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Expatriate Management in MNCs as Knowledge Management

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Expatriate Management in MNCs as a Form of Knowledge Management and its Applicability in Reduction of Soaring Turnover Rates: a Case Study Approach

Abstract

This dissertation in International Human Relations addresses the potential of expatriate management as a tool of knowledge management and its applicability to the reduction of turnover rates in a global economy. Companies today cannot survive and prosper without some form of globalisation.

When an appropriately planned expatriate program is utilised, the flow of information supports knowledge transfer, which can enhance the entire functionality of the company. The specific vehicle for knowledge transfer will be cross-cultural training, with its generalisable lessons for the global corporations.

In this research, the case study approach is utilised along with the study of archival materials. After extensive research into the United States Peace Corp and its handling of expatriates, Tyco Flow Control/KTM Company of Japan and Electrolux of Sweden, supported by an extensive review of current literature, this dissertation reaches the conclusion that the decision on whether or not to use expatriates and in what fashion they should be used must be based on a combination of the needs of the company and the company's organisational structure.

Expatriation is expensive and companies should plan for success if they intend to utilise an expatriate program. However, the knowledge gained from the study of expatriate programs can be successfully utilised to mange the spread of knowledge throughout the organisation and to develop interventions, which will lower the overall rate of turnover within an organisation. Certainly, we cannot afford to ignore these lessons.

Chapter One - Introduction

1.1 Chapter Introduction

There are a number of challenges involved in the development of multi-national corporations (MNCs) in today's era of globalisation. Increasingly the trend has been for companies to utilise expatriates on tasks that are critical to the company's operation or continued success. MNCs use expatriates for a number of reasons. In general, the perception exists that it is easier to control an employee from the 'home office', carefully chosen and indoctrinated in the company's culture.

Thus, the concept of corporate control plays a large role in the selection and the use of expatriates, but it is certainly not the only reason. Many times, expatriates have specialties that the company believes it can export when developing the global market. In addition, expatriates who have been thoroughly trained in the company's procedures can be very valuable during the process of entering new markets and setting up the office and administrative under structure that inevitably follows such expansion.

Human resources management inevitably becomes more complex in an international venue. Companies must consider not only the corporate culture and the national culture of their home country, but also the national culture of the country or countries which they are expanding into. Expansion into other nations also brings with it a myriad of laws and regulations that may well conflict with the home country's laws or rules. The situation becomes more complex with each additional field office or subsidiary that the company acquires or develops.

1.2 Context

There is a great deal of research that suggests that the way companies manage their human resources contributes to whether or not the company will succeed or fail (Tung, 1984). International human resources management can 'make or break' a new expansion, and poor management of expatriates within established MNCs can send the company into a crisis. Companies must be able to communicate with their employees and to coordinate actions, activities, and regulatory compliance between a number of corporate and governmental entities. Failure to do so successfully can affect the bottom line of any multi-national corporation or company, and can destabilise a company that is not experienced in dealing with international human resources.

Financially, there is a great deal at stake for the MNC which utilises expatriates. The obvious cost, of course, occurs if the project that the expatriate is assigned to fails. Such a significant financial blow can, as pointed out, destabilise a company. There are many other costs associated with expatriate management, however, that may not be obvious on the surface. Employees must be recruited into the programme and trained. Their families should receive training regarding the area of assignment. Moving or relocation costs are significant even if the family "travels light".

Many companies provide housing assistance in the country of assignment, and trips back to the home country on a scheduled basis. All of these expenses add up. One additional expense that must be considered is the replacement of the employee who enters the expatriate programme. If the employee is already a member of the organisation, his or her transfer to a foreign office will leave an internal position that must be filled. MNCs must also consider the ramifications to the company if their expatriate behaves in a fashion that the host country members consider improper.

The amount of ill will that can be generated throughout the host community can be nearly incalculable. Even though it is an indirect cost, it can be as devastating as a more direct financial loss. Even in the "best" of cases, when the expatriation fails without loss of business and the expatriate returns quietly to the home base, the expatriate may leave the company. When this happens, the company loses a valuable employee and the investment that went along with that employee's training.

When the problem of failed expatriation is looked at from these perspectives, it becomes clear that the financial repercussions may be greater than they appear at first glance, but the loss of money is only a small part of the overall problem of expatriate loss. Indeed, the operation of the entire organisation can be threatened, along with the investments from the company's stakeholders and employees. This provides a great deal of impetus for investigation of the issues related to expatriate management and reduction of turnover both nationally and internationally.

