Skip to main content

The demand for foreign workers by foreign firms: evidence from Africa

Abstract

Foreign workers play a crucial role in channelling resources and information flows both within the boundaries of firms and between foreign firms and the host country economy. In this study we employ a novel firm-level database (UNIDO Africa Investor Survey 2010) in order to investigate the factors that determine the employment of foreign workers by foreign firms in Sub-Saharan African countries. We shed light on important firm-level as well as host–home country characteristics which shape the demand of foreign workers in developing countries. We show that differences between investors are largely explained by the role played by economic and institutional distance between home–host countries as well as by firm-level heterogeneity in the degrees of knowledge intensity and local embeddedness.

This is a preview of subscription content, access via your institution.

Notes

  1. 1.

    UNCTAD (2015) reports that in 2014 investments toward the African continent represented 4.4% of the total reaching 54 billion $. Despite of the current stagnant pattern due to the financial crisis, over the last 3 years, FDI inflows increased by almost six times.

  2. 2.

    Perez-Villar and Seric (2015) find using the same dataset employed in this work that institutional distance deters backward linkages between foreign and domestic firms in Africa; the authors find a stronger effect for MNEs originating from rich countries.

  3. 3.

    In this regard, Belderbos and Heijlties (2005) found that firms building local partnerships are less likely to appoint a home country national as a managing director.

  4. 4.

    According to Bartlett and Ghoshal (1992), the main challenge for internationalized firms is to create a learning organization able to develop and integrate knowledge throughout their cross-border activity. Evidence shows that MNC's subsidiaries rely heavily on knowledge created at the parent company level (Caves 1996). Hence, the knowledge transfer from the parent company to the controlled affiliates becomes a crucial competitive factor.

  5. 5.

    We are grateful to an anonymous referee for useful suggestions in this respect.

  6. 6.

    We also employ as an alternative the proxy of multinational firms’ knowledge intensity employed by Keller and Yeaple (2013), i.e. the measure of the importance of Analyzing Data provided by the O*NET database of the US Department of Labour.

  7. 7.

    Gaur et al. (2007) argue that in the presence of a distant institutional environment between the origin and the destination country of the firm, age could have the opposite relation and lead to an over-time increase in the use of parent country managers and workers. Over time, the local legitimacy of foreign firms increases the ability to overcome local environment hurdles using home country managers.

  8. 8.

    Burundi, Burkina Faso, Cameroon, Cape Verde, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mali, Niger, Nigeria, Mozambique, Rwanda, Senegal, Uganda, United Republic of Tanzania and Zambia.

  9. 9.

    This type of workers do not transfer within the same firm, but make their own job arrangements.

  10. 10.

    We explicitly take into account in our analysis the possibility that foreign workers might be immigrants already residing in the country rather than intra-firm expatriates. In our parametric analysis we controls for the stock of immigrants residing in the host countries.

  11. 11.

    Data on host country characteristics are not available for Cape Verde, Niger and Rwanda. Hence, in estimations when these characteristics are controlled for these countries are excluded from the analysis.

  12. 12.

    We adopt the World Bank definition and classify a source country as South when GNI per capita is lower than 12.616$.

  13. 13.

    Coniglio et al. (2015) investigate the heterogeneous labour market effects of North–South versus South–South FDI in Sub-Saharan Africa. In particular their study finds that although South investors tend to demand a higher number of workers, generally they tend to generate mostly low-skilled employment and pay lower wages. In particular, their study finds that Chinese investors employ a significant share of foreign workers at all skills levels.

  14. 14.

    These macro sectors are defined aggregating the 59 sub-sectors available in the data, corresponding to the ISIC 2-digit classification.

  15. 15.

    Given the nature of the data—i.e. firm-level observations of investors from more than 80 origin countries toward 19 host countries belonging to Sub-Saharan Africa (a relatively homogeneous area of the world)—the identification of dyadic variables is problematic if we include in our estimates both country of origin and host country fixed effects. Hence when our focus is on home–host country heterogeneity (Hypothesis 1–3 in particular) we include more aggregated area of origin fixed effects, namely Europe, China, India, South Africa, SSA, MENA Other Asia, North America, Latin America and Other. The inclusion of more refined origin country fixed effects does not changes the sign and magnitude of the main parameters of interest but makes the estimated coefficient less precise (higher standard errors).

  16. 16.

    Lagged values are measured as the value of asset at the beginning of the last financial year. Note that when the dependent variable employed in the estimation is the share of foreign highly skilled workers, the issue of endogeneity remains potentially relevant. Skilled workers, including foreign ones, are more likely to be employed by firms to develop and manage the technological content of firms’ operations including patents and copyrights assets. Hence, the results in terms of direction of causality of the estimations using the high-skilled variable should be interpreted with the appropriate caution.

