Recruiting channels of foreign subsidiaries in Japan

DOI 10.1007/s11573-011-0454-yZ Betriebswirtsch (2011) 81:101–116

Zf B-SPECIAL ISSUE 3/2011

Recruiting channels of foreign subsidiariesin Japan

Fabian Jintae Froese • Vesa Peltokorpi

Abstract: Despite increasing interest in recruitment and selection, surprisingly little is known re-garding recruiting practices and channels in foreign subsidiaries. This study focuses on the utiliza-tion and success of recruiting channels of foreign subsidiaries in Japan. Interviews with 40 companymanagers show that recruitment strategies in foreign subsidiaries progress through different stages.Lacking social networks but possessing substantial financial resources, small and newly establishedsubsidiaries rely primarily on headhunters. However, larger subsidiaries with longer presence inJapan tend to diversify and localize their recruitment channels. Owing partly to a reduction in eth-nocentric attitudes, foreign subsidiaries in certain industries are capable of attracting high-qualityjob candidates. Overall, the interviews revealed that referrals are the best recruiting channel for theproduction of high-quality candidates who fit in well, exhibit high company loyalty, and performwell on the job.

Keywords: Recruiting channel · Recruiting source · Japan · Foreign subsidiary · Localization

JEL Classification: M12 · M16 · M51

© Gabler-Verlag 2011

Dr. oec. HSG F. J. Froese (�)Korea University, Seoul. Anam-dong, Seongbuk-Gu,136-701 Seoul, South Koreae-mail: [email protected]

V. PeltokorpiHEC School of Management, Paris, Francee-mail: [email protected]

102 F. J. Froese and V. Peltokorpi

1 Introduction

Recruiting processes and the use of different recruiting channels are crucial topics forboth practitioners and scholars. In today’s knowledge-based economy, recruiting superiorhuman resources are considered sources of competitive advantage (Schuler and MacMillan1984). Although the recruitment of top talent has become a universal objective, the use ofrecruiting channels has been demonstrated to vary across countries. For example, more than60% of Germans are recruited via referrals from friends or family, 30% through newspaperadvertisements, and less than 10% via internet advertisements (Grund 2006). However,employment agencies are the primary sources of recruiting in Sweden and Finland, wheremore than 50% and 40% of employees, respectively, are recruited through employmentagencies (Behrenz 2001; Raisanen 2007).

Contrasting with the extensive research in this area conducted in the US and Europe,little is currently known regarding recruiting channels in Asia (see Han and Han 2009;Han and Froese 2010, for exceptions). Due to their increasing operations in Asia, HRprofessionals in multinational corporations (MNCs) can benefit from research into the re-cruitment practices pertaining in different areas. Indeed, foreign subsidiaries have reportedfacing challenges in their recruiting efforts in China (Han and Froese 2010), India (Holt-brügge et al. 2010), Vietnam (Froese et al. 2010), and Japan (Robinson 2003). Recruitingchallenges are also routine topics in meetings of foreign chambers in Japan. For example,the American Chamber of Commerce has established a permanent committee to addressthe issue of these recruiting challenges. The problem of attracting local talent has also beenidentified as a major obstacle for MNCs in Japan (Mourdoukoutas 1992). In this paper,we explore the utilization and success of recruiting channels in Japan, the world’s secondlargest economy and the host of more than 2,800 foreign subsidiaries. On the basis of thisanalysis, we provide practical recommendations for foreign subsidiaries in Japan.

Apart from its practical relevance, this study also intends to make some theoreticalcontributions. First, research has shown that recruiting in foreign-based firms differs fromthat of domestic firms (Turban et al. 2001; Froese et al. 2010). For example, Chineseuniversity students attracted to foreign firms were more risk- and money-oriented (Turbanet al. 2001). Froese et al. (2010) previously reported that attraction toward foreign firms canbe explained via the country-of-origin image theory. That is, Vietnamese students tendedto be more profoundly attracted to US companies, because they had the image that theUSA was more technologically advanced, and that Americans were more open-minded,than the Japanese. While enhancing our knowledge of applicant attraction, these studieslooked only at the perceptions of university students toward foreign employers. This studydescribes our analysis of the utilization and success of different recruiting channels fromthe employers’ perspective.