In the past, one might make the argument that expatriates and local employees are not in the same category. After all, expatriates face other cultures on a routine, day to day basis. As a matter of fact, they are immersed in their home culture. As Hofstede (2003) points out, every culture defines its own version of being socially correct. These constraints govern how cultures do business. It has become "big business" to help companies and individuals understand the different ways that host companies interpret what we may consider average, day to day gestures. The various governments recognised this concept long ago. Virtually every country provides some form of training in culture applications for ambassadors and members of the state and foreign service divisions. Nevertheless, business has been slow to adopt that concept.

Even when MNCs recognise the need to provide this training, they may not fully understand the impact that the difference in culture has on the employee. The employee generally travels with family, and it is as important to acknowledge that family members and their success at adaptation have a large input into whether or not the employee adapts successfully. Thus, MNCs that fail to include all the family members in a culture immersion programme fail in their handling of expatriates.

Today, all companies operate in a multi-cultural environment. Even small "mom and pop" operations are exposed to customers, suppliers, or regulators who are from other cultures. Nearly every country is now a cultural melting pot of residents, and those that are relatively homogenous still have influx from visitors and tourists. While it is easy to downplay the importance of a single tourist who has wandered off the beaten path, it is impossible in this day and age of modern technology to estimate the importance of that single customer.

Placed in context, an unfortunate interchange with an individual who turns out to an important stakeholder in his or her professional community can be devastating. Attitudes of employees to customers or suppliers can cause supply chains to dissolve, large numbers of customers to disappear, or contracts to be cancelled. In a sense globalisation has caused a return to "small town front porch" mentality where everyone either knows everyone or knows his or her cousin. The Internet and global communications offers such anonymity that it is now possible for a company's largest customer to conduct a surprise visit and not be recognised. Given the right – or wrong – circumstances, the impact on business can be devastating.

It is this concern, the concern for the international aspect of all business today, that ties together large MNCs and small, at-home operations and cautions us to develop a greater understanding of other cultures, whether we manage expatriates, or merely serve customers in our tiny walk-in.

How a company treats its customers and stakeholders affects the survivability of the business, and retention of well-qualified and well-trained employees is part of that survivability, especially when it relates to cultural aspects of functionality. This paper, then, addresses the system of business that relates to intercultural communication and impacts management of expatriates as well as the home office.

At the present time, there is a great deal of research that shows the difficulty that expatriates face on assignment and on repatriation, and there is significant research that indicates that cross-cultural training offers possibilities for helping these employees adapt. There is a gap in the research between these issues and the types of cross-cultural training that may lead to a decreased turnover rate. Additional research may be most helpful.

When we review what types of cross-cultural training may be most useful, there is also indication that successful expatriates who return from assignment and remain with their companies may be able to add to the knowledge base of successful adaptation. It is this concept that successful expatriates contribute to knowledge management that I address in this research. Successful management of this knowledge may contribute not only to a lowered turnover rate among expatriates, but may offer suggestions to how business can lower the turnover rate overall.

I suggest the concept that expatriate management tends to overlook one extremely important concept: that turnover EVERYWHERE is extremely high, and it will be no different in the expatriate population if we treat regular employees in the same manner that we treat expatriates, assuming the expatriate programme is successful. Thus, development of a plan to manage and retain expatriates has great generalisability for the company's population as a whole with regard to retention. This concept has been touched on in the available research but is not fully developed. A work developing this concept can truly add to the field.

1.3 Aims and Objectives

The aims and objectives of the research will be to explore why some MNCs are successful at increasing retention of expatriates and what role cross-cultural training plays in that success; to explain the steps that successful MNCs take in utilising the knowledge they gain in working with expatriates as a form of knowledge management, and to describe how this information can be utilised by other companies to lower the overall general turnover rate.

A number of research questions evolved that will be useful in determining why some companies are so successful with expatriates while others are not. The questions will guide the research:

  • How do some MNCs lower the rate of turnover of expatriates?

  • How do companies that lower the rate of turnover of expatriates utilise what they have learned as a form of knowledge management?

  • What role does cross-cultural training play in successful retention of expatriates?

  • What is the generalisability of the success of expatriate management in the MNC as a form of knowledge management and its application to the reduction of soaring general turnover rates?