  17. 17.

    We thank an anonymous referee for suggesting the use of sectoral level measures of knowledge intensity.

  18. 18.

    For a detailed description on the measurement of the index we refer to Oldenski (2012) or more specifically to Costinot et al. (2011) who use the occupational characteristic "making decisions and solving problems" as we do here.

  19. 19.

    As an alternative, we also estimates of a negative binomial model where the dependent variable is specified as a count—number of foreign workers—rather than a share. The results are qualitatively in line with those presented here and are available upon request from the authors.

  20. 20.

    Given the high correlation between the different dimensions of distance we report only estimates which include the three measures separately.

  21. 21.

    Also note that when the distance between host and home countries is high, the temporary deployment of staff from the headquarters or other units to the local subsidiary might be less convenient than recruiting foreign workers directly at the subsidiary.

  22. 22.

    We find a weak evidence that the effect of time since entry is non-linear and decreasing over time as suggested by the positive coefficient of age squared.

  23. 23.

    Note that the stock of immigrants as a percentage of native population is rather low in all Sub-Saharan African countries. In year 2005 the percentage of foreigners ranges from 0.19 in Madagascar to 2.17 in Ghana. As mentioned before, immigrants in SSA countries are mainly low skilled workers coming from neighboring countries.

  24. 24.

    Similar results are obtained using as an alternative the level of corruptions (measured as the share of firms paying bribes to public officials in the host country). Results are available from the authors upon request.

  25. 25.

    In the AIS 2010 dataset information on backward linkages are available only for firms in the manufacturing sector and not for those operating in the service sector.

References

  1. Aleksynska, M., & Havrylchyk, O. (2013). FDI from the south: The role of institutional distance and natural resources. European Journal of Political Economy, 29, 38–53.

    Article  Google Scholar 

  2. Amendolagine, V., Boly, A., Coniglio, N. D., Prota, F., & Seric, A. (2013). FDI and local linkages in developing countries: Evidence from Sub-Saharan Africa. World Development, 50, 41–56. doi:10.1016/j.worlddev.2013.05.001.

    Article  Google Scholar 

  3. Amendolagine, V., Coniglio, N. D., & Seric, A. (2017). FDI and structural change in Africa: does the origin ofinvestors matter? In E. Wamboye & E. Tiruneh (Eds.), Foreign Capital Flows and Economic Developmentin Africa. US: Palgrave Macmillan.

    Google Scholar 

  4. Argote, L., & Ingram, P. (2000). Knowledge transfer: A basis for competitive advantage in firms. Organizational Behaviour and Human Decision Processes, 82(1), 150–169.

    Article  Google Scholar 

  5. Asiedu, E. (2004). The determinants of employment of affiliates of US multinational enterprises in Africa. Development Policy Review, 22(4), 371–379.

    Article  Google Scholar 

  6. Athanassiou, N., & Night, D. (1999). The impact of U.S. company Internationalization on the top management team advice networks: A tacit knowledge prespective. Strategic Management Journal, 20, 83–92.

    Article  Google Scholar 

  7. Azemar, C., Darby, J., Desbordes, R., & Wooton, I. (2012). Market familiarity and the location of south and north MNEs. Economics and Politics, 24(3), 307–345.

    Article  Google Scholar 

  8. Bartlett, C. A., & Ghoshal, S. (1991). Global strategic management: impact on the new frontiers of strategy research. Strategic Management Journal, 12, 5–16.

    Article  Google Scholar 

  9. Bartlett, C. A., & Ghoshal, S. (1992). Managing cross borders. The transnational solution (2nd ed.). Brighton: Harvard Business Press.

    Google Scholar 

  10. Belderbos, R., Capannelli, G., & Fukao, Kyoi. (2001). Backward vertical linkages of foreign manufacturing Affliates: Evidence from Japanese multinationals. World Development, 29(1), 189–208.

    Article  Google Scholar 

  11. Belderbos, R. A., & Heijlties, M. G. (2005). The determinants of expatriate staffing by Japanese multinationals in Asia: Control, learning and vertical business groups. Journal of International Business Studies, 36, 341–354. doi:10.1057/palgrave.jibs.8400135.

    Article  Google Scholar 

  12. Bjorkman, I., Barner-Rasmussen, W., & Li, L. (2004). Managing knowledge transfer in MNCS: The impact of headquarters control mechanism. Journal of International Business Studies, 35, 443–455. doi:10.1057/palgrave.jibs.8400094.

    Article  Google Scholar 

  13. Bonache, J., Brewster, C., & Suutari, V. (2001). Expatriation: A developing research agenda. Thunderbird International Business Review, 43(1), 3–20.

