SCHOOL OF

BUSINESS AND
ECONOMICS

BH 6023
MANAGEMENT AND ORGANISATIONAL
BEHAVIOUR

CASE STUDY 5:

OFFICE EQUIPMENT COMPANY (OEC)

LECTURER: PROF. DR. SYED AZIZI WAFA

NAME MATRIX NUMBER

JESSICA RIKA ATING PE20107086C
MOHD. DZULKARNAIN SAHIH PE20107087C
ADELINE JEFFERY JOK PE20107077C

PART 1: CASE SUMMARY

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In 1997, the managing director a U.S national of the Office Equipment Company (OEC) in Lima,
Peru announced suddenly that he would leave the company within one month. The company
needs to find a replacement to fill the vacant positions in short period.

OEC is office equipment manufactures and their products are such as copying
machines, recording machines, mail scales and paper shredder. It manufactured their product in
different country and distribute to worldwide as they did not have own manufacturing factory.
Currently OEC begin constructing their firstly manufacturing factory in Peru and will starting the
operations in 1999, as this will contribute to minimize their cost of manufacturing, assembling
and laboring.

However, this plant will be supervised by a U.S technical team and a U.S expatriate will
be assigned to direct the production. This appointed supervisor will give direct report to OEC’s
headquarter in U.S regarding production and quality control and matters regarding accounting,
finance and labor relations will be reported to managing director in Peru. Since OEC
constructing new plant and will commence their first production in 1999, OEC need to find new
managing director to managing and overlooked the plant and operations accordingly.

By policy, replacing managing director should come from internal candidates. A

committee had short listed 5 candidates to fulfill the positions. The candidates are Tom
Zimmerman a 30 years experienced as OEC’s staff, Brett Harrison 15 years experience,
Carolyn Moyer have 12 years experience, Francisco Cabrera a Mexican citizen and Juan
Moreno 27 years old assistant managing director.

The committee found that the international operations experience is an important factor
in deciding the managing director post.

PART 2: IDENTIFYING AND DIAGNOSING THE PROBLEM

2.1 List of Problems

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2.1.1 The managing director (a U.S. national) of the office Equipment Company (OEC) in
Lima, Peru announced suddenly that he would leave within one month and OEC
will need to manage this current managing director repatriation
Because the managing director will leave, the company had to find a replacement. Not only
OEC have to find the replacement but OEC will also need to manage the current managing
director repatriation from Peru and OEC needs to develop programs to ease repatriation
frustrations.

2.1.2 To appoint a managing director that can suit and work in the Peru’s political
turmoil

Because of the political turmoil in Peru, which at times has bordered on being a full-scale war,
the company had to appoint a managing director that can do the works that had been done by
the current managing director which had succeed to manage the operation with good and
improving sales and profitability.

2.1.4 To appoint a managing director that can do multitasking

The director of the plant’s construction will report to the managing director in Peru on all other
matters, such as accounting, finance and labor relations. Because of this, the managing director
must know and can handle all this tasks.

2.1.5 The company has to decide on whether to run their Peru’s operations with local
worker in the host nation, or expatriates from the home country or a third country
national

Because the five short-listed candidates are consists of 3 U.S. nationals (home country), 1
Mexican national (third country) and 1 Peru national (host country), so the company had to
make a wise decision on choosing which candidates to appoint for Peru’s operations.

2.1.6 Compensation package for the managing director

These are a few of the many questions OEC faces when it posts people to Peru operations,
what should the manager’s salary be? Should it compensate in dollars, Mexican pesos or
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Peruvian new sols? Which set of fringe benefits should apply? They will run into problems in
dealing with differing pay levels, benefits and perquisites. On the one hand, the company must
control costs. On the other, it must pay people enough to generate motivation. Therefore, OEC
must craft a well-devised compensation package that lets the managing director maintain his or
her standard of living, reflects the responsibility of the Peru assignment and ensures that after-
tax income will not fall as a result of the Peru assignment.