1.4 Rationale

The overall turnover rate of employees throughout the world is soaring. The problem is particularly high in America. The cost to companies of employee turnover is so high that one sometimes wonders how the companies stay afloat. At the same time, there are a number of difficulties with expatriate management.

As the rate of expatriate attrition increases, so does the cost to the multi-national company in both financial terms and in terms of morale. In researching problems with international human resources management, particularly problems associated with the management of expatriates, a link between increasing rates of general expatriate turnover and generally high rates of employee turnover seemed to present.

Gaps in the research indicate there must be more research into the process of repatriation and knowledge management, for this is the point at which the greatest knowledge exchange back to the company in terms of cultural knowledge should occur. Research must determine what contributes to success repatriation and why some expatriates choose to terminate contracts early. All of these areas will be investigated.

The next step, then, is to investigate why some companies seem to manage expatriate programmes successfully, and why some programmes fail. By reviewing successful expatriate management, we may learn general lessons of human resources management that may well contribute to the base of knowledge for the reduction of overall turnover rates throughout the working world.

1.5 Methodology

Qualitative research seeks to address the "why" and "how" of occurrences, making it ideally suited for a project of this nature. Though there are many forms of qualitative research, two forms seem particularly applicable to the nature of this investigation. A literature review will be conducted, of course, to place the state of the knowledge of expatriate management in the context of general management of human resources. An archival investigation, however, will take and utilise the literature review as a starting point. Through a thorough investigation of archival materials available, additional research information will be gleaned.

The case study method will also be utilised to investigate three specific multinational companies or organisations that have had a great deal of success with the expatriates that they managed. Case study approach allows me as the researcher to concentrate on details that might otherwise be overlooked in a traditional literature review. Archival review materials will also contribute to details of the case studies.

1.6 Chapter Outline

Chapter One of the dissertation consists of an introduction to the study and places the study in context, the aims and objectives, rationale, and methodology of the paper are reviewed.

Chapter Two reviews literature related to the topics of international human resources, expatriate management, turnover, and knowledge management. The literature review presents various perspectives of the research topic and reveals how previous researchers have investigated the topics. The literature review is expected to reveal gaps in the research and suggests areas that this research will explore. It is guided by the aims, objectives, and research questions, but can also provide an indication for modification of those aims, objectives, and questions if changes are needed. Finally, the chapter provides a framework for the overall research.

Chapter Three discusses methodology of the research and details the strategies that were undertaken during the research, including data collection methods and methods of analysis. Methodology describes methods that were utilised to conduct the research and defines the reasons they were selected.

Chapter Four provides the analysis or the synthesis of the research. It ties together the research questions, the theories behind the research, and the methods of doing the research. Finally, in a good research project, the analysis will actually raise questions that will be guidelines to future research in the field.

Chapter Five details the main findings of the paper, gleaned from the analysis, and describes how the results are similar to prior research, but also how they differ. The contribution of the research to the knowledge base of expatriate management and reduction of general turnover rates will be provided, and the limitations of the research will be defined. Suggestions for future research will be provided and ways to reduce limitations of future research will be discussed in the context of the experience of myself as the researcher for this project.

The paper will be concluded with a bibliography of works utilised in the preparation of the paper, and if necessary, supporting materials will be provided in appendices.

1.7 Chapter Summary

This chapter has set the stage for the research project and dissertation. The subject matter was introduced, and the study was placed in context of international business and human resources. The aims and objectives of the research were described and the rationale for the dissertation was produced. A summary of the methodology of the paper was provided, and a chapter outline of the work was also presented. In summary, Chapter One set the stage for the research and provided an overview of the project.

Chapter Two - Literature Review

2.1 Chapter Introduction

Today, all companies have retention problems (Ramiall, 2004). In 2005, the United States had an overall turnover rate of employment of 23%. Companies face fierce competition in the quest to retain employees (Mitchell, Holtom, and Lee, 2001). Hay (2002) reports that in the past 10 years, employee turnover increased by 25%, making the problem of retaining employees the number one employment problem in the United States (Kaye & Jordan-Evans, 2000). With a shortage of potential labour until approximately 2012, the pool of qualified and available labour is small, making the problem of retention much more intense. Clearly a need exists to lower the rate of turnover in companies. While the presented references above are in evidence of a turnover rate in American companies, the issue is global, especially in this day of large multi-national companies.

