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3/15/2006 12:03:00 AM

Multinationals should make on-site managers feel part of the inner circle

How can multinational corporations keep their local on-site managers from quitting?

Make them feel part of headquarters' inner circle. As one study shows, local executives hired by multinational corporations to manage their subsidiaries would rather feel they are part of the firm's senior management than just one of the locals. This is particularly true if the local executive perceives the local staff to be incompetent.

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Multinational corporations increasingly rely on a country's own executive talent versus expatriate managers to oversee their subsidiaries abroad. Qualified managers in emerging economies, however, are often in short supply. To retain these senior managers, companies need to make them feel they are part of corporate headquarters' management rather than "just locals." A new study by university researchers suggests that without that sense of inclusion, local senior executives may be more likely to think about leaving the company.

"This is particularly true to the extent that they perceive that the local staff is relatively incompetent," said Jennifer M. George, a professor of psychology and the Mary Gibbs Jones Professor of Management at Rice University's Jesse H. Jones Graduate School of Management.

"People seek positive identifications. If the local staff is perceived to be incompetent, senior local executives may be reluctant to identify with them, even though they may be of the same nationality and share the same language and culture."

On the other hand, explained George, if local executives have a good relationship with the management at headquarters and feel they are an integral part of the multinational corporation's network, they are less likely to think about leaving their jobs. Crucial to this relationship are quality communications between the local executive and company headquarters and a high degree of trust in headquarters' management.

"If the local managers perceive that the headquarters' management is benevolent and that they are trusted and valued members of the corporation, they may be more likely to be able to identify with this relatively prestigious group," George said.

This could be particularly important to senior executives in China, where individuals care very much about losing face.

"When local senior executives perceive the local staff to be incompetent, they may think about quitting because of their identification with a relatively disadvantaged group," explained George, who noted that an earlier survey of senior managers in China showed that 43 percent of them voluntarily leave their organizations each year.

In one of the few studies to explicitly examine local management of multinational corporations, George, Jones School colleague Yan Zhang and Tsang-Sing Chan from Lingnan University in Hong Kong focused on individual local senior executives at multinational subsidiaries in several major cities in China, analyzing data from 159 surveys administered on-site.

The researchers found that local managers' impressions of their local staffs' competence and status in the organization played a role in their intentions to remain or leave the company. However, the effects of perceived local staff incompetence were mitigated by the extent to which the senior executives had high-quality communication with headquarters and trusted headquarters' management. Under these conditions, senior executives are more likely to be able to identify with headquarters' management.  

While their study focused on subsidiaries in China, George and her colleagues believe their findings have important practical implications for managers in other multinational corporations operating in emerging economies.

"Multinational corporations need to keep in mind that the relative status of the local staff may affect the experiences of the local senior executives," said George. "With that in mind, it's important for those at headquarters to encourage the local senior executives to feel they are an integral part of the corporation."

In addition to articles that have appeared in numerous scholarly journals, including her award-winning paper on the role of emotional intelligence, George has co-authored two widely used textbooks, "Contemporary Management" and "Understanding and Managing Organizational Behavior," which distill research findings for business school students.

George's Rice colleague Zhang, a native of China, has conducted research and written extensively about CEO successions and the organizational consequences, global strategic alliances and multinational companies' strategies and operations in emerging markets.

For more information on this research, contact George at jgeorge@rice.edu or Debra Thomas in the Jones School at dthomas@rice.edu.