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Expatriate Management Notes

Business (BA Hons) (Nottingham Trent University)

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Intro

 Harzing (2001), defines expatriates' as 'usually home-country assignees who hold

top management positions or key positions in functional departments of a foreign
subsidiary'.
 Selmer et al (1998), also define an expatriate as a ‘highly skilled worker with unique
expertise who is sent to work in another unit of the same company located in a foreign
country generally on a temporary basis for a period of at least six months which will
usually involve relocation and considerable progress in cultural adjustment’.
 However, it is not always successful due to the influence of cultural differences
between the home and host countries (Dowling et al, 2013).
 Due to the importance of expatriation and the issues that come up in implementing it – a
lot of research has been carried out about how to maximise its effectiveness, as well
as focusing on the causes of expatriate failure and the best way to reduce it.

Why Expatriation is Done (to help with international assignments)

 Globalisation has broken down geographical boundaries and has led to the need to
work and communicate with people from different backgrounds and cultures.
Understanding and overcoming the challenges associated with this is recognised in both
academic literature and in global companies as critical to achieve commercial success.
 Expatriates are an increasingly important part of international organisations. As
multinational corporations establish new subsidiaries, they require an individual or
group of individuals to setup and oversee the proper operation of these
companies in accordance with the global strategy. Expatriates allow parent
organisations to transfer crucial knowledge, corporate philosophy and culture to a
subsidiary, as well as acquire valuable information from the host country. (Selmer,
1999).
 Successful implementation of international and global strategies depends on getting
the right people with the right skills, at the right time, which typically requires the
movement of people across the border as often local employees will lack the
necessary skills (Porter, 1990).
 International organisations need a work force that is available for international
assignments, meaning that expatriation is strategically imperative (Selmer, 1999).
 However, as these MNCs expand their operations into foreign countries, they also transfer
their human resources and managerial practices to their foreign subsidiaries, which are
not always successful due to the influence of various cultural differences
between the home and host countries, meaning that these differences must be
addressed (Dowling et al, 2013).

Aligning Expatriates with Organisational Strategy

 Expatriate management practices differ depending on the international management

strategy utilised – a study by Caligiuri and Colakoglu (2007) has identified how
international assignments are impacted depending on the type of organisational strategy
utilised by a firm.

Local Strategy

 Host subsidiaries that are as locally responsive as possible, will still need to use expatriates
to transfer technical and functional knowledge that is not available in the host subsidiaries.
 Expatriates go to HNC solely to do a job and then return home – to transfer firm-
specific technical and functional know how that local employees will lack (even if
the local labour force is qualified) from parent company.

Centralised Strategy

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 Attempt to implement the values, policies and culture of the parent company,
despite environmental or cultural differences.
 Expatriates here will be used to directly control the subsidiary (and act as a ‘mini-
headquarters’) to ensure that the parent company’s values, policies and culture
are upheld in the firms worldwide operations.

Global Strategy

 MNCs that employ a global strategy are concerned about recognising differences and not
assuming control at home or in the host locations. Try to integrate best parts from all
countries into one corporate culture and business strategy (Caligiuri and
Colakoglu, 2007)
 The expatriates help the creation of a common organisational culture through the
formation of an informal communication network throughout the MNC.
 we would expect that the greatest use of developmental and strategic assignments
would be for organisations with a global strategy. Also, international expertise gained
by expats will be highly valued by companies with this strategy.

Discussion/Analysis

 The next step for HR practitioners will be to align the various expatriate practices to
differentially manage strategic human talent located around the world at a firm
level. The field of expatriate management is changing rapidly as more organisational
development professionals are becoming involved with the selection and succession of
expatriates. Researchers and practitioners alike will need to better understand how to
maximise performance and development of this critical human resource and how
to integrate expatriates into an overall HR strategy. (Tung, 1987)

It’s Role in Organisational Strategy

Expatriates are divided into three types: PCNs (Parent Country Nationals); HCNs (Host
Country Nationals); and TCNs (Third Country Nationals). There are four general
approaches to international staffing policies (Welch, 1995):

1) Ethnocentric Approach: Because of a lack of qualified HCNs, PCNs occupy all key positions in
the foreign operation, which means that the subsidiary is highly dependent on the headquarters'
decisions. Some drawbacks from this approach could be limited promotion opportunities for HCNs,
income gaps between PCNs and HCNs, and that PCNs cannot be involved in local matters.