2.1.7 Time constraint

The company had to find a replacement that meet all their requirements in just a month because
the current managing director only given a sudden notice to leave in one month. This makes it
harder for them to make the decision because a month is not enough to choose the best
replacement

2.2 Problem Statement

The main problem faced by the OEC is to find a suitable candidate from the five short-
listed candidates to become Peru’s operations managing director within one month
period that fulfill the criteria OEC’s needed.

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PART 3: IDENTIFY DECISION CRITERIA

The decision criteria we identified important in resolving the problem in Office Equipment
Company (OEC) are:

1. Local experience
2. Cost of compensation
3. Speak Spanish
4. Employee relations
5. Capable of developing and mobility
6. International experience

PART 4: WEIGHT THE CRITERIA

Table 1: Criteria and Weights for Alternative Strategies

6 extremely important

5 very important

4 important

3 Somewhat important

2 not very unimportant

1 completely unimportant

Criterion Weights

1. Local experience 6

2. Cost of compensation 5

3. Speak Spanish 4

4. Employee relations 3

5. Capable of developing and mobility 2

6. International experience 1

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PART 5: ALTERNATIVE STRATEGIES

5.1 The Ethnocentric Approach

An ethnocentric approach staffing policy reflects the belief that the HRM principles and practices
used by the home country are intrinsically superior to those used by companies in other nations.
Hence, given its success in the home market, there is no need to adapt HRM principles and
practices when transferred to foreign markets. As such, using this approach, OEC will fill the
managing director position with executives from the home office which is from United States.
So, in this case, the list of candidates will be narrowed to three which are Tom Zimmerman,
Brett Harrison and Carolyn Moyer. Posting one of these candidates which are home country
manager to Peru’s operations, therefore, puts OEC’s core competency (special outlook, skill,
capability, or technology) that creates unique value for the firm and which is hard for rivals to
imitate under the direction of these U.S. manager who commands the hands-on knowledge that
made OEC successful in the first place. This approach can also reduce the degree of cognitive
dissonance OEC face as they work internationally. Relying on people familiar with proven
workplace methods and labour procedures, even if only context of the U.S. market, helps OEC
cope with the stress of Peru situations. By using this ethnocentric approach, OEC can choose
the best from the three U.S. national candidates by looking at their skills, strength and
weaknesses.

From the Table 1 in the next page, OEC will appoint Carolyn Moyer for the managing
director position in Peru. This is because she has the best package amongst the three U.S.
candidates. Amongst the advantage of appointing her is that she’s still considerable young at
the age of 37, unmarried which means she is more mobile than Tom Zimmerman and Brett
Harrison which are both married, she has recently expressed interest in international duties
because of a belief it will help her advancement and she speaks Spanish well. From the Table
2, Carolyn Moyer also has the lowest estimated compensation package amongst the three U.S.
candidates which is US$122,600. The method used in calculating the estimated compensation
package is home-based method which bases their compensation on the salary in U.S.

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Table 1: Strength and Weakness of U.S. National Candidates

Candidates Strength Weakness

1. 30 years experience in technical & 1. Will retire in 4 and half

sales. years.
2. Visited various companies’ foreign 2. Never worked abroad.
facilities. 3. He and wife cannot speak
3. Considered competent by Spanish.
Tom committee.
Zimmerman 4. Their children are grown and living
with their own children in the United
States.
5. Zimmerman currently is in charge of
an operation that is about the size of that
in Peru after the new factory begins
operating.
6. His present position will become
redundant because the operation he
heads is being merged with another.

1. 40 years old and had 15 years 1. Never been based

experience in OEC. abroad.
2. Highly competent and capable to 2. His wife holds
move into upper level management level responsible marketing
Brett positions with a
within next few years.
Harrison pharmaceuticals company.
3. Been worked in the Latin American
regional office for the last 3 years. 3. Two children, ages 14
4. Frequently travels to Latin and 15.
American.
5. He and his wife able to speak
Spanish adequately and their children
just beginning to study the language.
1. Age 37, she’s experience in OEC for 1. Never been based
12 years after graduated her MBA from abroad.
prestigious university.
2. Already moved between staff and
line positions of growing responsibility.
Carolyn 3. She speaks Spanish well.
Moyer 4. She’s interested in international
responsibilities as her MBA major
subject based on international affairs.
5. For 2 years, she was second
command of a product group that size of
new plant in Peru and her performance
was excellent.
6. Unmarried.