Second, this study sheds some light on the standardization-localization debate of re-cruiting channels in MNCs (e.g., Björkman and Lu 1999; Pudelko and Harzing 2007).MNCs employ different recruiting strategies in host countries. They can either localizetheir recruiting practices or introduce their country-of-origin/global best practices (Pudelkoand Harzing 2007). In an effort to contribute to the standardization-localization question,we compare the literature on recruiting channels with our investigations of foreign sub-sidiaries. Finally, by way of contrast with the traditional focus on large companies, recent

Recruiting channels of foreign subsidiaries in Japan 103

research has shown that recruiting channels are affected by company size, year of founda-tion, and industry sectors (Hausdorf and Duncan 2004; Leung et al. 2006). For example,young and small companies may not possess sufficient resources to engage in campusrecruiting. Because foreign subsidiaries in Japan vary in terms of size, year of foundation,and industry type, we take into consideration the effects of these variables on recruitingchannels.

The remainder of this study is organized as follows. The following section reviews theliterature on recruiting first inWestern countries, and specifically in Japan. The third sectiondiscusses the study sample and methodology. The fourth and fifth sections present anddiscuss the findings. In these sections, we compare recruiting channels between Japanesecompanies and foreign subsidiaries, and discuss the sizes, the lengths of operations inJapan, and industry-related differences among foreign subsidiaries. This study ends witha discussion of the practical implications of our findings, as well as some limitations ofthe study and suggestions for future research.

2 Literature review

2.1 Recruiting process, utilization, and success of recruiting channels

In this section, we review recruiting from a general perspective, drawing primarily fromEuropean and American sources. The recruitment process generally begins with an as-sessment of the needs for personnel, a job analysis, the definition of a job description, andpersonnel specification. Small companies frequently simplify this process, as they may notpossess the requisite resources and expertise (Carroll et al. 1999). In the second step, theorganization may consider filling the position internally, or may attempt to locate a candi-date in the external labor market via recruiting. Entrepreneurial firms, however, may haveno option other than to hire external talent, as they seldom have systematic internal trainingand career development systems (Leung et al. 2006). Further, many entrepreneurial andsmall firms are unable to establish or maintain their own human resource departments(McNerney 1996). Such disadvantages have been described as liabilities of newness andsmallness (Leung et al. 2006; Ranger and Moore 1997).

As the majority of foreign subsidiaries are small and have a relatively short localpresence, they may suffer from the same problems as do small and entrepreneurial firmsin foreign countries. By way of contrast with entrepreneurial firms, however, foreignsubsidiaries, depending on the importance of markets and their performance (Bouquet andBirkinshaw 2008), are capable of acquiring resources from MNCs. In an effort to overcomesuch liabilities and take advantage of their resources, MNCs may fill positions in foreignsubsidiaries by dispatching expatriates. Although expatriate selection and staffing havebeen discussed at length in the international HRM literature (see Bhaskar-Shrinivas et al.2005; Peltokorpi and Froese 2009), this study focuses on the recruitment of local talent inhost countries. In recruiting local talent, MNCs can face additional disadvantages owingto their image of foreignness and their lack of local market knowledge, both of which aregenerally recognized as liabilities of foreignness (Zaheer 1994). This effect is strong inJapan, where people prefer to work for domestic companies and tend to dislike foreign


firms (Robinson 2003), as foreign companies often project uncertainty and job insecurity.Thus, foreign firms frequently find it difficult to attract local talent, and find it necessaryto offer higher salaries (Ono 2007; Peltokorpi in press).

The next step in the recruiting process is defining adequate recruiting channels. Exam-ples of common external recruiting channels include newspaper advertisements, employ-ment agencies, rehires, referrals, college recruiting (Zottoli and Wanous 2000), and theInternet (Hausdorf and Duncan 2004). The usage of recruiting channels is shaped by bothinternal resources and external constraints (Windolf 1986). Large and innovative firmsfrequently utilize a variety of recruiting channels simultaneously to attract as many appli-cants as possible (Windolf 1986). However, the choice of recruiting channels of small andentrepreneurial firms is somewhat limited. Owing to internal resource constraints, smallfirms are frequently unable to conduct high-cost college recruiting (Barber et al. 1999).While the Internet is a more cost-effective way to reach a wide audience (Hausdorf andDuncan 2004), entrepreneurial and small firms may not be particularly well-known, andmay therefore have limited chances to attract high-quality candidates (Aldrich 1999; Le-ung et al. 2006). Professional recruiting agencies are also not an option, as they chargesignificant fees; government employment agencies may not provide high-quality appli-cants. As a consequence, small and entrepreneurial firms tend to rely heavily on referralsin their recruiting efforts (Carroll et al. 1999; Leung 2003; Leung et al. 2006).

