The Role of expatriation in MNC International Assignments Essays

The Role of expatriation in MNC International Assignments Essays The Role of expatriation in MNC International Assignments Paper The Role of expatriation in MNC International Assignments Paper Essay Topic: Economics This assignment examines the role of expatriate staff in the success of a multinational corporation (MNC) reviewing literature on international human resource management, knowledge transfer, the benefits of employing expatriates for international assignments and cross cultural training. The literature stipulates that having experienced international staff is a principle source of competitive advantage for a multinational corporation (MNC) (Hamill, 1989; Harris and Moran, 1996; Bender and Fish, 2000; Luthans and Farner, 2002; OKeefe, 2002; Paik et al, 2002; Vance and Paik, 2002; Harvey and Novicevic, 2005; Shen, 2005; Shih et al., 2005). Increasing globalisation and internationalisation has meant that international assignments are no longer reserved for a small number of top flight executives (Bonache, 2005), so companies can now recruit a wider range of individuals to expatriate and develop into internationally aware talent. Some researchers (Webbe and Wright, 1996; Yarvas and Badur, 1999; Stanek, 2000; Downes et al., 2002; Suutari, 2003) have recognised that individuals are more likely to accept further international assignments if their first was successful, so it is in the best interest of companies to expatriate their staff effectively. This assignment is a broad review of the literature. It will explore the reasons behind the employment of expatriates in MNCs, and will provide an overview of the processes which MNCs should adopt in order to successfully manage their international staff. An MNC is a firm that owns business operations in more than one country (Hill, 2005). In terms of their international workforce, there are three types of employee; the Host Country National (HCN), local managers employed by the MNC, Parent Country Nationals (PCN), those who live, and work in a subsidiary of the MNC away from their home country and are citizens of the country where the MNC is based, and Third Country Nationals (TNC) who are employed by a MNC but are citizens of a country other than the one in which the MNC is headquartered or the country in which they are assigned to work. (Hodgetts and Luthans, 2003) The literature identifies three main reasons for why MNCs send out expatriates: position filling, transferring technical skills and knowledge; management development, giving international experience to national managers; and organisation development maintaining the structure and decision processes of the parent company (Hamill, 1989; Harzing, 2001; Baruch et al., 2002; Morgan et al., 2004). MNCs should recognise that selection and subsequent management of expatriates will differ, depending on the reasons behind the expatriation. Perhaps the most persuasive argument as to why expatriates are needed in MNCs is due to knowledge transfer (Bender and Fish, 2000; Harvey and Novicevic, 2001; OKeefe, 2002; Fish 2004; Crocitto et al., 2005; Shih et al., 2005). Colgate-Palmolive, have harnessed their expatriates knowledge into a massive database which can be accessed by other managers throughout the company (Anon, 2003). As some researchers have recognised, if companies can effectively harness the knowledge which their expatriates have acquired during their international assignments, they can attempt to establish an international learning organisation, which would be a valuable source of competitive advantage (Bender and Fish, 2000; Harvey and Novicevic, 2001; OKeeffe, 2002). The benefits of expatriates are numerous. The expatriate will gain a holistic overview of the company at an international level which will enhance business awareness, planning and motivating techniques (Webbe and Wright, 1996; Stanek, 2000), ensuring the development of a pool of specialist employees who are more internationally business aware and culture savvy. Despite the obvious benefits of employing expatriates, the drawbacks are equally as numerous. The failure rate for expatriate assignments is staggering, and the direct costs arising from this failure are estimated to be as high as $1,000,000 per unsuccessful expatriation (Luthans and Farner, 2002). The hidden costs including a loss of business and reputation, and a negative effect on local morale (Hamill, 1989; Yavas and Badur, 1999) are equally high. The reasons for failed expatriate assignments can stem from a poor selection of candidates, a lack of cross cultural training, poorly designed compensation packages, inability to adapt to the new local environment, and a lack of preparation for repatriation (Hamill 1989; Darby, 1995; Crocitto et al., 2005). Such problems can have a massive impact on the individual, including a loss of self esteem, feelings of failure, and an inability to properly readjust to life back in the domestic country (Yavas and Badur, 1999; Banoche 2005). OKeeffe (2002) suggests that such difficulties can lead to depression, alcoholism and extra marital affairs. Nevertheless, the alternatives of sending out expatriates are very few. One suggestion is that of virtual expatriation, whereby the individual remains at their home base, but confers with the overseas office by means of videoconferencing, taking short term trips to the subsidiary if necessary. This cuts costs and the burden of coping with new cultures and family concerns, but still enhances the communication and business skills of the individual as he works closely with the foreigners in the subsidiary (Stanek, 2000). However employees choose to take international assignments for reasons including a chance for personal career development and for the adventure that these experiences can provide, and by using this technique, these may be diminished. Despite the problems and costs that arise from failed international assignments research empirically shows that companies do little to assist their expatriates. This is perplexing as the development of a pool of experienced international managers and staff is in a firms best interest, considering the benefits and competitive edge over their competitors that this would give them (Selmer, 1999; Shen, 2005). There is a superfluous of literature available on how MNCs can successfully manage their expatriates. This needs to include the selection of the right individuals to be expatriated, how to prepare these staff for their experience including any family or organisational concerns they may have, preparing an effective compensation package, and repatriation. The selection