Expatriate Management

What Real MNEs are Doing in Managing Expatriate Assignments
Trends and Strategies

Philip H. Cain
International Management (IS 6670)
Troy State University

Abstract

In today's increasingly global marketplace, there are more and more multinational enterprises. Companies that may have previously focused on domestic markets are looking abroad for opportunities to expand their markets and maintain or increase their competitive advantage. In so doing they must develop policy for managing expatriate assignments. There are numerous problems in managing expatriates that can result in significant losses to the multinational enterprise that fails to effectively plan for and manage these expatriate issues.

Introduction

An expatriate is a home-country manager sent to an overseas assignment. They represent a costly and sometimes unsuccessful undertaking, yet expatriation remains a strategy for multinational corporations for several reasons. Among these reasons is the potential to (1) facilitate the communication process between the parent location and its subsidiaries, as well as across subsidiaries, (2) aid in establishing country linkages, and (3) increase the firm's understanding of international operations (Downes and Thomas, 2000).

There are several issues that make using expatriates both desirable and challenging. This paper will explore corporate staffing philosophies and the advantages and disadvantages associated with the use of expatriates.

Staffing Philosophies

Staffing philosophies with regard to expatriates varies tremendously throughout the world and between individual multinational corporations. One factor that helps to differentiate expatriate staffing policy requirements is the level of cultural distance between the target market and the multinational corporation's home country. In Europe, for example, there is extensive use of expatriate managers. Despite different cultures within individual European countries, there is an overwhelming sense of being "European" that helps to unite them all making the use of expatriate managers commonplace. In vastly different cultures, however, the needs for expatriate manager may be significantly different.

Multinational corporations in China have a different strategic for expatriate staffing. They realize that the backbone of any operation is an adequate human resources function. The field of human resources is changing. In the past human resources was focused on personnel and administration. However, there is an increasing need to shift some of the focus toward placement strategy. In China, finding the right strategy for placement is challenging. China's education system has created a populace capable of rote memorization but lacking in the creative and strategic thinking needed to make China globally competitive (McComb, 1999).

McComb goes on to describe the evolution of expatriate staffing strategy in China. In the late 1980s, when a large number of multinational corporations first began entering China, there was little need for extensive human resources management functions. China's communist regime took care of everyone from cradle to grave making human resources a non-issue. Managers needed only to build relationships with the relevant government agencies and administer the state-supported medical, housing, and pension packages directly to employees. Since the late 1980's, many Chinese students have been receiving post-secondary education abroad. Multinational corporations seek out these young graduates, often of MBA programs.

Companies in the 1980s often entered China through partnerships and joint ventures with domestic Chinese corporations. They often agreed to hire the Chinese partners' workers only to find that most state-owned enterprises were overstaffed necessitating lay-offs before anything else. Expatriate managers experienced other problems as well. Because they were not adequately training in the language, culture, and history of China, they experienced problems integrating themselves. For this reason multinational corporations looked to the local population to fill a greater number of positions once filled by expatriates. Not only would this alleviate the cultural issues but locals also came at a lower price.

McComb goes on to explain that although the Chinese fit well in their own environment they lacked some skills that the multinational corporations wanted. For example, Chinese personnel staffs were not used to determining whether or not job candidates were qualified for a particular job. They had only been trained to select people based on which university the candidate graduated from or which degree the candidate held (McComb, 1999). In the 1990's as demand for qualified candidates soared, human resources managers were faced not only with hiring issues but also with creating programs designed to retain quality people and limit turnover. This could include incentive bonuses, performance based pay raises, and creating clearly defined career paths within the company making it clear to employees that there is a path to advancement. Many would still jump ship to other, better positions.