Despite the extensive research conducted thus far on international HRM practices (e.g.,Björkman and Lu 1999; Pudelko and Harzing 2007), surprisingly little is currently knownregarding the recruiting channels of foreign subsidiaries. Current research into interna-tional HR practice has generally centered on the standardization-localization debate. Oneof the salient questions these studies have attempted to address involves the degree of head-quarters HRM practices in foreign subsidiaries (standardization) or adaptations to localenvironments (localization). Because the findings have been mixed, the standardization-localization question remains a source of ongoing controversy. For example, Björkman andLu (1999) determined that Western MNCs in China had to adapt their HRM practices tothe local context, whereas Pudelko and Harzing (2007) determined that US MNCs largelyimplemented their US practices into their Japanese subsidiaries. Further, Pudelko andHarzing demonstrated that Japanese subsidiaries in Germany and German subsidiariesin Japan neither localized nor introduced their headquarters HRM practices, but ratherintroduced worldwide (American) best practices. They labeled this finding as the domi-nance effect. This study intends to shed further light on the standardization-localizationdebate within the context of the recruiting channels of foreign-based firms. Björkmanet al. (2008) argued that within the HRM, recruiting would be one of the most localizedfunctions. Likewise, Robinson (2003) has reported that large US firms in Japan, such asIBM, have localized their recruiting practices.

Other important topics in the literature on recruiting include performance-related pre-hire and post-hire outcomes and environmental contingencies in recruiting. The earlyresearch focused on post-hire outcomes, that is, the performance and loyalty of employ-ees. Research shows first that informal channels, such as referrals, tend to result in superioremployee performance and loyalty (Zottoli and Wanous 2000). This loyalty and perfor-mance has been attributed to more realistic and detailed information (Phillips 1998), anda better employee-organization fit (Saks and Ashforth 1997) among those individuals re-


cruited through referrals. Owing to the increased demand for talent, Breaugh et al. (2003)evaluated the impact of recruiting channels on pre-hire outcomes, i.e. applicant quality andpercentage of candidates hired. Their findings are not as consistent as those for post-hireoutcomes, but do suggest that referrals are an excellent source of job candidates. How-ever, Breaugh et al. (2003) did not detect any differences in quality per recruiting channel,thereby implying that firms should broaden their recruiting channels if they are lookingfor an increase in qualified job candidates. Labor market conditions have also been shownto affect recruiting channels (e.g. Windolf 1986; Behrenz 2001; Grund 2006; Raisanen2007). For example, in countries with low unemployment and extensive social systemssuch as Sweden and Finland, employment agencies have constituted the dominant recruit-ing channel (Behrenz 2001; Raisanen 2007), whereas referrals have been the dominantmode in Germany, a country with higher unemployment (Grund 2006). In the followingsection, we describe the external constraints in Japan that may explain the prevalence ofcertain recruiting channels.

2.2 Recruiting in Japanese companies

HRM practices in large Japanese companies differ in many respects from those in theWest (Abegglen 1958; Jacoby 2005). Traditional Japanese HRM is characterized by threepillars: a lifetime employment system, a seniority system, and distinct labor relationships(Abegglen 1958). Despite the economic slowdown and structural changes including layoffs(Ahmadijian and Robinson 2001), the recruiting practices of Japanese companies haveremained largely unchanged (Robinson 2003). According to Robinson (2003), the strongembeddings of recruitment practices into Japanese social structures and norms helps toexplain their uniqueness and stability. Japanese education and employment systems havealso promoted a college recruiting system. Large Japanese companies have establishedrecruiting teams to recruit college students in a systematic fashion, beginning one to twoyears before students actually start their new jobs in April the following year (Robinson2003; Sekiguchi 2006).

By way of contrast with many Western companies, large Japanese companies relyextensively on the recruitment and selection of new graduates with no work experience(Jacoby 2005). Indeed, several surveys have shown that more than 70% of Japanese firmsfill their positions via college recruiting efforts (e.g. Japan Federation of Economic Orga-nization 1997; Japanese Ministry of Labor 1999). This unique development can be largelyexplained by the human capital theory (Schultz 1971). According to this theory, educa-tion and training can be considered as investments into future personal incomes. Japanhas developed a unique method to develop its human capital. Whereas in Germany andFrance, formal secondary and tertiary education prepare young people for their futurejobs, Japanese educational institutions provide only general education and signal a certainlevel of intelligence to employers (Honda 2004). The actual development of human capitaloccurs through job-specific education within companies (Honda 2004; Sekiguchi 2006).

Human capital is often characterized as consisting of two components: firm-specificand general human capital (e.g. Sekiguchi 2007). General human capital refers to individualknowledge, skills, and abilities (KSA) specific to certain jobs and readily transferrableacross organizations. Firm-specific capital, in contrast, refers to KSA specific to a given


organization, including knowledge regarding internal policies. Firm-specific human capitalhas little value outside that firm. Although Western countries emphasize the developmentof general human capital, Japanese college recruiting and their corresponding lifetime andseniority principles generally promote firm-specific human capital (Sekiguchi 2006). Inthis symbiotic system, Japanese educational institutes do not develop a great deal of generalhuman capital, and firms do not require such at the job entry level. Companies demandfirm-specific human capital, but this clearly cannot be developed by general educationalinstitutions. This emphasis on firm-specific capital breeds a labor market that emphasizesentry-level recruiting (college recruiting) and minimal consequent movement in externallabor markets.