of staff to go an overseas assignment is difficult, and if the right candidate if not chosen the chances of the assignment being successful are slim. MNCs need to recognise that individuals need to have skills and abilities over and above those that are required at a national level (Hamill, 1989; Rodrigues, 1997; Yavas and Badur, 1999), and should understand that due to differences in culture across the world, as Darby (1995) illustrates, although someone is an excellent manager in the UK, they may not be elsewhere in the world. Harvey and Novicevic (2001) recognise that individuals with the right competencies can support and promote knowledge transfer throughout the organisation, and will be more able to appreciate, and take advantage of, trends at a regional, national and international level, based on the skills developed and acquired overseas. In her research, Suutari (2003) identified motivators that affect the likelihood of an individual accepting an international assignment. These include a personal interest in expatriation, for the experience this offers, and to further their own careers, however the acceptance of an offer can depend on factors such as age, and marital status. The literature acknowledges many attributes and competencies that expatriates should have, and there is little controversy in the research as to what these are (Yavas and Bardur, 1999; Baruch et al, 2002; Fish, 2004; Holopainen and Bjorkman, 2005). Having undertaken an extensive review of the literature, Jordan and Cartwright (1998) identified that the most prominent of these are four key competencies, relational ability, cultural sensitivity, linguistic skills and the ability to handle stress; and three main attributes, low neuroticism, moderate extroversion and a high openness to experience. Research also suggests, however not significantly so, that individuals with high emotional intelligence, the ability to understand and control ones own emotions, be socially aware, build strong relationships and communicate well with others (Goleman et al. 2001), will be able to prosper and adjust well during an international assignment (Gabel et al.,2005; Tan et al., 2005). If MNCs can factor these components into their selection process for expatriation, they will be more likely to ensure the success of the assignment. It is important to note however, that as well as having the right person in place, there are a number of organisational determinants that can affect the success of an international assignment. Morgan et al. (2004) suggest that the type of work that the expatriate will be undertaking can have a substantial impact on their success. Individuals working in the upstream functions of Porters value chain, such as logistics and production will have less difficulty in adjusting to their new environment than those working in downstream functions, such as marketing or sales. This is due to the fact that individuals working in these latter functions will have more personal contact and integration with HCNs, and so will be more aware of the cultural differences. The systems that a company has in place can impact the outcome of an international assignment. If the systems used in the subsidiary are different to those in the home country, the expatriate will have to overcome this as well as coping with adjusting to external cultural differences (Morgan et al., 2004) Research has found that companies can affect expatriate success by remaining in communication with their international employees (Yavas and Badur, 1999; Harzing and Christensen, 2004; Bonache, 2005). This would calm any fears of isolation and ambiguity, which can lead to the failure of an assignment. Additionally, Wright and Baker (1996) suggest that companies should allow their expatriates some time to settle in to their new environment and become accustomed to their new environment before assuming their full job responsibilities. Once a MNC has established what operational factors can be altered to facilitate the success of the international assignment, the company needs to establish any family related factors that could affect the assignment. Approximately 60 percent of international assignments fail due to family problems (Ruhsing and Kleiner, 2003) which could be due to difficulties of the partner or spouse adapting to the local environment, and often, they have more trouble adjusting than the expatriate themselves (Fish and Wood, 1997; Suutari and Burch, 2001). This is due to the fact that they are mainly left to cope on their own without the support of the MNC however the company can take steps to resolve this. MNCs need to be aware of the growing number of dual career couples in the workplace. According to the research, very few firms have made an effort to support such families, and if companies fail to address these problems, then they will suffer from both a lack of suitable individuals accepting overseas assignments, consequently limiting their pool of international talent (Selmer, 1999; Yavas and Bodur, 1999b; Riusala and Suutari, 2000; Moore, 2002) To limit the extent of these problems, research suggests (Fish and Wood, 1997; Simeon and Fujiu, 2000; Rusing and Kleiner, 2003) that companies should endeavour to create a network of expatriate families before departure, to reduce the feelings of isolation that can go hand in hand with moving to a new country, away from family and friends. Many spouses leave careers, so some companies have began to provide career advice, and have even considered employing spouses at the subsidiary (Fish and Wood, 1997; Riusala and Suutari, 2000; Glanz and van der Sluis, 2001; Baruch et al 2002). The children of expatriates are another concern. There is little research on this area, however Rhushing and Kleiner (2003) suggest that these children should be given cross cultural and language training, and the MNC should make an effort to find out about child care or the schooling in the destination country, and if necessary, contribute towards fees or costs. Hurn (1999) recognises that ideally where children are involved, companies should coincide the dates of the assignment with school terms, to limit disruption. Expatriate families will also have concerns about housing, both at the destination, and regarding what should be done with their family home. Pets are another concern, however Rushing and Kleiner (2003) suggest that companies should take advantage of professional specialist services that can assist with the practical side of the move. The firm also needs to consider soft factors, principally cross cultural training, to facilitate the move. Research proves that any type of cross cultural training