particularly frustrated one inpatriate manager. An example of this frustration is illustrated here.

In this company I report into the Asian Pacific headquarters [sigh and grimace]. This company has an amazing hierarchy. My goodness you can only talk within your region to your direct supervisor and so on. It’s like the bloody army you know! In my past companies, I survived on a strong international network. Here they get upset if you do that; it’s very political and very hierarchical. So I report into Asia to a guy in Hong Kong?

This inpatriate manager saw this restriction of communication as outweighing the benefits of regional reporting. In total 70 percent (seven) of the informants that reported into the region said that they felt that their role was increasingly being taken over by the region and they lacked autonomy.

Another informant complained that being part of a region rather than reporting directly overseas had been demoralising for him as he had had to relinquish some of his skills. This informant also argued that the region had taken over too many of the duties of the inpatriate manager, and he had urged his supervisor to give back control to the countries. He explains this situation below.

There was a senior management change and a compassionate Irish guy got involved and he came in to run Asia-Pacific and he wanted to look at things differently and asked what I thought. What I suggested was that I didn’t think our regional set up worked and we needed to put the accountability into the countries and put resources there.

It is noteworthy that this informant was listened to, and as a consequence the countries eventually regained some control. According to the inpatriate manager this was a positive for the organisation. When a MNC does move to a regional set-up, there is potential for problems to arise. The firm may inadvertently make the inpatriate manager’s position partly redundant by aspiring to run everything from the region. This swing of centralisation and decentralisation is a contentious area. One informant complained that his regional supervisor insisted on pricing all goods yet had no idea of the market dynamics in Australia. Eight informants expressed varying degrees of frustration at this predicament and reported that they did not trust their supervisor. Examples of a lack of trust is evident in the following three interviews:

I heard of an instance where a boss from Singapore actually started interviewing the staff to find out whether they are happy with their country manager’s performance but I think this is rather difficult for most managers to take because surely it rather undermines them. Well it also shows that there is not a good level of trust going on, doesn’t it?

Oh yeah yeah, but their Hong Kong manager at PF far oversaw this guy set up the Australian subsidiary, he was like, well even a secretary had to be interviewed by someone in Hong Kong.

I think he was just one of these people that don’t have a lot of trust in people. It was awful he was just one of these people who just had poor people skills. He had a terrific strategic mind, absolutely terrific but just I never felt he trusted me.

The final area of contention for the inpatriate managers who reported into the region was their diminished chances of being promoted to HQ. The inpatriate managers believed that they were disadvantaged by being restricted to relocation within the region and reported that a transfer to HQ in Europe, the UK or US was a more attractive career option. One of the informants who reported to an expatriate US supervisor resented the fact that the MNC relocated US employees to the Asia Pacific region, but there was no opportunity for regional employees to work at the US HQs.

Eighty percent (eight) of the informants who reported into the region reported to a supervisor of Asian origin and 20 percent (two) reported to supervisors who were on expatriate assignment or working as a third-country national (from the US). The expatriate supervisors were both from US MNCs. The two informants who reported to US expatriate managers emerged to have similar issues to their colleagues that reported into Asia. They also perceived a block in communication in addition to loss of autonomy and limited career path. This result suggests that communication difficulties within the region may not be entirely attributable to language complexity and cultural asymmetry as the literature implies, but may be influenced by the way a MNC structures the region. The structure may discourage communication outside the region and limit the role and career path of the inpatriate manager. The findings from the regional group indicate that when a subsidiary moved to a regional structure difficulties associated with regional reporting arose. A final observation on the regional issue is that Australian inpatriate managers are rarely given the opportunity to run the region. Moreover, there are no regional head offices of medium-sized healthcare MNCs in Australia.

Headquarter reporting

The predominant and positive issue for inpatriate managers who reported directly to HQ was found to be ‘direct communication’ (see figure 1). The ability for direct communication with the head-office staff emerged as being extremely important to the inpatriate managers. There was only one negative aspect that emerged when reporting to HQ, which was labelled ‘Silos’. This refers to the fact that the inpatriate managers frequently had to communicate directly with several different divisional managers in HQ in addition to their supervisor. The findings from the HQ group revealed no major negative issues.