Although economic conditions in Japan have worsened dramatically, it is difficult tomake changes in the complex system of Japanese education, recruiting, and employeedevelopment (Honda 2004). However, some minor changes have already occurred. Forexample, mid-career hiring in large companies has been shown to increase (Tokoro 2005).These mid-career employees are hired largely through employment agencies (60%), andto a lesser extent through newspaper advertisements (31%) and referrals (23%) (JapanInstitute for Labor Policy and Training, 2004). It should be noted that some scholars haveargued that mid-career hiring has not significantly increased and still tends still to occurprincipally within the corporate network of the parent firm (Jacoby 2005).

3 Methodology

Considering the currently limited knowledge of recruiting channels of foreign-based firmsin Japan, we adopted a qualitative approach. Data were collected through 40 interviews withcompany representatives who were decision-makers in the recruiting process (e.g. coun-try heads, vice presidents, and HR managers). Their coordinates were acquired throughthe respective chambers of commerce (company representatives) and contacted randomly.The majority of contacted managers were willing to be interviewed. All these foreignsubsidiaries had headquarters either in Europe or North America. The size of the par-ticipating subsidiaries ranged from three employees, to more than 7,000. Some of thesesubsidiaries were established almost 100 years ago in Japan, and some within the last fiveyears—however, most of them were established 10–30 years ago. All larger subsidiarieswere established more than 20 years ago. Industries ranged from automotive and machineryto banking and management consulting (see Table 1).

Table 1: Overview of companies

Industry

Number of Machinery Consumer Logistics Automotive Consulting & Pharma &employees products finance medical

1−20 4 4 4 2 3 221−500 2 2 2 1 4 3501+ 2 1 0 2 1 1

Total 8 7 6 5 8 6

n = 40


The interviews were a component of a larger project on recruiting and retention man-agement of foreign subsidiaries in Asia. The interviews conducted by two authors of thepresent study ranged from 30 to 120 minutes, and were tape-recorded and transcribedin their full lengths. The authors interviewed both Japanese and foreign managers usingEnglish, Japanese, and a variety of European languages, depending on the interviewee’spreference. Non-English interviews were translated into English for comparison with theother interviews. All respondents were asked questions like “What channels do you use torecruit people?”, and “How successful are your recruiting efforts?” Individual and com-pany names cannot be revealed because the interviewees were assured full confidentiality.The authors utilized NVIVO 8 software to reduce, sort, and cluster the data, and then toderive the key themes.

4 Findings

The participating subsidiaries were found to utilize a variety of recruiting channels. Therecruiting channels were contingent on company size, length of establishment, and entrymodes into Japan. Because recruiting in joint ventures was frequently conducted primar-ily by the Japanese partner, employees were recruited from the Japanese parent company.Additionally, all large foreign subsidiaries with more than 500 employees had locally con-gruent recruiting practices. For example, one large French subsidiary with several thousandworkers gradually began to employ college recruiting procedures, owing to the increasedmarket commitment and the need for local employees. In another case, a German sub-sidiary acquired a large Japanese company and continued the existing Japanese recruitingpractices. Every year, this subsidiary sends its HR employees to universities and job fairsin order to promote the company and to conduct the preliminary interviews. Despite theeconomic recession, this company plans to hire 80 college graduates in 2010. While severalmedium-sized subsidiaries also relied on college recruiting, small companies without full-time HR managers had to employ alternative methods to recruit local employees. Despitethese differences, all foreign subsidiaries (except for one) utilized headhunters to recruitemployees either as the only means, or as one among several recruiting channels. The nextmost common recruiting channels were advertisements (online and offline) and referrals.The use of public employment agencies and rehires were not mentioned more than once.

The success of pre-hire outcomes (number and quality of applicants) was dependent oncompany size, length of establishment, industry, and reputation. One manager explained,echoing several others: “The biggest problem [for foreign companies] is to be small, un-known.” Foreign subsidiaries in the automotive and electronics industries—industries thatare dominated by Japanese companies—had particular difficulties in attracting a sufficientnumber of quality applicants. The effects of company reputation and size on recruitingwas explained by one manager as follows: “If we are bigger or more famous, we can getbetter candidates [ . . . ] if we compare five years ago and now, yes, we can attract bettercandidates now, because we have our good product in the market”. Another Scandinavianmanager explained: “It was very difficult in the late 1970’s and 1980’s for foreign com-panies to hire people in Japan”, due to ethnocentric stereotypes of Japanese job seekers.However, interviews with managers of well-knownAmerican or European banks and man-agement consulting firms revealed that such disadvantages have become less important.