    Article  Google Scholar 

  14. Brewster, C. (1988). Managing expatriates. International Journal of Manpower, 9(2), 17–20.

    Article  Google Scholar 

  15. Brookfield, G. M. A. C. (2010). Global relocation trends: 2010 Survey report. Technical report, Brookfield Relocation Services, LLC.

  16. Caves, R. (1996). Multinational enterprise and economic analysis. Cambridge: Cambridge University Press.

    Google Scholar 

  17. Cezar, R., & Escobar, O. R. (2015). Institutional distance and foreign direct investment. Review of World Economics, 151(4), 713–733.

    Article  Google Scholar 

  18. Coniglio, D. N., Prota, F., & Seric, A. (2015). Foreign direct investment, employment and wages in Sub-Saharan Africa. Journal of International Development, 27(7), 1243–1266.

    Article  Google Scholar 

  19. Costinot, A., Oldenski, L., & Rauch, J. (2011). Adaptation and boundary of multinational firms. The Review of Economics and Statistics, 93(1), 298–308.

    Article  Google Scholar 

  20. Cristea, Anca D. (2015). The effect of communication costs on trade in headquarter services. Review of World Economics, 151(2), 255–289.

    Article  Google Scholar 

  21. De Smet, D. (2013). Employing skilled expatriates: Benchmarking skilled immigration regimes across economies (The World Bank Policy Research Paper 6708).

  22. Delios, A., & Bjorkman, I. (2000). Expatriate staffing in foreign subsidiaries of Japanese multinational corporations in the PRC and the United States. International Journal of Human Resource Management, 11(2), 278–293.

    Article  Google Scholar 

  23. Demir, F. (2016). Effects of FDI flows on institutional development: Does it matter where the investors are from? World Development, 78, 341–359.

    Article  Google Scholar 

  24. Demir, F., & Hu, C. (2015). Institutional differences and the direction of bilateral foreign direct investment flows: Are south–south flows any different than the rest. The World Economy, 1–25. doi:10.1111/twec.12356.

  25. Downes, M., & Thomas, A. S. (2000). Knowledge transfer through expatriation: The U-curve approach to overseas staffing. Journal of Managerial Issues, 12, 131–149.

    Google Scholar 

  26. Edstrom, A., & Galbraith, J. R. (1977). Transfer of managers as a coordination and control strategy in multinational organizations. Administrative Science Quarterly, 22(2), 248–263.

    Article  Google Scholar 

  27. Edstrom, A., & Galbraith, J. R. (1994). Alternative policies for international transfer of managers. Management International Review, 34, 71–82.

    Google Scholar 

  28. Estrin, S., Baghdasaryan, D., & Meyer, K. (2009). The impact of institutional and human resource distance on international entry strategies. Journal of Management Studies, 46(7), 1171–1196. doi:10.1111/j.1467-6486.2009.00838.x.

    Article  Google Scholar 

  29. Franko, L. G. (1973). Who manages multinational enterprise? Columbia Journal of World Business, (Summer), 30–42.

  30. Fraser Institute. (2013). Economic freedom of the world. Annual report.

  31. Gaur, A. S., Delios, A., & Singh, K. (2007). Institutional environments, staffing strategies, and subsidiary performance. Journal of Management, 33(4), 611–636.

    Article  Google Scholar 

  32. Grant, R. M. (1996). Prospering in dynamically-competitive environments: Organizational capability as knowledge integration. Organizational Science, 7(4), 375–387.

    Article  Google Scholar 

  33. Gupta, A. K., & Govindarjan, V. (2000). Knowledge flows within multinational corporations. Strategic Management Journal, 21, 473–496.

    Article  Google Scholar 

  34. Harzing, A. W. (2001). Who’s in charge? An empirical study of executive staffing practices in foreign subsidiaries. Human Resource Management, 40(2), 139–158.

    Article  Google Scholar 

  35. Hocking, B. J., Brown, M., & Harzing, A.-W. (2004). A knowledge transfer perspective of strategic assignment purposes and their path-dependent outcomes. International Journal of Human Resource Management., 15(3), 565–586.

    Article  Google Scholar 

  36. Keller, W., & Yeaple, S. R. (2013). The gravity of knowledge. American Economic Review, 103(4), 1414–1444.

    Article  Google Scholar 

  37. Lall, S. (1983). The new multinationals, The spread of third world enterprises. London: Wiley.

    Google Scholar 

  38. Lawson, R. A., & Lemke, J. S. (2012). Travel visas. Public Choice, 153(1–2), 17–36.

    Article  Google Scholar 

  39. Leung, K., Zhu, Yongxin, & Ge, Cungen. (2009). Compensation disparity between locals and expatriates: Moderating the effects of perceived injustice in foreign multinationals in China. Journal of World Business, 44, 85–93.