2) Polycentric Approach: In this approach HCNs occupy positions in the foreign subsidiary.
Some transfers of HCNs to headquarters also take place. The approach eliminates the language
barriers, and typically HCNs are less expensive. Some drawbacks from this approach could be
communication problems between headquarters and subsidiary and limited career opportunities for
HCNs as they cannot be promoted to the headquarters.

3) Geocentric Approach: Best people are selected for key positions regardless of their
nationality. In this approach an international team of managers is developed. Some drawbacks
from this approach may be related to situations, where host governments prefer employment of
locals because of i.e. labour issues (cheap labour).

4) Regiocentric Approach: Here a company's international business is divided into international

geographic regions (i.e. the European Union). The staff can only transfer within these regions.

Petison and Johri’s (2008) Role of Expatriates

 A key objective of the expatriate’s role is to transfer knowledge from the parent company
to its subsidiary. Petison and Johri (2008) has found that the role that an expatriate
must take will depend a lot on the ‘task readiness’ (high task readiness means that
locals have the knowledge and expertise needed to carry out their tasks), as well as the
‘managerial capabilities’ (low managerial capabilities means that employees

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management capabilities are lower than the company expects for a local employee in that
position) of the local employees. He has identified 4 expatriate roles depending on the
local employee’s task readiness and managerial capabilities:
 Commander – Low task readiness, Low managerial capabilities – Close support needed
from expatriates to prevent risks during operations and to transfer knowledge over time
through training. Must be aware of ‘power distance’ to ensure correct training methods
are used (e.g. you wouldn’t use a Chinese style of training which is very serious and ‘top
down’ in a country like Germany or the UK as it would be perceived as too serious and
unfriendly towards them).
 Conductor - High task readiness, low managerial capabilities – Local staff have the
necessary skills but still lack managerial capabilities, meaning they need assistance in
establishing plans, organising or co-ordinating their job (e.g. engineers).
Conductor’s monitor local employees to see that they perform their tasks smoothly
and effectively through setting plans and objectives. It is vital for conductors to
consider the type of environment they’re working in. At BMW in Thailand, expatriates
took the conductor role to examine and ensure that quality philosophy, practices, and
standards were fully absorbed by the subsidiary and its supplier’s despite local employee’s
ability to properly produce the cars.
 Coach – Low task readiness, high managerial skills – Needed when local employees may
be lacking skills for newly introduced technology or processes, or when local employees
are rotated into new positions and need to learn the tasks pertaining to this new role.
Coach aims to create the right conditions for learning through instructing them in relevant
skills, and providing encouragement. E.g. German expatriates at Toyota Thailand coaching
local Thais on how to use new German engineering systems. Very important to ensure
local staff aren’t undermined and they ‘save face’ (German expatriates dealt with this by
ensuring they didn’t say no to any local staff’s ideas in front of others).
 Connector – High task readiness, high managerial skills - An expatriate playing the
connector role acts as a coordinator by enhancing team spirit, embedding a trust-
based relationship in the company, cultivating close collaboration and bridging
gaps created by national culture between the manufacturer and both its parent
company and the local community. They are ambassadors of the parent company’s
values and culture. Vital to build trust and to show respect to what the local population
respects (for example, a Japanese expatriate manager offended Thailand employees as
he answered his phone during the signing of the Thai national anthem – something that
was mitigated by banning calls from head office between times that this was being sung).

Analysis of Roles

 Instead of addressing the roles of expatriates based on their assignment objectives at the
subsidiary, as documented in other literature, this study found that expatriates’ roles
should be matched with local employees’ task readiness and managerial
capability.
 An important implication is that in adopting each role, responding to local cultural
values is critical. E.g. When working in a country with a high cultural novelty due to
language differences etc, it is essential that expatriates try to understand local employees’
characteristics and the local subsidiary’s work culture to build mutual trust.
 However, it is worth noting that the needs of the local employees within an
organisation may differ depending on how developed the host country and
company is, meaning that a certain level of adaption may be needed before
implementing a role (Petison and Johri, 2008).

Expatriate Failure

 Harzing and Christensen (2004:7) defines expatriate failure as 'the inability of an

expatriate to perform according to the expectations of the organisation'.