Even though many of those companies had small offices in Japan (30–200 employees) byglobal standards, they were the preferred employers of college graduates and mid-careers.As concluded by a manager of a well-known American consulting company: “It is easyto hire new people. “In summary, college recruiting was limited to large companies anda few medium-sized companies, but headhunters, advertisements, and referrals were themost common recruiting channels. In the following section, we describe the experiencesand perceptions of foreign firms with these prevalent recruiting channels in greater detail.

4.1 Headhunters

The most commonly utilized recruiting channel for foreign subsidiaries was headhunters.As headhunters were seldom used to fill positions in these companies in their home coun-tries, the majority of foreign managers explained that they were unused to dealing withheadhunters. More than 1,000 headhunting firms operate in Japan, including all of themajor global ones. Several hundred of them cater principally to foreign companies andmostly have English names, even though 100% of them are Japanese-owned. The expe-rience, size, and nationalities of the staff of these headhunting companies were shown tovary extensively. The majority of these companies work on a contingency search basis;that is, they receive a commission only if the introduced candidate is selected. Dependingon the level of the placed candidate, headhunting firms charge a commission of 20–35%(30% was the usual quote in 2009) of annual salary, making the use of a headhuntingfirm rather costly. For example, to recruit a manager who would receive an annual salaryof 10 million Yen (∼80,000 €), the hiring company would need to pay a commission of3 million Yen (∼24,000 €) to the headhunter.

This reliance on headhunters is due largely to the inability of foreign subsidiaries tofind a sufficient number of job candidates via other channels. The managers explained,for example, that “we are famous in France, but here so small [ . . . ] it is impossible tohire someone in Japan without headhunting companies. We need network—just to havethe name of the company doesn’t help.” However, the interviews demonstrate that themajority of companies were not satisfied with the quality of the introduced candidates.10 of the respondents even leveled fierce criticisms of the professionalism of certainheadhunters. For example, one manager in a small and newly established foreign subsidiarycomplained that headhunters lacked the necessary professionalism, and did not introducegood candidates. As illustrated by the comments of one manager, the interviews indicatedthat the successful use of headhunters is a learning process:

We went through headhunters with diverse success. Some are less good than others.We also had bad experiences. One asked for a 100,000 Yen deposit for them to dotheir research. We never heard back from them. We did specify our requirements. Werequired candidates that were bilingual, had an accounting background, and had 3years of relevant accounting experience with international and Japanese accounting.All we got was a candidate who was not even a college graduate and who had noexperience whatsoever [ . . . ] then we went to an established recruiting firm. Andthen we almost immediately got a number of candidates that fit our requirements andprofile, whom we interviewed. We successfully recruited some of them. We recruitedseven using the same company. That was two years ago. Five are still with us.


Experienced managers stressed the need for careful screening of headhunting companiesand specification of candidate requirements. However, the negative experiences with andhigh cost of headhunters motivated some unsatisfied managers to try different recruitingchannels. Also, as companies (and their managers) gained experience in the market, theygradually began to attempt to reduce the use of headhunters, and also increasingly useddifferent recruiting channels, such as advertisements and referrals, as discussed in thefollowing sections.

4.2 Advertisements

Although used in most foreign subsidiaries in the present study, advertisements were nor-mally regarded as the initial step in their recruitment efforts. Small subsidiaries (fewermedium/large subsidiaries) tended to rely on services provided by chambers of commerceor embassies as an initial means of disseminating their job vacancies. These institutionsfrequently have newsletters/homepages in which job advertisements can be placed. In ad-dition to functioning as a cheap recruitment channel (usually a few hundred Euros), manyjob applicants were reported to have an interest, or even to have lived in the country oforigin, and to have previously heard of the hiring company. However, one French man-ager explained that the downside of this recruitment channel is a homogeneous applicantpool: “They (job applicants) were very French, not enough English. French [languageproficiency] is not the priority. We need somebody with very good English [language pro-ficiency].” While few subsidiaries relying on chambers of commerce/embassies had foundqualified candidates, the majority of them ended up with a pool of unqualified ones. As aconsequence, these foreign subsidiaries sought to use different recruitment channels, suchas headhunters and newspapers advertisements.