Summary of results

The diligent application of the constant comparison method of analysis identified a main category, called ‘Relationship with supervisor’, as the basic social process or core category process that was found to be central in this study. Figure 2 illustrates the core category as the major wheel.

Everything in the data was found to be in some way related to the relationship with the supervisor, in other words the relationship with the supervisor was found to have an overriding effect on the inpatriate manager’s

work experience and made the inpatriate manager dependent on the relationship with the supervisor for her/his future career within the organisation. Conversely, the MNC was dependent on the supervisor to maximise the potential performance of the subsidiary and identify talent for the global organisation. The key causes illustrated in figure 2 are represented by the smallest wheels to the right. They are ‘blocks communication’, ‘autonomy’ and ‘career limitations’ and are directly related to the supervisor.

Discussion

The findings in this study indicate that progression to the most advanced stage of subsidiary structural development, namely ‘regionalisation’, was not perceived as a positive or beneficial experience for the majority of inpatriate managers. This finding is in contrast with the general theme of earlier researchers (i.e. Bartlett and Ghoshal 1989; Casson 2000; Heenen and Perlmutter 1979; Morrison 1990; Pearce and Tavares 2000; Taveres 2001) who have proposed that a regional structure is the most opportune and globally efficient structure for a MNC.

While the informants in this study indicated that when a subsidiary moved from an ethnocentric to polycentric or polycentric to geocentric structure, the subsidiary and parent HQ benefited, they perceived little evidence of advantage to the subsidiary when the subsidiary reported into the region. The chief influence was found to be the ‘Relationship with supervisor’. The key causes of this influence were found to revolve around the lack of direct and informal communication with HQ, the loss of autonomy, and lack of career opportunities (see figure 2), all of which discouraged trust between the supervisor and the inpatriate manager. The informants that reported into the region missed the informal side of the relationship with their supervisor and this emerged to have a significant bearing on the informants. The importance of informal relationships are seemingly well recognised in general business literature (Biggemann and Buttle 2005), but their implication in IHRM are less well documented.

The concerns that emerged to be of significance in the regional reporting route may be partly explained by agency theory. This theory views the relationship between the MNC and subsidiary as contractual (Eisenhardt 1989). For example, if an inpatriate manager has previously reported into HQ, then as the subsidiary evolves reports into a regional office, she/he may perceive that regionalisation has interrupted their relationship with HQ, in other words, the principal agent (HQ) has broken the contract with the agent (the inpatriate manager), who may then have a feeling of disappointment or misplaced ‘expectancy’. An additional finding is the lack of rapport that the informants had with the expatriate supervisors. For example when an expatriate manager is placed in a regional supervisory position, the inpatriate manager did not perceive the expatriate manager to be a true bone fide principal. Expatriate managers were perceived by the inpatriate managers as interrupting the relationship with their principal (HQ), much the same way as a supervisor of Asian Pacific origins.

The communication cycle also provides some further insights. Outlined by Harzing and Freely (2007) to comprehend language problems, this model can also be applied to analyse the wider frame of language, cultural asymmetry and communication problems that occur between the inpatriate manager and her/his regional supervisor. In their cycle, Harzing and Freely (2008) maintain that a failure to communicate effectively creates more formality and less effective communication, which in turn produces conflict and cognitive distortion. The final result of this cycle is uncertainty, anxiety and mistrust. For the inpatriate manager anxiety is caused largely by the loss of autonomy and uncertainty by the limited career prospects in a regional setting. The mistrust causes demotivation and limited communication, triggering another evolution of the vicious cycle.

Agency theory and the communication cycle possibly will provide some insight into the rationale behind the negative attitude of the inpatriate manager who reports into the region. Agency theory elucidates the lack of trust between the inpatriate manager and the supervisor and the communication cycle theory identifies that ineffective communication may cause stress and anxiety related to the loss of autonomy and career limitations found within a regional setting.