The supply of qualified workers in China is improving as is the quality of many compensation programs designed to retain people. During the boom hiring years of 1996-97, there was a push to localize as companies began to feel financially burdened by large numbers of expatriates on their payrolls (McComb, 1999). According to McComb, 1995 also marked the beginning of true localization as English-speaking local human resources managers took charge of their operations. The trend of continued localization is expected to result in entry and middle management staffs of multinational corporations being populated entirely by Chinese nationals by 2009.

Advantages of using expatriates

In general, there are several benefits to multinational corporations using expatriates. Multinational corporations benefit by having a culturally educated workforce. When managers take on expatriate assignments, their exposure to other cultures and other ways of doing business result in the organization gaining in the form of more well rounded experience. Expatriates also are able to facilitate communication and organizational coordination between the home office and distant regional facilities. The whole idea of providing managers with the opportunity to manage abroad, helps to facilitate global learning and create a corporate global mindset. This global mindset and increased knowledge becomes an asset to multinational corporations as they look to expand and optimize their global operations.

Disadvantages of using expatriates

Just as there are advantages to using expatriates, so are there disadvantages. First of these disadvantages is lack of familiarity with the culture and language of the target market. Expatriates sent abroad are often not ready for the experience. They are poorly indoctrinated in the ways of their receiving country and sometimes can not meet the challenge created by the culture gap. This inability to adapt to the local culture sometimes results in failure of the expatriate manager or in cultural conflicts or bad "foreign" image. Another down side to employing expatriate managers is cost. Relocation costs, cost of living allowances, provisions for maintaining duel households, and additional family expenses all contribute to the high cost of the expatriate managers compensation package.

Big expatriate issues

One big issue, which perhaps goes without saying, is that individuals chosen for expatriate assignments must be highly skilled in their jobs. This is a minimum requirement. Multinational corporations faced with the numerous challenges of staffing operations abroad can not afford to select candidates who are not fully qualified and proficient. In addition to job proficiency, many multinational corporations are screening expatriate candidates more thoroughly by administering personality and psychological tests. Barry D. Kozloff (in Overman, 1992), President of Selection Research International in St. Louis says the cost of selecting the wrong person for an overseas position costs "four to six times the base salary for a foreign assignment." He also said there is a ripple effect created by lost customer good will, ineffective product support, poor market knowledge, poor company morale, and friction between the home and foreign offices that costs "a minimum of $250,000 for one employee who fails to complete an international assignment."

Nicholas Sieveking (in Overman, 1992), president of Sieveking Associates, claims that good selection criteria are "seldom specific to the culture." Sieveking advises human resource professionals to look for international candidates who

* Are aware of the hardships of a foreign environment.

* Are flexible and adaptable.

* Have a basic knowledge of world events and politics.

* Have stability in family relationships.

* Have exposed themselves to other cultures.

* Have a sense of humor and maturity.

* Are capable of self-evaluation.

* Are honest, ethical and tolerant.

* Have a sense of curiosity.

Sieveking said, if he had to look for one trait, it would be curiosity.

Perhaps an even bigger issue comes from the changing roles in the family. In traditional expatriate families, typically the husband took the international assignment and the wife who had not been working before deploying abroad would continue to maintain the household as she had been doing and have the added benefit of enjoying a new culture and associated travel. That is no longer the case. Nowadays most families are duel career families. Imagine an HR executive at a major corporation who identifies an excellent candidate for an overseas assignment. This is the perfect candidate, only he turns down the position because an overseas assignment would interrupt his spouse's career. The HR executive, with no policies in place to address this increasingly common situation, moves on to less qualified candidates to fill the position (Swaak, 1995). Swaak went on to site an Expatriate Dual Career Survey conducted by Windham International and the NFTC in which over half of the respondents said they would their spouse's careers played a role in resistance to or refusal of overseas tasking. And in the same survey, 88% of the respondents felt that their spouse's career issues will become more acute in the future. Swaak goes on to say that 78% of expatriates are married and 70% are accompanied by a spouse or partner. Only 8% go without a spouse. Swaak sites another company survey in which the number one reason employees were unable or unwilling to transfer to overseas assignments was because their spouses would have to interrupt careers or would lose their jobs. The number two reason was due to perceived special needs of their children, whether educational, medical, or social. This was followed by responsibility for parents or grandparents, etc., who require special care.