Many subsidiaries place their job advertisements in newspapers and magazines. News-paper advertisements are relatively cheap in Japan, and offer both print and online options.The most commonly used newspaper for job advertisements was the “Japan Times”, a na-tional Japanese newspaper. Several subsidiaries also utilized industry-specific newspapersand magazines to reach a more specific target demographic. Even though the advertise-ments enabled subsidiaries to generate a large applicant pool, the company representa-tives complained that the quantity was a poor substitute for quality. As explained by oneAmerican manager, the applicants’ skills frequently did not match the job requirements:“Unfortunately, applicants do not care what we want. If they care enough to see our re-quirement, then they may think that it is not their capacity.” However, newspaper andmagazine advertisements were reported to be somewhat successful for non-managerialstaff due to the quantity of received applications, but only marginally successful in locat-ing management-level candidates.

Foreign subsidiaries also utilize their own homepages to advertise career opportunities.However, only large and/or well-known companies, such as American banks, consultingfirms, and French luxury firms, benefited from this recruiting channel. These subsidiariesreceived significant numbers of applicants and generally reported themselves pleased withthe quality of those applicants. A French manager explained: “People who contact bythemselves might have high motivation and have specific interests in our company.” Fi-nally, online recruiting platforms such as Monster.com were unpopular among foreign


subsidiaries. Overall, the online job forums are not that well-established in Japan as com-pared to the US, China, and other countries. Only two managers mentioned having placedadvertisements on such forums. One manager reported using the platform offered by “Re-cruit”, a large Japanese recruiting company, and concluded that “we found it was prettygood to reach interesting people”; however, the emphasis was on interesting and not nec-essarily highly-qualified and suitable candidates for the specific job.

4.3 Referral

Around one-fourth of the company representatives reported using referrals to recruit peo-ple. The majority of them praised the usefulness and success of their referrals. In additionto the lower cost as compared to headhunters, referrals provided higher-quality applicantsthat frequently fit well into corporate cultures. Fit and adjustment were emphasized be-cause corporate cultures of foreign subsidiaries differ from those of Japanese companies(they tend to be more egalitarian and performance-oriented). One Scandinavian manager’sexplanation, which echoed others’, summarizes the advantages of hiring people throughreferrals:

It’s much cheaper than paying to recruitment companies. That is not the main advan-tage. There are two advantages. Another one is the person who refers would have thefeeling that a candidate might have a good fit with the company because they havethe insight more than headhunters. It’s about the commitment to the company. Whenyou recruit someone and if they failed, then the people who refer would know thatit is negative for the company. So I think people who refer think very deeply beforedoing it. We have three people recruited in that way and they are performing verywell.

However, two managers warned that too extensive a usage of referrals might also havenegative consequences, because it could “create some kind of company within the com-pany” and “limit networks”. Furthermore, the referred individuals might have more loyaltyto other individuals than to the company itself. For example, our interviews revealed thatwhen one British manager resigned, all three of the employees he referred left with himas well.

While used in both small and large subsidiaries, the interviews differed with regardto the reported execution and implementation of referrals. In small subsidiaries, companypresidents frequently relied on their personal networks to hire people. For example, onesubsidiary president explained that “through my previous job, I had some contacts. So Istarted hiring people from my previous company.” However, usually only the subsidiarypresident did so, and fulltime employees were not encouraged to refer their contacts. Thosemedium and large subsidiaries that used referrals as a recruiting method generally estab-lished a formal referral system. In these subsidiaries, employees who successfully referreda new employee were frequently reported to receive a financial bonus. The interviews showthat employee referrals were more common in specialized and narrow industries, such asthe luxury goods industry, where the majority of professionals knew each other.


5 Discussion

The present study focused on recruitment channels in foreign subsidiaries in Japan, themotivation for these subsidiaries to rely on certain recruitment channels, and the successof these recruitment channels. The qualitative approach we adopted allowed us to unravelthe impact of company size, length of incorporation, and industry in recruiting. The mainfindings are shown in Table 2. Headhunters are the most common recruiting channel forforeign subsidiaries in Japan. As foreign subsidiaries gain experience and grow in size,they tend to broaden their recruiting channels and localize their recruiting practices byengaging in college recruiting. The interviews also demonstrate that major American andEuropean financial firms, consulting firms, and makers of luxury products are able to attractJapanese college graduates and mid-careers, whereas companies in industries dominatedby Japanese companies (e.g. automotive, electronics, and non-consumer goods) were notas attractive. Overall, referrals were the most successful recruiting channel to attract high-quality applicants that were loyal to the company and were also high performers.