The problem is, perhaps, even more pronounced with expatriates due to the large amount of money it takes each MNC to recruit, train, and support expatriates and their families. A retained expatriate can be an asset to the company; a 'lost' expatriate represents a significant financial drain. It makes sense, then, to explore how expatriates can be retained, and to utilise the knowledge gained to lower the overall turnover rate of the company, thereby increasing retention and decreasing costs. Retention of expatriates contributes to the company's knowledge management capacities and to retention of trained employees in the MNCs, and cross-cultural training seems to offer one of the most promising avenues to encourage retention of qualified employees.

The literature review served as a basis of study during the preliminary phases of the project and was supplemented a great deal in the final paper. As the research developed, it was clear that there were many avenues that needed to be explored to gain a holistic understanding of the issues relating to international human resources management and successful administration of expatriation programmes. Through the course of the initial review of the literature, a link became clear between lessons learned by companies that have successful expatriation programmes and companies that could utilise this knowledge in lowering their turnover rates. All businesses today, it is clear, have a multi-cultural aspect that must be addressed. The issue then becomes how multi-culturalism will be addressed and how knowledge gained from successful expatriation can contribute to the overall knowledge of successful MNCs (Sizoo, Plank, Iskat, and Sernie, 2005). This project will help bridge the gap between large MNCs with offices in other nations, and smaller companies that may benefit from their knowlege.

2.2 Importance of International Human Resources Management

Tye and Chen (2005) state that capturing and maintaining a competitive advantage is not the most important issue for many organisations. At its lowest common denominator, the purpose of business is to make a profit. Friedman (1970) even argued that business has a social responsibility to make a profit for its investors. Friedman argued that business leaders needed to do 'whatever it takes' to acquire and maintain that profit. Tye and Chen (2005) point out that there is now a general consensus that larger companies must operate successfully on a global level in order to capture and maintain the competitive advantage which leads to profit.

As businesses have an increasingly international role, how to manage the people in the business on a global scale becomes a huge challenge (Lee and Liu, 2006). Businesses cannot operate without people, despite an increasing dependence upon technology. In order to retain people, there must be adequate human resources management systems. For large international companies, then, the human resources managers and their systems must aim towards acquiring and maintaining people who are competent not only in business, but in functioning in the international environment (Liu and Lee, 2006).

For many years, the tendency was to believe that management was the same whether the company being managed was in the manager's home country or a foreign land. This universal approach to management is considered an ethnocentric approach (Dowling and Welch, 2004), in which the values established in a corporation's home country are the values that predominate through every field office. In this form of management, all of the practices of the business stem from practices and values of the home office, and all of the employees that become managers in field offices are hired and trained at the home office. While this approach offers certain advantages (for instance, the level of corporate control), it is not the most beneficial model of operation if one hopes to expand the business significantly in the targeted areas of other nations (Kuhn, 2000). Indeed, as Kuhn points out, ethnocentric organisations have essentially no advantage in local market areas.

What difference is there between a human resources manager that deals with employees within the bounds of one nation, and one that deals with international situations? The basic difference is that when dealing with international human resources issues, the level of complexity between the rules, regulations, and operating mechanisms between different countries can be overwhelming, especially when more than one group of national workers is involved (Dowling and Welch, 2004). The difference may well be less pronounced in the nations of the European Union, where laws and operating regulations have been standardised to a degree, but national identities of workers complicate the issues. Indeed, even strong cultural identification roles can impact the path that international human resources managers must take. In addition, employees who will be fulfilling an expatriate role must be carefully matched to the job.

In 1998, Stone suggested that the selection of expatriate employees is much more difficult than selecting personnel who will remain in the home office. This contention, however, is one of the concepts that will be investigated in the research. While Dowling and Welch argue that the selection of expatriates with personal issues such as low capacity to adapt, poor emotional stability, or bad attitude leads towards failure of the match to the expatriate's job, one might argue just as easily that a bad attitude, immaturity, and refusal to adapt are indicative of poor selection of any employee, not just an employee who will be expatriated. It may seem simplistic, but a good, stable expatriate employee will make a good employee. On the other hand, a good employee will not necessarily make an adequate expatriate. It is this "rule" that led to my decision to explore a potential link between expatriate retention and retention of the average employee. Sizoo et al. (2005) concluded that adequate cross-cultural training of any employee in a MNC greatly increases employee effectiveness and can lead to increased promotions and pay raises, which cut turnover rates. The argument could also be made that the same would apply in smaller companies, especially those in areas with a high cross-cultural population component.