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Table 2: Estimated Compensation Package for the three U.S. Candidates

Compensation Tom Zimmerman Brett Harrison Carolyn Moyer

Direct Compensation Costs

Base salary US$70,000 US$75,000 US$65,000

Foreign service premium 21,000 22,500 19,500

Cost of living 28,000 33,750 22,750

Housing allowance 15,000 15,000 12,100

U.S. income taxes (17,500) (18,750) (16,250)

Company-Paid Costs

Schooling allowance - 18,000 -

Peru income taxes 21,000 22,500 19,500

Working spouse allowance - 60,000 -

Total US$137,500 US$228,000 US$122,600

5.2 The Polycentric Approach

Using this approach, Juan Moreno will be appointed for the managing director of Peru
operations because he is of Peru national. The polycentric approach is the belief that managers
and employees in a foreign operation should be from the host country. Using this approach, the
feeling is that people native to the host country which is Peru will not have problems with culture
shock, knowing the language (Spanish), realizing and adhering to the local customs, values,
and attitudes, and being effective immediately instead of after a learning process has taken
place. Key positions in the foreign operation are filled with host country nationals (Peru). This
saves OEC’s money associated with recruiting, training, and transferring expatriates from other
countries which are from U.S. and Mexico in which the company also has operations. Many
human resource managers, facing growing pressure to control the cost of expatriate
assignments, respond by hiring locals. By appointing Juan Moreno, here are the strengths,
weaknesses and estimated compensation package for him to be managing director:

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Table 3: Strength and Weakness of Juan Moreno
Candidate Strength Weakness

1. Age 27, he is assistant managing 1. Lack of experience.

director in Peru.
2. Four years experienced in OEC
after college graduations.
Juan Moreno 3. Successful in increasing sales
because he is well connected with
local families in Peru.
4. Unmarried.

Table 4: Estimated Compensation Package for Juan Moreno

Compensation Juan Moreno

Direct Compensation Costs

Base salary US$30,000

Foreign service premium -

Cost of living 10,500

Housing allowance 12,100

Company-Paid Costs

Schooling allowance -

Peru income taxes (9,000)

Working spouse allowance -

Total US$43,600

5.3 The Geocentric Approach

With geocentric approach, unlike the ethnocentric and polycentric variations, OEC decision to
appoint managing director is not tied to U.S. national or Peru national. Rather, OEC scans the
five short-listed candidates looking for the best people for the managing director post in Peru,

9
regardless of their nationality. Table 5 in the next page shows the strengths and weaknesses of
each candidates and OEC will choose the best candidate from this table.

Table 5: Strength and Weakness of Each Candidate

Candidates Strength Weakness

1. 30 years experience in technical & 1. Will retire in 4 and half

sales. years.
2. Visited various companies’ foreign 2. Never worked abroad.
facilities. 3. He and wife cannot speak
Tom 3. Considered competent by Spanish.
Zimmerman committee.
4. Their children are grown and living
with their own children in the United
States.
5. Currently in charge of an operation
that is about the size of that in Peru
after the new factory begins operating.
1. Age 40 with 15 years experience 1. Never been based abroad.
in OEC. 2. His wife holds responsible
2. Considered competent and marketing positions with a
capable to move into upper level pharmaceuticals company.
Brett 3. Two children, ages 14 and
management level within next few
Harrison 15, are just beginning to study
years.
3. Been worked in the Latin the language.
American regional office for 3 years.
4. Frequently travels to Latin
American.
5. He and his wife able to speak
Spanish adequately.
1. Experience in OEC for 12 years 1. Never been based abroad.
2. MBA from prestigious university.
3. She speaks Spanish well.
4. She interested in international
Carolyn
business as her MBA major subject
Moyer based on international affairs.
5. For 2 years, she was second
command of a product group that size
of new plant in Peru.
6. Unmarried.
1. Age 35, he is assistant managing 1. Mexican citizen.
director in Mexican operation. 2. He is married with four
2. Experienced in OEC for 12 years. children (ages 2 to 7)
3. Holds MBA from Mexican 3. His wife does not speak
Francisco university. English.
Cabrera 4. He speaks English. 4. Will head Mexican present