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 Usually highlighted by premature return of the expatriate

 Expatriate failure is a growing concern for many multinational organisations as the costs
associated with this failure are societal as well as financial – failed expatriates
may lose their confidence and motivation.

Causes

 Many researchers have addressed the issues of expatriate failure and attempted to identify
the main reasons that caused this failure.
 Selection Error - Technical and managerial skills are not for the only skills required
for effective international staffing. More attention must be paid to an individual’s
interpersonal skills and understanding of the host countries culture (Lee 2007).
 Poor Training and Preparation – Without proper cross-cultural training and development –
it is likely that the expat will fail due to inabilities to deal with issues such as
culture shock and an inability to adapt to the new working environment.
 Cross-Cultural Adjustment/Inability to Deal with Culture Shock – Highlighted in
Lysgaard’s (1955) cross-cultural adjustment curve. This curve suggests that initially
there will be a ‘honeymoon’ stage in which the new culture is interesting and exciting.
After a few months however, they reach a period of disillusionment known as the
‘culture shock’ stage in which there is a high chance for the expatriate to return
prematurely due to confusion and anxiety, because of different life styles,
customs, values, and beliefs between the two countries. After a few more months
the ‘Adjustment’ and then ‘Mastery’ stage will be met in which the expatriate will have fully
settled into the new culture.
 Inability to Adapt – Inability to change one’s way of working when being in a
different environment. This lack of flexibility indicates that expatriate failure can
begin at home, when due to the expatriate’s problems with adapting to the new
culture, the expatriate gets little support necessary for his own work and cannot
put as much effort as he/she would like to into the new tasks. Because of this it is
very important for companies to keep the expatriate’s family in mind when
selecting and training their expatriates.

Costs/Consequence

 Costs occur in any international assignment particularly when an expatriate prematurely

returns home or fails to perform as expected.
 They are composed of direct and indirect costs:
 Direct Costs – the direct financial costs associated with relocating, training and
compensating the expatriate. The amount here will vary depending on the level of
the position concerned, country of destination, exchange rates and whether the
‘failed’ manager is replaced by another expatriate (Dowling et al, 2013).
 Indirect Costs – ‘invisible’ costs that are harder to quantify in financial times but can be
expensive to the company. Failure may lead to loss in market share and difficulties
with host-government officials (whom expatriates often deal with) and demands
that they be replaced with HCNs. Local staff could also lose morale and thus lose
productivity.
 Costs to the Individual – Failure is never easy. May lose self-esteem, confidence and
prestige amongst peers. These can impact their future productivity negatively or even
positively (to make up for failure). May threaten their family relationships.

How to Reduce Likelihood of Failure

 In order to avoid expatriate failure or minimise its risk, proper and suitable
international human resource management policies and procedures should be in place.
With such policies and procedures, IHRM can effectively and efficiently manage
expatriates and their ability to carry out the international assignment.

Proper Selection of Expatriates

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 One way to do this would be to use Tung’s (1987) four categories of selection
criteria:
 Technical Competence of the Job - Consider the person’s ability to perform certain
tasks, his/her special knowledge and skills required by the job, so technical
competence, which is equal to job related factors, is an essential selection criterion. If the
candidates are recruited internally, companies can rely on their past performance.
 Personal Characteristics - the inability of managers and their spouses to adapt to
the new culture is one of the main reasons for expatriate failure. Is an important
predictor of expatriate success that is often overlooked (Tung, 1987). Evaluating a
person’s character through a formal interview is a way to identify if someone has
the suitable character traits.
 Awareness of Cultural Differences – Cultural Novelty – Vital for potential
candidates to be aware of clash of beliefs, attitudes and norms due to cultural
differences (e.g. a lot more formal hierarchal structure in China compared to America).
 Family Situation - A main reason for expatriate failure is the inadaptability of the family’s
adjustment to the new environment. Adjustment of the spouse is positively
correlated with the adjustment of the expatriate (Dowling et al., 2013). Families
adjust better to expatriate life with support from HR through support groups and
other post-arrival support.