Table 2: Summary of findings

Referrals Advertisements Headhunter Collegerecruiting

Number of companies 10 28 39 6Size of company

Small Good option Few qualifiedapplicants

Difficult No resources

Large Good option Moreapplicants

Mixedexperiences

Successful

Age of companyNew Lack of social

networkFew qualifiedapplicants

Difficult No resources

Established Good option Moreapplicants

Mixedexperiences

Possible

IndustryConsulting, finance,luxury goods

Good option Many qualifiedapplicants

Mixedexperiences

Possible

Other industries Good option Few qualifiedapplicants

Mixedexperiences

Possible

Corporate reputationHigh Good option Many qualified

applicantsMixedexperiences

Possible

Low Good option Few qualifiedapplicants

Difficult Difficult

Targeted employeesLow level Good option Possible Mixed

experiencesPossible

Upper level,professionals

Good option Few qualifiedapplicants

Mixedexperiences

Not applicable


In addition to partially confirming previous research findings (e.g. Leung et al. 2006;Carroll et al. 1999), this study focused on the little-researched topic of recruiting channelsof foreign subsidiaries in host countries. Our findings were consistent with research con-ducted on Singaporean entrepreneurial companies by showing that new subsidiaries in agiven market go through different stages and develop corresponding recruiting strategies(Leung et al. 2006). However, the recruiting channels utilized by small foreign subsidiariesin Japan differed from the small, entrepreneurial companies, which generally dependedon referrals (Leung et al. 2006; Carroll et al. 1999). This difference may be attributableto the company background. A newly established and small foreign subsidiary in Japan isfrequently a more or less integrated part of a MNC. MNCs have rich financial resourcesthat permit managers in subsidiaries to employ expensive recruiting channels, such asheadhunters and newspaper advertisements. However, unlike local entrepreneurs, foreignsubsidiaries usually lack local networks, and thus cannot rely on personal referrals fortheir recruiting efforts.

This study also contributes to the standardization-localization debate. Consistent witha conceptual discussion regarding recruiting practices in Japan (Robinson 2003), our find-ings suggest that foreign subsidiaries gradually localize their recruiting practices depend-ing on size and local experience. For example, large foreign subsidiaries were shown torely on college recruiting to a degree similar to Japanese companies. In contrast to the focuson large subsidiaries in Robinson’s (2003) article, the present study takes into account re-cruiting practices in small and medium-sized subsidiaries. Rather than being able/willingto mimic Japanese companies, small and medium-sized subsidiaries relied extensively onheadhunters as the result of their inability to attract high-quality candidates via alterna-tive recruiting channels. Therefore, by way of contrast to the suggestions of deterministiclocalization processes among foreign subsidiaries in Japan (Robinson 2003), small andmedium-sized subsidiaries had developed their own distinct method of recruiting employ-ees, which differed from those of their country of origin as well as from typical Japaneserecruiting practices. That is, foreign subsidiaries responded to the Japanese environmentneither via localization nor global standardization, but by developing a “third way”. As ourinterviews indicated, this third way was not a global best-practice approach (dominanceeffect, Pudelko and Harzing 2007), but rather a muddling-through in the difficult foreignenvironment.

Consistent with research suggesting that foreign subsidiaries are less preferred em-ployees (Newburry et al. 2006; Robinson 2003), the managers asserted that newspaperadvertisements and company homepages provide only a small number of qualified jobapplicants. Few managers felt that the Japanese were too ethnocentric and risk-averse towork for foreign subsidiaries. However, in accordance with previous research (Chiavacci2006), our interviews of a broad spectrum of company managers revealed that this nolonger applies uniformly to foreign firms. Rather than just foreignness, the interviewsshowed that industry, market position, and corporate reputation were also responsible forthe attractiveness of foreign subsidiaries to Japanese job applicants. For example, majorEuropean and American financial companies and consulting companies received plentyof applications from qualified candidates. These foreign companies are also known fortheir superior finance and management skills. However, foreign automotive and electron-ics companies, which are relatively small as compared to their Japanese competitors, wereless attractive. These findings thus confirm prior research showing that market position


and corporate reputation are important criteria to attract job applicants (Gatewood et al.1993; Ployhart 2006) and can transcend country-of-origin stereotypes. Further, our find-ings showed that domestic size, and not the worldwide size of a company, is the mostrelevant factor for local job seekers.

Finally, the pre-hire outcomes of the various recruiting channels were determined tovary depending on the industry and corporate reputation of the firm. As mentioned above,industry and corporate reputation were the deciding factors in terms of the number andquality of applicants, insofar as newspaper and company homepages were concerned.Corporate reputation and size was also shown to make a difference when it came to head-hunters. Headhunters were less enthusiastic and capable of introducing good candidatesto small and unknown companies. Regardless of size, corporate reputation, and industry,all interviewed managers focused on the advantageous pre-hire and post-hire outcomesof referrals. Consistent with previous research (Breaugh et al. 2003; Zottoli and Wanous2000), those candidates who were referred were generally of high quality, and once hiredwere more loyal and evidenced superior performance.