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 5. His four children speaks English managing director in 7 years.
adequately
1. Age 27, he is assistant managing 1. Lack of experience.
director in Peru.
2. Four years experienced in OEC.
3. Competent in employee relations
Juan Moreno
4. Successful in increasing sales
because he is well connected with
local families in Peru.
5. Unmarried and can speak English.
From Table 5, the best candidate amongst five short-listed candidates for the managing
director post for Peru’s operations is Carolyn Moyer. So, for geocentric approach, OEC will
decide to appoint Carolyn Moyer to Peru to replace the current managing director.

5.4 The Regiocentric Approach

A regiocentric approach to hiring selects management personnel from within a region of the
world which most closely resembles that of the host country. OEC has expanded its search
beyond the borders of the host country (Peru), but has stopped short of seeking management
personnel from its operations throughout the world. The theory behind this selection process is
that nationals of the region in which operations actually take place are better able to deal with
language and cultural problems than are managers from outside the region. The logic behind
this hiring approach is probably sound, but it ignores the potential growth a manager goes
through when forced to deal with different situations than those in which he or she is
comfortable. In this case, Mexico is in the same region of the host-country which is Peru, so,
using this approach, OEC will appoint Francisco Cabrera for the replacement of the exiting
managing director. Table 6 and Table 7 below show the strengths, weaknesses and his
estimated compensation package of appointing Francisco Cabrera as the managing director.

Table 6: Strength and Weakness of Juan Moreno

Candidate Strength Weakness

1. Age 35, he is assistant managing 1. Mexican citizen.

director in Mexican operation. 2. He is married with four
2. Experienced in OEC for 12 children (ages 2 to 7)
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Francisco Cabrera years. 3. His wife does not
3. Holds MBA from Mexican speak English.
university. 4. Will head Mexican
4. He speaks English. present managing director
5. His four children speaks English in 7 years.
adequately

Table 7: Estimated Compensation Package for Juan Moreno

Compensation Francisco Cabrera

Direct Compensation Costs

Base salary US$40,000

Foreign service premium 12,000

Cost of living 20,000

Housing allowance 15,000

Mexico income tax (8,000)

Company-Paid Costs

Schooling allowance 10,000

Peru income taxes 12,000

Working spouse allowance -

Total US$81,000

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5.5 Advantages and Disadvantages of Each Alternative Strategy Approach

Table 8: Advantages and Disadvantages of Each Alternative Strategy Approach

Alternative
Strategy
Approach Advantages Disadvantages

Ethnocentric 1. Cultural similarity with parent 1. Creates problems of

Approach company ensures transfer of
business/management practices
-Carolyn Moyer 2. Permits closer control and
appointed coordination of international
managing subsidiaries
director 3. Gives employees a
multinational orientation through
experience at parent company
4. Establishes a pool
internationally experienced
executives
Polycentric 1. Lower labor costs
Approach 2. Demonstrates trust in local
citizenry
-Juan Moreno 3. Increases acceptance of the
appointed company by the local community
managing 4. Maximizes the number of
director options available in the local
environment
5. Leads to recognition of the
company as a legitimate
participant in the local economy
6. Effectively represents local
considerations and constraints in
the decision-making process
adaptability to foreign
environment and culture
2. Increases the »foreigness«
of the subsidiary
3. May involve high transfer
and salary costs
4. May result in personal and
family problems
of 5. Leads to high failure rate
6. Has disincentive effect on
local-management morale and
motivation
7. May be subject to local
government restrictions
1. Makes it difficult to balance
local demands and global
priorities
2. Leads to postponement of
difficult local decisions until
they are unavoidable, when
they are more difficult, costly,
and painful than they would
have been if implemented
earlier
3. May make it difficult to
recruit qualified personnel
4. May reduce the amount of
control exercised by
headquarters

