11 Oct 2010  Research & Ideas

It Pays to Hire Women in Countries That Won’t

South Korean companies don't hire many women, no matter how qualified. So multinationals are moving in to take advantage of this rich hiring opportunity, according to new research by professor Jordan Siegel. Key concepts include:

  • Employing women who are excluded by their own countries' labor markets is a growing trend for international affiliates of global multinational companies.
  • Using data from South Korea, researchers showed that a 10 percent nominal increase in the percentage of female managers (at the level of the then-prevailing glass ceiling) was associated with a 1 percent nominal increase in ROA.
  • Multinational firms that recruit females into management roles at their local affiliates face the possibility of upsetting local male employees, partners, and customers who don't approve of women in executive roles.
  • In many instances, multinational firms hired and promoted female managers in a discriminatory host market at a far higher rate than they employed female managers in their own home markets.

 

Call it corporate alchemy. New research finds that multinational companies can spin gender bias into gold by recruiting and hiring well-educated female managers in countries that traditionally discriminate against women.

Employing women who are excluded by their own countries' labor markets is a growing trend for firms with international branch offices, says Harvard Business School professor Jordan Siegel. He discusses the issue in a new study titled "Multinational Firms, Labor Market Discrimination, and the Capture of Competitive Advantage by Exploiting the Social Divide", which he co-wrote with Lynn Pyun of MIT and B.Y. Cheon of Hanshin University and the Korea Labor Institute.

Focusing on South Korea, the team interviewed scores of multinational and local executives to find out whether a firm could raise its profits by actively recruiting an otherwise excluded group of women.

"It appears that increasing your female managers leads to higher profitability over time"

In the study, the researchers set out to prove the following hypothesis: "Firms, both foreign and domestic, that do more to hire and promote women to positions of managerial responsibility will see higher levels of profitability." After analyzing financial and employment data from hundreds of medium-sized and large companies, they proved that the hypothesis was true.

Even after accounting for unrelated variables, the researchers found that a 10 percent nominal increase in the percentage of female managers (at the level of the then-prevailing glass ceiling) was associated with a 1 percent nominal increase in ROA.

"The results are pretty strong that even when you control for anything that's fixed about a company, it appears that increasing your female managers leads to higher profitability over time," says Siegel.

Not surprisingly, the researchers also found that multinational firms with Korean subsidiaries were far more likely to hire women into management roles than local Korean firms, which were unlikely to hire woman managers at all. (That said, a small minority of domestic Korean companies that did employ senior female managers, particularly but not exclusively in the apparel and publishing industries, also appeared to benefit financially from doing so.)

The idea of exploiting the social divide is not unique to the South Korean labor market. Siegel is conducting similar research in Japan, where he anticipates similar results. "I do think that the strategy may prove successful in numerous labor markets where gender-based, ethnic-based, race-based, or religion-based discrimination is the social norm," he says. "That is definitely part of my research agenda for the future."

But the choice to study South Korea first was methodical. The researchers deliberately sought out a country in which the decision to hire a woman would be truly opportunistic-one where there was little to no peer pressure for gender equity. "I was looking for a setting where it was clear that companies were not just hiring women for PR reasons," Siegel says.

Gender discrimination cases are few and far between in South Korea, but in the rare cases of women who do sue, the courts have tended to rule for the defendant. Siegel discovered one case in which a judge ruled in favor of a company that specifically had targeted women for layoffs; the judge argued that the company had no choice but to reduce its workforce for budgetary reasons-and that it made sense for the company to cut the female employees first. (After all, the company reasoned, those women probably had wealthy husbands who could support them.)

The gender gap is due in part to South Korea holding fast to the traditional idea that men are better leaders than women, Siegel says. The idea is based on neo Confucianism, a conservative form of the Confucian ideology. Paradoxically, though, Confucianism teaches that women should have access to education, which, in addition to democratization, likely has helped to increase the number of qualified female candidates for management positions.

Deep talent pool

Indeed, universities in South Korea are highly meritocratic about accepting and educating women. Hence, the country sports a large number of highly educated, highly qualified women with advanced degrees in business, engineering, economics, and foreign languages-all useful in corporate management.

"There are women studying in fields that are relevant to companies," Siegel says. "With democratization there's more open access to higher education in previously male-dominated fields since 1990."

Furthermore, Confucianism has contributed toward the assignment of certain important responsibilities to Korean women, including financial management of the home. In South Korea, women routinely run their household budgets, according to former president Kim Dae-jung, whom Siegel interviewed for the study shortly before Kim's death in 2009. "In the household economy, wives are the main players," President Kim said. "Usually a man's salary is wire-transferred through the Internet to the wife's account, and so the man has to get an allowance from his wife."

President Kim told Siegel that in the 2000s, more and more women are passing the local bar exam and various exams that qualify them for high government positions. Moreover, more women are serving as judges and prosecutors, as the government slowly warms to the idea that they are qualified.

But in most Korean companies, Korean women still face an effective glass ceiling. Kim acknowledged that multinational companies are more progressive than those based in South Korea, with regard to recruiting and hiring women: "I believe foreign-owned companies have less gender discrimination and put more focus on people's individual qualities regardless of gender," he said. "Domestic companies have more of a male culture."

For multinational firms, the opportunity seems obvious: If you operate in a sexist country full of educated, experienced women with expertise on their home country, then it makes sense to hire those women into management roles. "You can tap into their underutilized talent and benefit from their insights," Siegel says.

"Multinationals seemed to be hiring differently in the host market than at home"

But it's not a total no-brainer. Many executives at multinational corporations considered hiring Korean women into management roles, only to decide against it due to local pressure, the study says. The worry: How would locals react to the hiring decision, and was it worth the risk? Would male employees or local partners be reluctant to work with a woman? Would local customers refuse to trust the decisions of a woman?

"You're basically facing a tradeoff," Siegel says. "Your customers, business partners, and/or senior male employees may often have biases against women in important management positions. Some executives interviewed for the study worried that this bias would hurt their business."

Different story at home

Still, Siegel was not surprised to find that multinational firms are taking advantage of the gold mine of qualified women in a host labor market that traditionally has excluded women from middle- and upper-level management. "What surprised me was that the multinationals seemed to be hiring differently in the host market than at home," he says.

Indeed, the research showed that some multinationals were exploiting the inherent sexism in South Korea by hiring female managers there, while at the same time still not hiring or promoting senior female managers at home. To wit, the researchers examined 37 Japanese firms, many of which had pointedly hired female managers in their South Korean offices, but had not a single female executive in Japan durinthe same time frame. Siegel, Pyun, and Cheon may conduct future research into why hiring female managers proved profitable. Siegel's initial hunch: Because women in South Korea control the household income, they are especially tuned in to the consumer-spending habits of the local populace-a boon to companies trying to serve the local market.

"Many female managers that we studied had valuable insights about consumer demand that were quite possibly influenced by their life experiences," Siegel says.