Notwithstanding, if a MNC does implement a regionalisation structure in which Australia is a part, a co-operative multifaceted conflict management framework could develop effective relationships within and across cultural boundaries (Chen and Tjosvold 2007). The generation of such a co-operative framework would allow the inpatriate manager continued communication with HQs. For example, Bartlett and Ghoshal (1995) observed that ABB Asea Brown, one of the largest engineering companies in the world, reverted to a matrix system to solve their structural problems. ABB’s matrix required each inpatriate manager to report to both a regional manager and a world-wide business head at headquarters. Although matrix systems are not without their critics (Dowling, Welch and Schuler 1999), they were found to help create an organisation where entrepreneurship could flourish in frontline operations such as subsidiaries. A similar matrix may help the Australian inpatriate managers retain lines of communication with headquarters. Even if a matrix system was not created, the Australian subsidiary should have some communication with HQ and other subsidiaries outside the region. As established in the literature review, face-to-face informal interaction has been found to be particularly important to Australians and to be of crucial importance for knowledge transfer (Harzing 2000).

The framework of co-operation could also include the building and development of cross-cultural communication skills. Such measures might include hiring of additional staff in communications and training units to cope with uncertainties, widening communication channels through a higher than usual number of marketing, training and similar workshops, and introduction of expensive communication-enhancing technologies such as video conferencing. This could be assisted with cultural awareness training for the inpatriate manager and her/his regional supervisor and could help regional assimilation. Cultural training is frequently provided for employees undertaking expatriate assignment, but little consideration appears to be given to cultural training for other international employees of the MNC (Harvey, Novicevic and

Speier 1999).

The framework may also incorporate the inpatriate manager undertaking short assignments in the region, and could speed up acculturation and build rapport between the inpatriate and the supervisor (Fenwick 2004). In addition, Australian inpatriate managers could be invited to HQ to participate in training and development. Thornburn, Langdale and Houghton (2002) found that exposing Australians to global training and skills development at HQ was extremely beneficial. They argue that Australian subsidiaries might do well to lobby HQ to allow them to increase their participation in these activities, despite their geographical isolation. Finally, Australian inpatriate managers in a regional structure could still be considered for longer assignments outside the region. External regional postings of two to five years could not only motivate the inpatriate managers who see the current trend of parent MNC’s expatriates working in the region, but less frequently Australians being assigned to HQ, as unfair. A longer assignment outside the region may also support their development. Harvey, Novicevic and Speier (2000) argues that if inpatriate managers are transferred to HQ they can be explored as a potential pool of unique managers to be utilised in global operations.

Limitations

This study is not without limitations. The sample size is adequate for a grounded theory study but is not large enough for generalisations. In addition, the study was restricted to the healthcare industry, and clearly a study involving several industries would be useful. Furthermore, the categorisations of subsidiary structures were taken from the information given by informants and, therefore, may be subject to bias. As a consequence, the categorisations, while useful for the purpose of this study, may not be entirely precise. It would be interesting and useful to search for other countries in a similar position and to apply the same analysis to determine whether results are the same. One such candidate country would be New Zealand.

Conclusion and contribution

The study indicated that there was a significant difference between the experience of inpatriate managers reporting to HQ and those reporting to the region. The first group of inpatriate managers reported to HQ and gave a predominantly positive account of their experience. They reported satisfactory communication with their supervisor, enjoyed direct interaction with other staff at HQ, generally reported contentment with their career prospects and emerged as having a good level of trust with the organisation. The second group of inpatriate managers reported into the region and they described heightened difficulties in communicating with their supervisor, felt cut-off from HQ and the rest of the company, complained of a loss of autonomy, and perceived limited opportunities for career development within the company. They emerged as having a heightened perception gap and an adverse level of trust with their supervisors.

This research contributes to the investigation of strategic IHRM by exploring how subsidiaries and their managers cope with and respond to the simultaneous pressures of globalisation and regionalisation. It has taken a first step towards a greater understanding of the factors that influence the working experience of the inpatriate manager. While this research has uncovered a number of relevant facts, it may have exposed as many questions as it has answered and, as a consequence, it has identified a new approach for further research aimed at improving our understanding of regionalisation. An implication of the study of regionalisation is that this structure may limit the career progress and diminish the potential contribution of the inpatriate manager, who has been identified as an all-important player in the globalisation process (Harvey, Speier and Novicevic 2002). The co-operative framework that has been provided may help to build trust and contribute to her/his longer tenure in the organisation. Importantly, these changes may widen the pool of international managers and give the organisation strategic business capabilities that will provide a sustainable marketplace advantage.

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