Geocentric 1. Ability of the firm to develop 1. Host government may use

Approach an international executive team immigration controls in order to
2. Overcomes the federation increase HCNs employment
drawback of the polycentric 2. Expensive to implement
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 -Carolyn Moyer approach due to increased training and
appointed 3. Support cooperation and relocation costs
managing resource sharing across units. 3. Large numbers of homes-,
director hosts-, and third-country
nationals need to be sent
across borders
4. Reduced independence of
subsidiary management
Regiocentric 1. Allow interaction between 1. Produce federalism at a
Approach executives transferred to regional regional rather than a country
headquarters from subsidiaries in basis and constrain the firm
-Francisco the region and PCNs posted to from taking a global stance
Cabrera the regional headquarters 2. Staff’s career
appointed 2. Provide some sensitivity to advancement still limited to
managing local conditions regional headquarters, not the
director 3. Help the firm to move from a parent country headquarters
purely ethnocentric or polycentric
approach to a geocentric
approach

PART 6: ANALYZING ALTERNATIVE STRATEGIES

Table 9: Assessed Values of Alternative Strategies Using Decision Criteria

Capable of

Alternative Local Cost of Speak Employee developing International

Strategies
experience compensation Spanish relations and experience
mobility
Ethnocentric
Approach
1 2 6 1 6 3
-Carolyn
Moyer

Polycentric
Approach
5 6 6 5 6 2
-Juan
Moreno

Geocentric
Approach
1 2 6 1 6 3
- Carolyn
Moyer

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Regiocentric
Approach
3 4 6 1 1 1
-Francisco
Cabrera

Table 10: Evaluation of Alternative Strategies against Weighted Criteria

Capable of

Alternative Local Cost of Speak Employee developing International Total

Strategies
experience compensation Spanish relations and experience
mobility
Ethnocentric
Approach
6 10 24 3 12 3 58
-Carolyn
Moyer

Polycentric
Approach
30 30 24 15 12 2 113
-Juan
Moreno

Geocentric
Approach
6 10 24 3 12 3 58
- Carolyn
Moyer

Regiocentric
Approach
18 20 24 3 2 1 68
-Francisco
Cabrera

PART 7: SELECTING THE BEST ALTERNATIVE STRATEGY

From Table 3, we will choose Polycentric Approach as our alternative strategy to solve the
problem since it scored highest on the basis of the identified criteria, the weights given to the
criteria, and our assessment of each alternative strategy’s ranking on the criteria. It is the best
alternative and the one we will choose. Using polycentric approach, OEC will appoint Juan
Moreno as the replacement of current managing director that will leave within one month.

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Carolyn Moyer might be the best amongst all of the short-listed candidates, but Juan Moreno is
already familiar with the local culture, values, attitudes and he will be effective immediately in his
coming managing director post as he is already working in Peru’s operation.

He might be lack in experience but he is competent in employee relations and this

assures that he will be able to manage the current employees and he also has the connection in
sales of OEC’s equipments. Other than that, his estimated compensation package is the lowest
amongst all candidates and this can save cost for OEC. By appointing Juan Moreno for
managing director, they will save all the costs on sending him for the Expatriate Preparation and
Development Training which consists of General Country Understanding (informational briefing
about the way things work in the host country-political structures, job design, compensation
norms, climate, education, health conditions, home sales, taxes, transport of goods, job
openings after repatriation and salary distribution), Cultural Sensitivity (best preparation for
dealing with the challenges of culture shock) and Practical Skills Training (familiarize the
expatriate and family with the routines of life in the host country).

For Carolyn Moyer, if OEC appoints her, there will be so many things to be taken care of
before she can move to Peru while the managing director post will be vacant in one month
period. She will be needed to take care of shipping and storage of her things, home sale or
property management fees, cultural, practical and language training, pre-assignment orientation
trip and destination assistance. All of this will take time and it will be impossible for her to
manage all of these things and make it to fill in the post of managing director within one month.
If she does not go for the training, failure rates are between 25 and 40 percent when the
expatriate is assigned to a developed country and a whopping70 percent when the expatriate is
assigned to a still-developing country (Shay and Tracey, 1997).

