Where I work, the jobs are advertised internally and if not successful, they advertise externally then; in the case of higher management positions, the jobs are advertised both internally and externally straightaway. I am not sure how legal this is; I would have thought that everybody should get a crack at a job whether they work at that company already or not.
I think that your employer is mad not to try to fill the position with an existing employee as a lot more time and money would need to be spent bringing a new person up to speed. Of course, it depends on the job.