An expatriate who has negative attitude, poor emotional stability and maturity, lack of language ability, and a low level of adaptability also is a poor choice in host nations, where the chance of culture shock already exists (Dowling & Welch, 2004).

2.3 Turnover

Today's companies are faced with the prospect of continually replacing employees who have left the company. The cost of turnover is high both in direct turnover rates related to the physical process of hiring and firing and in the indirect rates of education, checking of the references, and so on. The costs are even higher if the member that leaves is a member of the expatriates, or if the member has recently repatriated at cost to the company. Thus the company cannot afford to keep replacing employees from a financial cost and a morale cost.

Some turnover is caused by tension with management while other turnover is caused by having unclear job expectations. Increasingly in the international arena employees leave because they do not understand what they have to do to get ahead, or they feel they followed the company's directions and are still not appreciated for the service they have rendered.

Peter Senge has identified three types of leaders: the peer leader, the line manager and the executive. Each one works to help build collaboration, to educate staff, and to strengthen the company culture. Teamwork and teaching should be utilised as a method of advancement (Senge 1990, 1996) and it is in this way that the expatriate can be particularly utilised. These employees can become leaders, and be promoted to management in the future.

2.4 Four Approaches to Management Orientation

What exactly constitutes a multi-national company? Loosely defined, it is a corporation or large company that provides goods and/or services in more than one country. The MNC may have operations in a fair number of other countries. To be able to supply goods or services across national lines, the company must have significant resources. Thus, MNCs by their definition have access to a great deal of money or financial backing. The company is financially able to acquire the goods, services, and personnel acquired to function at a high level. To put it bluntly, companies with large budgets can purchase the best; few people would argue that a multi-national company as large, for example, as Wal-Mart, will have an operating budget larger than some small companies.

Given that many companies have budgets that can buy "the best", why is the expatriate failure rate so high? Black and Mendenhall (1990) pointed out that over 40% of all assigned expatriates return home early, and the expatriates that remain in the host nation, only 50% function effectively. Does the failure of the expatriate lie solely in the personality and training of the individual expatriate? Some evidence suggests that failure may be associated with the approach to management that the multi-national organisation chooses. Management approaches in multi-national companies can be polycentric, ethnocentric, geocentric, or electocentric. Each of the four models is discussed briefly below.

Polycentric

The polycentric approach to management utilises the belief that managers in host countries know the best way to approach work within their country and are the most familiar with effective ways to manage businesses within their country (Banai and Sama, 2000). Companies that adopt this attitude have generally concluded that all countries are different and that local subsidiaries should adopt policies and practices that are appropriate locally and are under the direct supervision of local managers from the local area (Banfield, 1998). Kuhn (2000) states that polycentric organisations offer the greatest local control to subsidiaries, which can be a tremendous advantage when the local manager is effective and savvy to local culture, customs, and business operations. Polycentric models are sometimes referred to as multilocal models, or even a multidomestic organisation.

Ethnocentric

As pointed out earlier, ethnocentric management embodies the concept that the home office manager knows best, regardless of the circumstances or culture of the host office. Dowling and Welch (2004) characterise this as a 'universal approach to management' and believe that the main advantage of this form of management is the level of control it offers the MNC. Another advantage of this mode of operation, however, is that it presents the company with a more homogenous approach to business: no matter which office one is in, things are done the same way; managers are selected for the same reasons regardless of the location, and promotional paths remain the same regardless of where one transfers. Kuhn (2000) states, however, that this mode of operation is a distinct disadvantage if one a company wishes to expand operations in the host company. It offers no benefits when dealing with the local population, and may well be a disadvantage in terms of understanding local procedures and cultural impacts to business.

Geocentric

In the geocentric mode of operation, the company makes the decision that no one culture or organisation is better than another. Instead, the company concentrates on operating in as culture-free a manner as possible. Every effort is made to have a central control system, combined with a high level of standardisation. The organisation itself encourages all office to participate in decision-making based on a global rather than local context (Myloni, Harzing, and Mirza, 2004). Geocentric organisations offer one huge advantage: they are able to hire the best person for the job, without regard to nationality or national location. According to Kuhn (2000), the geocentric mode of organisation offers the best local advantage, along with the polycentric mode. Companies that embrace the geocentric view are sometimes referred to as borderless, or transnational.

