Factors affecting Multinational HR Policies and Management: Sri Lanka

By John Dudovskiy

Sri Lanka Where a decision has been taken to establish a subsidiary in the overseas it is necessary to manage human resources in that economy in a different cultural background and legal systems. This in itself is a challenge for me as the HR manager of the Parent Company.



My discussion here will concentrate on following factors

  • Legal and Political
  • Socio cultural
  • Economic
  • Local HR and Employment conditions


Legal and Political

Before setting up a wholly-owned subsidiary, a review and careful analysis of legal implications and political stability of the host country is important as they vary from country to country. Sri Lanka was involved with a fierce civil war for well over 30 years and in the month of May 2009, we saw an end to this civil war. Followed by the end of civil war, in 2010 January, a Presidential election was held and people opted the same President to continue for another term of six years. The Parliamentary election which followed also was won by the ruling party of the President and this was a clear sign of the country achieving political stability.

Many developed countries and International Donor agencies such as World Bank, ADB and JICA has promised substantial financial assistance for the rehabilitation of Northern and Eastern Provinces which were severely affected by the war. The new Government also has invited the international investors for productive investment in Sri Lanka and has promised every incentive for the new investors. The decision by our company is also a result of this initiative by the Sri Lankan Government

Sri Lanka also possess an independent foreign policy and also it is a member of commonwealth nations since gaining independence and a member of UN. A favourable non-aligned foreign policy in a host country is very vital for a multinational enterprise to set up business there.

Sri Lanka has a well established legal system and judiciary which was introduced by the British before Sri Lanka achieved full independence status. The labour legislation of Sri Lanka is recognised to be very strong for the protection of workers against unfair treatment by employers. However there is no minimum wage legislation in Sri Lanka and this is one reason for the foreign investors’ interest in it as a favourable destination for multinational business operations.


Economic factors

These factors are closely linked to Political, legal and cultural issues. Sri Lanka is a country where average wage levels payable for the lower and middle level of labour is very low. One of the major sources of foreign exchange earnings is the employment income of the lower category of workers who offer services in the Middle East countries. Owing to migration of certain skilled categories of workers to overseas there is a shortage of labour in those categories.

All foreign investments in Sri Lanka, come under the purview of Board of Investment (BOI) which is the statutory body established to promote inward foreign investment, with a firm regulatory framework providing  a wide range of benefits to the foreign investors. These include tax holidays for the first five years of operation, establishment of investment promotion zones at state expense, allocation of state lands at concessionary prices for setting up of production plants in investment promotion zones,  capital investment incentives for all tax purposes for acquisition of production machinery and duty free allowances for imports of production machinery and other equipment including vehicles.

All international trading transactions are undertaken in US Dollars and owing to this reason Sri Lankan Government operates a managed exchange rate policy for the US Dollar to stabilise the Rupee against the Dollar. This is an advantage for our company when it commences its operations in Sri Lanka because there would be a minimum exposure to foreign exchange losses. In contrast, in the case of all other foreign currencies there is a market driven free floating exchange rate.

Sri Lanka also was able to stabilise the internal value of the Rupee by maintaining its inflation at a single digit CPI value, since the end of civil war, which means the local levels of prices would be low and this is to the advantage of our operations in Sri Lanka.

There are also satisfactory infrastructure facilities with hydro-electricity power, good road network between major cities, telecommunication facilities, three international harbours and an international airport at its capital. A new air port and a modernised harbour project is coming up in the South with full financial and technical assistance of the Republic of China. Being geographically located in the Indian sub-continent, Sri Lanka also has very favourable weather conditions throughout the year and is free from natural disasters.


Socio cultural factors

Cultural forces represent another significant concern affecting HR management in multinational enterprises. National culture is a unique attribute of any country, comprising of all shared social forces that influences the norms, beliefs values and behaviour of people in that country. Culture is not tangible, pervasive and difficult to understand and learn. Getting individuals from different ethnic, religious and tribal backgrounds may be difficult and this is a real challenge for the HR function of a multinational enterprise.


Social values

As identified by Geert Hofstede (2003), there are dimensions of value systems that influence organisational and employee working relationships. How these value systems apply to Sri Lankan work force is discussed next.

Sri Lanka is a country with a high ‘power distance’, a dimension of culture that refers to the inequality among the people in a country. There are a number of ethnic and religious groups among the Sri Lankan labour force. One way in which differences in this dimension influences the HR activities is that the reactions to management authority can differ among multi-cultural work groups. A rather autocratic approach to managing people  may be necessary but against this, there is the strong labour legislation in the country. Therefore a core task of the HR function when we start operations there, would be to get use the management to use  a participatory approach in making the operational and middle level decisions.

There is low ‘individualism’ in Sri Lankan culture where people are not very much in favour to act as individuals and always entertain joint efforts. The HR function can make use of this to promote group-oriented work and less individual competition in the local operations.

Sri Lankan workers prefer structured rather than unstructured situations where they entertain well established work behavioural rules in their work environment (to avoid finding fault for likely inefficiencies). With a local culture, focusing on ‘avoiding uncertainty’, they always resist change in the work patterns and tends to be inflexible. HR function has lot to do here by trying to fill expatriates for places where flexibility and ‘business energy’ is needed and assign local labour for positions where the work is capital-intensive.

‘Femininity’ values are higher in Sri Lankan workers where they entertain work-life balance, quality of life, closer social relationships and caring as against ‘masculine’ values. HR function has a role to play in assigning some women expatriates to management positions where needed.

Finally it is noted that Sri Lankan work force is not long-term oriented but prefer  short term-oriented values and focuses on the present and past achievements, respecting traditions and obliged to fulfil social duties.

Other culture characteristics that influences multinational organisations include the language , religion, education, level of  literacy and  attitudes. Sri Lanka is not characterised with linguistic pluralism just as its closest neighbour the India. In comparison to many languages spoken by Indian people, Sri Lankans have only three languages in use namely Sinhalese, English and Tamil. Majority of the people in the industrialised urban areas can speak at least two languages including English. Sri Lanka also has a high literacy rate with a very competitive and high standard of education. This would make it easy for any expatriate workers that would be assigned work in the new company.

Another culture attribute that concerns the HR function of a multinational enterprise is  ‘ethnocentrism’ meaning whether  people in a society have a tendency to regard their own culture as superior and to downgrade others. My research reveals that Sri Lankans are rather ethnocentric so HR function has a role to play here too when we establish our operations in that country.

It is quite common for people of some countries to hold a stereotypical expectation of certain types of behaviour. It is necessary to understand general differences in behaviour and attitudes that are rooted in cultural diversity otherwise we will be misunderstood in what  we say and will misinterpret what we hear. This is something the HR function also should consider in its multinational operations.



  • Hofstede, Geert (2003) “Culture’s Consequences, Comparing Values, Behaviours, Institutions, and Organisations Across Nations”, Sage Publications

Category: HRM