5.1 Managerial implications

Four practical implications can be drawn from the findings. First, only one-fourth of our re-spondents utilized referrals. As referrals helped foreign subsidiaries to attract high-qualitycandidates who later proved loyal and superior performers, more extensive usage shouldbe made of this recruiting channel. Although small foreign subsidiaries may initially lackthe needed social networks, they should attempt to broaden their personal and profes-sional networks in an attempt to find potential high-quality job candidates. Not only thecountry head but also employees should be encouraged to refer candidates. Some foreignsubsidiaries have thus introduced formal employee referral programs. Another methodwould be to hire (perhaps on a part-time basis) experienced Japanese managers who pos-sess extensive personal networks and who can help recruit employees. At the same time,managers should not recruit too extensively through referrals, as this could result in theformation of cliquish networks and dependence on a few key persons.

Second, the interviews provided information regarding the quality of headhuntingservices in Japan. In general, the interviews demonstrated that many headhunters wereunable to satisfy the demands of foreign subsidiaries. There were even some accountsof headhunters engaging in unprofessional behavior. Headhunting companies should bewarned that unethical short-term profit-seeking behavior harms them over the long-term,because managers in foreign subsidiaries store and disseminate their negative experiencesto managers in other foreign subsidiaries. Headhunters should, therefore, attempt to im-prove their quality and respond more nimbly to their clients’ needs. Foreign subsidiarieswere frequently willing to pay higher prices if headhunters would screen candidates morecarefully. The current difficult economic situation is, therefore, likely to drive those un-professional headhunting firms out of the market.

Third, as our interviews demonstrated that many managers of foreign subsidiaries arenot familiar with headhunting services, it would be somewhat unfair to lay all the blame onthe headhunters. As foreign subsidiaries are dependent on headhunters, they should learnhow to identify and better deal with them. Many managers learned this by experience.They accrued good and bad experiences with headhunting companies, and continued to


work with those that provided better service. We refrain from recommending any specificheadhunting companies, but can provide some general advice. As a rule of thumb, sizeand year of incorporation can be regarded as quality indicators of reliable headhuntingcompanies. Most major global companies are also present in Japan. Managers may asktheir peers for references, but should be aware that the majority of headhunting companiesspecialize in certain industries, such as automotives, finance, and manufacturing.

Fourth, not only the identification of an efficient and reliable headhunting companybut also the management of the relationship with the headhunter was determined to be im-portant. Unfortunately, as most managers had never previously worked with headhunters,they did not initially know how to manage this relationship. In order to make better useof headhunters, managers should learn to better understand the behavior and motivationsof headhunters (see Finlay and Coverdill 2000, 2002). In general, managers can compelheadhunters to work harder if they promise exclusivity for a limited period of time (abouttwo weeks is a reasonable period), and can then move to a different headhunter if the searchis unsuccessful; additionally, managers can help their relationships with headhunters byresponding promptly to the headhunters’ questions and provide timely feedback about thecandidates introduced to them (Finlay and Coverdill 2000, 2002).

5.2 Limitations and future research

Some of the limitations of this study might be avenues for future research.As little previousresearch exists on recruiting channels of foreign subsidiaries, we conducted an exploratoryqualitative study. Although this study provided us with some new insights, the general-izability of the results remains questionable. Therefore, in future studies, researchers areencouraged to analyze different countries using qualitative and quantitative survey researchdesigns. Additionally, this study was conducted only from the perspective of managers insubsidiaries. Future studies can adopt the perspectives of local job applicants, employees,and headhunters, simultaneously if possible. Different contexts and different perspectivesshould also help us to gain a better understanding of the dynamics of liabilities of smallness,newness, and foreignness, and should also contribute to the localization/standardizationdebate.

6 Conclusion

Semi-structured interviews with managers from a diverse set of companies varying interms of size, length of establishment, industry, and corporate reputation, revealed themanner in which internal and external forces affected the utilization and success of re-cruiting channels of foreign firms in Japan. While small and newly established foreignfirms developed their own unique recruiting strategies in Japan, large and established sub-sidiaries had gradually localized their recruiting channels. The latter firms, particular thosein the banking, consulting and luxury goods industries, proved better able to increase theirpools of high-quality job applicants. For all firms, referrals were identified as the recruitingchannels that produced high-quality job candidates that were loyal and performed wellon the job. We also provided some practical recommendations as to how foreign firms inJapan can improve their recruiting efforts.


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Recruiting channels of foreign subsidiaries in Japan