Often times, this training is provided months before the expatriate actually finds
themselves struggling with adjustment.The importance of developing expatriate managers for
their overseas assignment through the utilization of cross-cultural training seems apparent.
Considerable research supports that cultural training can have a positive effect on cultural
adjustment and expatriate performance (Frazee, 1999; Deshpande and Viswesvaran, 1992).
Caudron (1991) highlights some specific dimensions which cultural training that can help in
reducing costly expatriate failure and increase the effectiveness of their assignment. This
means that assigning Carolyn Moyer with only one month preparation will risk her assignment
success.

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 For Francisco Cabrera, he might be advantages in speaking Spanish, but he has four
children (ages 2-7) and he’s married which means that he is not mobile to be transfer to the
Peru’s operation. He is also considered to be likely a candidate to head the Mexican operation
when the present managing director retires in seven years and if Francisco assigned to be the
managing director in Peru, then when the director of Mexican operation retires in seven years,
then they will need to find other candidates.

Local Peru employees will like local-controlled operations rather than foreign-like
operations and they likely put local interests ahead of the company’s global objectives. Failure
rates for overseas posting can be reduce by appointing Juan Moreno and he does not have to
go through local adaptations as he is Peru national. Juan Moreno interprets local conditions
better than Carolyn Moyer.

Even though appointing Juan Moreno has lots of advantages and benefits for the
company, they might be some drawbacks by appointing him. Using polycentric approach, OEC
will transfer responsibility and authority to Peru national to run their Peru’s operations and
problems arise on issues of accountability and allegiance. Accountability issues might emerge
when Peru’s operations evolve into quasi-autonomous operations that depend less and less on
the U.S. office for resources. It might also reduce incentive to engage international perspective.
Each approach has its own advantages and drawbacks, so we will still choose polycentric
approach as our final decision and Juan Moreno will be appointed as managing director
effective in one month after the current managing director leave OEC’s operation in Peru.

PART 8: IMPLEMENTATION

8.1 Short-Term Implementation:

In short term implementation, the first step in implementing the alternative strategy is to
announce their decision of which candidates that will be appointed for the managing director for
OEC operation in Peru which is Juan Moreno. All the decision justification will be presented in
the committee’s meeting as why Juan Moreno is the best candidate for the managing director.
Because Juan Moreno is already working in Peru’s operation, the only thing left for preparing
him for the managing director post is to get information briefing from the current managing
director of what works need to be done, how to make it done and so on and so forth. The last
thing is to move his things to the managing director’s office. OEC will have to agree on suitable
17
financial and support package to maintain Juan Moreno in his post. OEC also must agree on
career development resulting from the assignment as managing director. OEC can decide
together with Moreno on his training needs.

8.2 Long-Term Implementation:

(1) First, OEC must pay Juan Moreno enough to generate motivation in doing his job; OEC
needs to increase his base salary from $30,000 (S57, 000) to $50,000 (S95, 000). This
value is not costly as compared to the other candidates from U.S. which is two times of
Juan Moreno base salary. Over time, real or perceived pay inequities among U.S., Peru
and third-country employees might erode his motivation. Compensation can determine
the success or failure of work assignments.

(2) Of all, to lead people, one must gain the credibility. As for Juan Moreno, he must show
them that he worth the position. He must perform up to the expectation of who a
managing director is. He must set a personal goal for him to achieve within a period of
time, say, three months.

(3) Secondly, as Juan is lack in experience, OEC can send him to visit various company’s
foreign facilities as part of sales teams. During these visits, Moreno can learn and gain
experience on how other facilities run their operations. He also can gain experience
during reporting to their Latin American regional office located in Coral Gables, Florida.

(4) OEC could provide headquarter mentor for contact/support and get regular feedback to
assess the development and support needs of Peru’s operations. OEC can do
periodically evaluate effectiveness and problem areas emerge from Peru’s operations.
These can prevent potentially conflicting loyalties of Juan Moreno and to make sure that
their Peru’s operation primary allegiance is still towards U.S. headquarter.

(5) For long-term, the company must have succession planning. It is important as to identify
and develop internal people with the potential to fill key leadership positions in the
company. EOC must have a succession planning. Planning ahead will increase the
availability of experienced and capable employees that are prepared to assume these
roles as they become available. So, when similar case happens, they already have
someone who is trained and ready to take the position.

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