Cross-Cultural Training and Development/Pre-Departure Preparation

 An expatriate abroad needs a wider understanding of daily matters in the subsidiary;

he/she must be prepared adequately to take on a management role in this new
country. Cultural training, language training as well as practical training must focus on
providing a broader knowledge for expatriates than what is needed in the parent company.
(Qi and Lange, 2005)
 Cultural training covers the host country, its people, political, economic, business, legal,
and physical environments. Goal is to teach the expatriates about the new culture.
Should include Cultural Sensitivity Training. More rigorous training need if there’s
a high level of cultural novelty between the two cultures.
 Language training is learning a particular language which is used in the host country and
helps the expatriate to live and work there. Language is often considered to be the biggest
barrier for expats This includes the need of body language (especially in high-
context countries)
 Practical training leads to a better job performance and outside work situation in the
host country. It enables expatriates to adjust faster to the new culture and expatriates
will be more effective in their new roles.
 Nevertheless, there are still many managers doubting the effectiveness of cross-cultural
training. But Black et al. (1992) state that an investment in training is an investment in
the individual and in the company. Cross-cultural training can help expats perform as if
they were at home if done properly through a holistic approach (engage and develop
the whole person) (Qi and Lange, 2005).
 These training programmes can also alleviate culture shock through proper
preparation of relocation abroad. Utilise Hofstede’s Cultural Dimensions to identify
the best method of training to implement.

Repatriation

 One of the reasons for international assignment is to gain international and cross-cultural
experience and knowledge; therefore, it is very important for the MNCs to retain the
employee after the international assignment has been completed. One of the major
risks, associated with the high costs, is the difficulty to maintain the expatriates
upon their returns to the home country (Downes & Thomas 1999).
 This can be done through tackling ‘reverse culture shock’ through dealing with changes
in the home culture and readapting with this home country culture. Can be mitigated
through repatriation training to address the changes in the home country since

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the expat went abroad. Family support at home can also help mitigate this (all
will be going through the same thing).

Analysis

 FOCUS ON A DIFFERENT POLICY THAN AN ETHNOCENTRIC POLICY (RELY ON LOCAL

EMPLOYEES MORE/MORE OF A FOCUS/EMPHASIS ON CULTURAL ORIENTATION)

Conclusion/Overall Analysis

 As MNCs are expanding into new markets, they need individuals to step into those
new subsidiaries and bring them up to speed. The well-documented failure of expatriates
has been a burden for corporations as it tarnishes their global image and is expensive.
 There is a great opportunity for organizations to create a competitive advantage
from expatriates and their effective selection and management. The need and
importance for expatriates to succeed in their international assignments is higher than
ever before (Silegren, 2014).
 Thus, the causes of expatriate failure must be mitigated, something that can be
done through the proper management of IHRM practices.
 Having an expat who can speak the language and understands the culture is beneficial to
build relationships, but ineffective management of them can ultimately be detrimental to
business success.

Case Study – Bruce in Japan (Deresky and Christopher, 2008)

The main issues Bruce and his family (who are Australian) experienced were:

 Bruce struggled to deal with managing Japanese employees as he wasn’t prepared for the
differences in culture – specifically the high level of context in Japanese culture. The
lack of training he received meant that he tried to use a low-context, direct method of
communication that the Japanese likely found to be very confrontational. He was confused
when they didn’t ‘respond to him straight out about their thoughts of a meeting with
another company being too expensive’. He didn’t consider group harmony and the
saving of ‘face’ when he shouted at a Japanese co-worker in front of the rest of the
office.
 Bruce also didn’t consider the importance of building relationships in this collectivist
society – he went straight home rather than attempt to socialise with them after work.
 His spouse is also unhappy with living in Japan, something that also wasn’t considered.
 This case study shows that expats can fail to adapt to a culture/new workplace if they
aren’t prepared appropriately.

Country and Company Examples

 Nokia, the world’s second largest manufacturer of mobile phones, is a good example of a
company that effectively uses international assignments to generate knowledge. Unlike
most large technology companies, Nokia does not rely on a central R&D function.
Instead, it operates 36 centres in 11 countries—from Finland to China to the United States.
They bring these people together in an R&D centre for assignments of up to two
years, with the explicit objective of inventing new products. Has helped to
increase market share for Nokia.

 Not all people are the same, and adopting cultures will lead to success. Everyone must
face the truth that no culture is identical to another (Brake, Walker & Walker, 1995).
Changing one’s own value system and trying to adopt that of another culture are almost
impossible (Sandhu, 2002). Also the expatriates may lose the respect of the natives when
trying to do so (Brake et al., 1995).

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