Electocentric / Regiocentric

This model, also known as transregional model, is a model of globalisation that combines the geocentric model with the polycentric model. Companies that adopt this model of operation will frequently develop into a global or geocentric model of operation. In this mode, managers are hired locally and may be transferred within a general geographic region. The region tends to be fairly independent of the home company and does enjoy a certain amount of autonomy. This mode offers most of the benefits of the geocentric model.

2.5 Other Views of Management Approach

Goshal and Bartlett (1998) present a different few of management approaches of multinational companies. They define the approaches as multinational, global, international, and transnational. In their definition, multinational companies decentralise and tend to regard their overseas offshoots as separate business acquisitions with their own autonomy. Global companies, they believe, have a central hub where assets are centralised. The local companies form a pipeline for business acquisition. International companies have decentralised assets but are controlled by a central organisation. Finally, transnational organisations are the equivalent of geocentric organisations; they distribute control through all of their asset companies and have little "central" operations.

Companies that are in need to respond quickly to local market conditions and the culture of the local customer, tend to have localised and decentralised control. While in some cases, the host nation may require MNCs to hire and manage locally. An example would be China. On the other hand, companies that need a large flow of information and economy of scale to serve various multinational customers may do better with centralised control.

2.6 Which Approach is Best?

The approach of the company will need to vary with what the company aims to achieve. As mentioned earlier, some decisions will need to be made based on the information flow, the types of clients, or economy of scale. There are certain advantages and disadvantages of utilising each model of organisation, particularly as the organisation emphasises on human resources and the utilisation of expatriates. These advantages and disadvantages are listed and compared in Table 1.

By comparing the management perspectives it is clear that some of the organisations are easier to administer than others, and that some of the models of organisation utilise expatriates far more often than do others. Expatriates will be utilised extensively in the ethnocentric system and to limited degrees in the geocentric and regiocentric models. Companies that utilise the polycentric model rarely, if ever, utilise expatriates.

Model

Advantages

Disadvantages

Polycentric

- Many of the problems associated with having to utilize expatriates are eliminated

- By avoiding the use of expatriates, the company avoids having to acquire work permits

- The hiring process is less expensive (Scullion 2001)

- The local residents perceive they have an investment in the company

- The company may avoid the political implications associated with being based in another nation

- In general, managers stay longer

- Host country laws and regulations are more easily detected and complied with

- Fewer language difficulties are encountered (Schaffer and Rhee, 2005)

- Without expatriates it is more difficulty for offices in the host nation to understand what the company wants

- Home office managers are less likely to gain foreign office experiences and thus less likely to make good decisions regarding foreign offices

- Without expatriates, the culture of the host nation is more likely to be misunderstood by the company as a whole

Ethnocentric

- Some employees will have more faith in decisions that do not come from host country managers

- High level of control

- Homogeneity

- Forced compliance with corporate policies

- Management and employees well qualified and experienced

- Managers who expatriate learn about the host company and can bring this knowledge home

- Many problems with expatriates

- Expatriate managers may alienate host nation employees if they do not understand the culture

- Expatriates are expensive (Laabs, 1991)

- Expatriate managers may be resented by host nation employees

- The level of control may be resented by host nation employees

- There may be political resentment in the host nation

- Host nation employees may be resentful of expatriate's salary and benefits

- Administrative issues associated with permits, etc for expatriate

Geocentric

- Best localization advantage, along with polycentric

- Best view of globalization

- Host nation employees feel empowered

- Host nation residents are more likely to feel a sense of ownership of the company

- Administrative issues associated with permits, etc for expatriate

- Employees from outside of the host nation and primary nation must be documented and administratively correct for the assigned nation

- Staffing is difficult due to logistics and expense of relocating and moving employees

- High training cost

- Compensation schedule is complicated

- Centralized staffing is expensive

Regiocentric

- More back-and-forth interaction at the regional level between employees and primary nation

- Sensitivity to local culture, mores and laws

- Better in an unstable political environment

- Staff is less expensive (Laabs, 1991)

- Benefits are less expensive

- A "practice run" for companies that may become geocentric

- Keeps the company from global actions

- Limits international assignments while increasing local assignments

- Political difficulties can result from moving employees around (demands for paperwork, passports, and so on)

- More administrative considerations

Table 1. Advantages and disadvantages of management models (Dowling and Welch, 2004)

 

2.7 Why Does Expatriation Fail?

In order to plan for expatriate success, we must first understand why expatriation may fail. There are a number of reasons that any specific expatriate may fail to achieve the performance levels that were expected of them. Failure may be complete, and actually endanger the project the expatriate was assigned to; it may result in early return of the expatriate, or it may just result in an unhappy expatriate completing the assignment with the minimum possible level of effort. These expatriates may even leave their company after returning home.