facilitates expatriate adjustment, as it enables individuals to better understand, and integrate themselves with foreign cultures (Treven, 2003; Jassawalla et al, 2004; Waxin and Panaccio, 2005). Luthans and Farner (2003) suggest that this training should be a mixture of both social norms, and business culture to be most effective. Historically, pre-departure training has been generic however some research found strong evidence to suggest that such training can be improved by including the opinions of HCNs (Vance and Paik, 2002). Some of the literature suggests that firms should undertake post departure training, yet Shih et al. (2005), in their study of the management of expatriates in five large MNCs found that this didnt occur at all. There is a distinct lack of congruence between management practices and the advice in the literature on training and development (Shen, 2005; Lewis, 1996). This is again paradoxical, as it would be in the best interests of the company to provide such training, not only to limit the costs of a failed expatriation, but as the world is becoming more globalised and interdependent, it is likely that the company will have increasingly more customers, suppliers, and other employees from different cultures. Hence, MNCs need to ensure that they have some type of cross cultural training in place. Perhaps the example set by the Finnish MNCs, whom have a proportionately higher number of successful expatriates than other countries, can be followed (Suutari and Brewster, 2001). One reason why they are so successful is that they have a longer period between the selection of expatriates, and sending them abroad, allowing more time for support and training, showing how important this training is. Once the expatriate is on their assignment, there is a wealth of research to suggest that assigning the expatriate an international mentor can help alleviate any feelings of isolation, and provide support (Downes et al., 2002; Harzing and Christensen, 2004; Crocitto et al., 2005). Crocitto et al. (2005) suggest that the expatriate should have a network of experienced mentors, so that they can obtain social support, or business advice from a number of different sources. This really is a method of knowledge sharing, and so can be of mutual benefit for the organisation and the individual. This will only be possible however, if the firm has had some considerable experience on the global arena. A final factor that MNCs need to consider when preparing to expatriate an employee is the compensation and reward package that they provide. Researchers recognise that reward packages that attract, retain and motivate outstanding employees going on international assignments are essential in achieving organisational goals (Phillips and Fox, 2003; Simms and Schraeder, 2005). However Banoche (2005) has found that many expatriates are unsatisfied with their compensation packages (Banoche, 2005). The most common approach is the balance sheet approach, whereby the expatriate keeps their home salary but is given extra compensation to cover such costs as living allowances and long and short term performance incentives. Some companies even provide support for spouses or partners (Phillips and Fox, 2003; Sims and Schraeder, 2005; Banoche, 2005; Baruch et al 2002). There are many criticisms of this approach. As Phillips and Fox (2003) remark, it can be costly if the expatriate assignment runs for a long time, and it can create friction between expatriates and local workers doing the same job but for lower pay. To cut down on the expense of expatriates, Selmer (1999) identifies that increasingly, firms are reducing expatriate compensation packages or cutting extra compensation all together, reasoning that international experience is essential for career advancement, and is a necessity in todays globalising environment. However, expatriates are not likely to function properly if they cannot see a clear link between performance and reward, not only in regards to their financial compensation, but their future career progression (Harzing and Christensen 2004). Shih et al., (2005) remark that this may be a sign that MNCs themselves are unsure as to how to harness and develop their management talent, especially on repatriation. This is the final step in expatriation, and should be an integral process, thus needs to be managed effectively for the assignment to be a success. Repatriation is often overlooked (Paik et al., 2002), and research has found that people are significantly less satisfied by their repatriation, than expatriation (Morgan et al., 2004). Some companies, including Unilever and GlaxoSmithKline have sought outside advice to help this transition (Hurn, 1999). Companies need to realise that problems at this stage can seriously diminish the psychological contract that employees have with the firm, resulting in low morale, and high turnover (Fish, 2004). If this occurs, then the knowledge and expertise that the expatriate has gained from going overseas may be lost to a rival firm (Anon, 2003; Crocitto et al., 2005; Shih et al., 2005) Typical repatriation problems include feelings that the international assignment is not of as much value as expected to the company and financial difficulties, due to readjusting back to the basic reward package (Selmer, 1999). Change is another massive problem. Depending on the duration of the assignment, the likelihood will be that both the employee and the company will have changed considerably. This organisational change not only relates to systems and technology, but the turnover of colleagues and support networks (Paik et al., 2002; Baruch et al., 2002). To facilitate repatriation, MNCs should keep channels of communication open to provide support to the employee, continuing after the assignment has finished. Hurn (1999) suggests that firms should debrief the employee, identifying areas of skill development and deficiency, and actively search for roles that will now utilise and develop these skills further, showing commitment to the employee and enforcing the psychological contract. He remarks that repatriation should not be seen as a separate phase, but a holistic career step, and an intrinsic component to the expatriation process (Hurn, 1999). To summarise, firms can reduce the expense of failed international assignments by ensuring that they follow the necessary steps to select, expatriate, train and develop, and repatriate their staff. As discussed, the benefits to both the firm, and the individuals involved are substantial, and by following this process, firms can establish and nurture these international experiences into a source of key competitive advantage.