Clearly family considerations are playing an increasing role in expatriate assignments. Swaak (1995) laid out some of the benefit considerations given by several different companies.

Company A will provide up to $5,000 to assist the spouse in finding a job or may provide the spouse with employment if available.

Company B spells out its policy for dual employment of spouses (making clear that same-sex partners do not count). They say the couple will receive one relocation allowance and one foreign service premium based on the higher of the two salaries. They will be eligible for one company car if the salary grade justifies this benefit. Cost-of-living and housing allowance will be based on the combined income. And education allowances will not be doubled.

Company C doubles the cost of living and housing allowances but caps the combined base compensation, which is used to determine housing benefits. The combined base salaries cap also applies to other allowances. If the spouse works for another company then the employee may either be treated as single or the two companies can jointly coordinate benefits to avoid duplication.

Company D puts the spouse in an "inactive leave" status maintaining their position upon repatriation.

Company E has a "career development center" for international transferees. They use a network of inter-company and community resources to assist the spouse in finding a job. This service extends to cover repatriation as well. The cap for this service is $2,500.

Company F pays a one-time, lump sum of up to $8,000 to cover a spouse's lost income based on three months base pay and other expenses incurred for job search, language training, and counseling.

Company G pays partial mortgage cost for two years. The contribution represents the spouse's lost wages.

The bottom line is to get the right people in the right place and then put together a competitive benefits package. The benefits must consider the hardships associated with family relocation.

Repatriation

Repatriation is among the biggest problems with the managing of expatriate assignments. Expatriates generally enjoy a greater amount of responsibility and greater sense of autonomy in their foreign assignments than they might in their equivalent positions at home. In addition to this feeling, some expatriates may feel disconnected from their company. So when they repatriate back to the home office, they may feel that their loss of visibility during their foreign assignment will result in them falling behind their home country peers. Even worse is the expatriate whose mission has failed due to inability to adapt to the culture or family problems. This person may be labeled a "loser" once back in the mainstream company.

Regardless of the particular situation, expatriates in general stand a good chance of coming back to something less than what they desire. According to Poe (2000), half of repatriated employees leave their companies within two years of repatriation. She goes on to point out that failure on the part of companies to provide repatriation assistance programs is a costly mistake that makes it easy for these employees to leave for another company.

Conclusion

Clearly, managing of expatriate assignments is a challenging issue for multinational corporations. They are moving in the right direction by (1) trying to minimize the requirement for costly expatriate assignments, (2) carefully screening individuals to try and increase the chances of a successful assignment, and (3) providing a comprehensive benefits package that is competitive in nature and considers the needs of the expatriate manager and his family. Multinational corporations realize that expatriate assignments are expensive and they realize that failure in those assignments is also very costly. By minimizing the number of these positions by effectively utilizing host country nationals, the multinational corporation can reduce cost and foster better relations with the host country which generally would prefer to employ their own countrymen. By carefully screening those who must be assigned overseas and tending to the needs of their families, multinational corporations can minimize their costs in the long term and reduce costly turnover rates and assignment failures.

References

Meredith Downes and Anisya S. Thomas (2000), Knowledge transfer through expatriation: The U-curve approach to overseas staffing, Journal of Managerial Issues, Pittsburgh (Summer)

Rebecca McComb (1999), 2009: China's human resources odyssey, The China Business Review, Washington (Sep/Oct)

Stephenie Overman (1992), The Right Package, HRMagazine, Alexandria (Jul)

Rever A. Swaak (1995), Today's expatriate family: Dual careers and other obstacles, Compensation and Benefits Review, Saranac Lake (May/June)

Andrea C. Poe (2000), Welcome back. HRMagazine (March)

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