    Article  Google Scholar 

  40. Managi, S., & Bwalya, S. M. (2010). Foreign direct investment and technology spillovers in sub-Saharan Africa. Applied Economics Letters, 17, 605–608.

    Article  Google Scholar 

  41. Meyer, K. E., & Estrin, S. (2001). Brownfield entry in emerging markets. Journal of International Business Studies, 32(3), 575–584.

    Article  Google Scholar 

  42. Morrissey, O. (2012). FDI in sub-Saharan-Africa: Few linkages, fewer spillovers. European Journal of Development Research, 24, 26–31.

    Article  Google Scholar 

  43. Morrissey, O., & Zgovu, E. (2011). Impact of China and India on Sub-Saharan Africa: Opportunities, challenges and policies (p. 75). Commonwealth Secretariat.

  44. Mupela, E., & Szirmai, A. (2013). Communication costs and trade in Sub-Saharan Africa: A gravity Approach. Lecture Notes of the Institute for Computer Sciences, Social Informatics and Telecommunications Engineering, 135, 27–38.

    Article  Google Scholar 

  45. Oldenski, L. (2012). Export versus FDI and the communication of complex information. Journal of International Economics, 87, 312–322.

    Article  Google Scholar 

  46. Peixoto, J. (2001). The International mobility of highly skilled workers in transnational corporations: The macro and micro factors of the organizational migration of cadres. International Migration Review, 35(4), 1030–1053.

    Article  Google Scholar 

  47. Peng, G. Z., & Beamish, P. W. (2014). MNC subsidiary size and expatriate control: Resource dependence and embeddednesss/learning perspectives. Journal of World Business, 49(1), 51–62.

    Article  Google Scholar 

  48. Perez-Villar, L., & Seric, A. (2015). Multinationals in Sub-Saharan Africa: Domestic linkages and institutional distance. International Economics, 142, 94–117.

    Article  Google Scholar 

  49. Peteraf, M. A. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14, 179–191.

    Article  Google Scholar 

  50. Polanyi, M. (1962). Personal knowledge. Towards a post-critical philosophy: Routledge.

    Google Scholar 

  51. Reynolds, C. (1997). Expatriate compensation in historical perspective. Journal of World Business, 32(2), 118–132.

    Article  Google Scholar 

  52. Riaz, S., Rowe, W. G., & Beamish, P. W. (2014). Expatriate-deployment levels and subsidiary growth: A temporal analysis. Journal of World Business, 49, 1–11.

    Article  Google Scholar 

  53. Richards, M. (2001). U.S. multinational staffing practices and implications for subsidiary performance in the U.K. and Thailand. Thunderbird International Business Review, 43(2), 225–242.

    Article  Google Scholar 

  54. Schuler, R. S., Dowling, P. J., & De Cieri, H. (1993). An integrative framework of strategic international human resource management. Journal of Management, 9(2), 419–459.

    Article  Google Scholar 

  55. Suutari, V., & Brewster, C. (2000). Making their own way: international experience through self-initiated foreign assignments. Journal of World Business, 35(4), 417–436.

    Article  Google Scholar 

  56. Tsang, E. W. K. (1999). Internationalization as a learning process: Singapore MNCs in China. The Academy of Management Executive, 13(1), 91–101.

    Google Scholar 

  57. Tzeng, R. (1995). International labor migration through multinational enterprises. International Migration Review, 29(1), 139–154.

    Article  Google Scholar 

  58. United Nations Conference on Trade and Development. (2015). Reforming international investment governance. World Investment Report.

  59. United Nations Industrial Development Organization. (2011). Africa investor report 2011: Towards evidence-based investment promotion strategies. Technical report, UNIDO Publication.

  60. World Economic Forum. (2010). The Global Competitiveness Report 2009–2010.

  61. Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38, 341–363.

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Nicola D. Coniglio.

Appendix

Appendix

See Tables 7, 8, 9, and 10.

Table 7 Foreign firms by country of destination.
Table 8 Foreign firms by areas of origin and destination country.
Table 9 Robustness check of host-home countries economic, institutional and geographical distances (excluding China and India)
Table 10 Robustness check of extra-firm and intra-firm transaction costs (excluding China and India)

About this article

Verify currency and authenticity via CrossMark

Cite this article

Coniglio, N.D., Hoxhaj, R. & Seric, A. The demand for foreign workers by foreign firms: evidence from Africa. Rev World Econ 153, 353–384 (2017). https://doi.org/10.1007/s10290-016-0272-y

Download citation

Keywords

  • Foreign direct investments
  • Foreign workers
  • Labour demand
  • Africa

JEL Classification

  • F22 Multinational firms, International Business
  • F23 International Migration
  • J23 Labour demand