Much of the available literature on expatriate failure stresses that expatriation fails when the expatriate fails to adapt to the culture of the host country or does not understand what is expected from him or her from a cultural standpoint. (For the purposes of this research, the words "he", "him", and "his" will be utilised in the future when referring to the expatriate; there are very few female expatriates at this point.) While failure to adapt to the culture is certainly a large part of the reasons that expatriation fails, it is certainly not the only reason.

Tung (1982) found four main categories of reasons that expatriation fails: lack of technical competence at work, issues related to the expatriate's personality traits or ability to relate to others, lack of the expatriate's ability to cope with various issues relating to his environment, and issues related to his family situation. Dowling and Welch (2004) expanded the general category of 'issues relating to the environment' to include eight categories: lack of technical competence at work, difficulties within the new working and living environment, inability to cope with the larger job responsibility with international facets that is now required, general inability to adjust as a manager, personal or emotional problems that arise, immaturity, inability of the spouse to adjust, and other family reasons (aging parents, being a single parent, etc.). Many of these "categories for failure" also exist in the typical, everyday employee of any company. The sections below explore various reasons for failure of expatriates.

2.7.1 Inability to Adapt to Cultural Differences

Wederspahn (2002) states that the failure to establish a common ground between the expatriate and the country of assignment is a sign of impending failure of the assignment. He emphasises that cultural differences can result in a "deal breaker". Beadles (2002) also stresses that entire projects can fail when the expatriate cannot or will not adapt to the people and the habits of the host country.

2.7.2 Spouse or Family's Inability to Adjust

Adjustment can be hard for anyone. We have seen that expatriation can be difficult for the most educated adult, who understands the reasons for the assignment. Consider how difficult it must be for the pre-teen who may find him or herself in a country where few speak their language, where technology may be behind that of their home nation, where school requirements are considerably different, and the clothing may be different or even oppressive.

Mendenhall, Dunbar, and Oddou (1997) stress that training for successful expatriation must also include the children and the spouse of the expatriate. The need to understand the culture of the host nation goes far deeper than just the need of the primary expatriate. Scullion (2001) states that issues range from children who are not mature enough to deal with cultural change to language training that the family needs but does not get, and to the simple inability of the husband and wife to adapt to live together in a completely different arena than their home nation.

Bauer (2001) believes that family issues relating to cultural adaptation are a primary reason that expatriates leave their assignments and return to their home nations prematurely, a conclusion reached by Tung (1982).

2.7.3 Immaturity of the Manager

Immaturity of a manager can appear anytime, anywhere, and when it does, it is an impediment to the success of the company. People who work together have differences. When the people who work together are from different cultures, there will be more differences, related to the way of doing things and to the meaning that the individuals attach to gestures that may mean something completely different. A mature individual will take this in stride; an immature one may sabotage the project either deliberately or inadvertently. Upon occasion, behaviour may be so bad that the company ends the expatriate's tour and returns him to the home country.

2.7.4 Inability to Adjust to New Job Responsibilities

Inability of the manager to adjust to new job responsibilities with international overtones is a combination of failure to adjust to the cultural and environment combined with feeling the weight of responsibility in a position as a manager far from home. Clearly this difficulty would be more pronounced in ethnocentric organisations where the manager felt as if they were functioning alone.

2.7.5 Personal or Emotional Problems

Personal or emotional problems can arise with any problem and anywhere. Some problems, however, are more easily solved than others and some problems may be spotted before the expatriate is settled, if the company investigates the potential employees thoroughly and conducts testing (Tung, 1982).

2.7.6 Other Family Reasons

Some family issues are foreseeable. Single parents may face challenges in foreign assignments that they might not expect in their home nation, where their support system is already in place. Aging parents can suffer accidents that cause them to require care prematurely. Unanticipated illnesses occur, and children of deceased family members must be cared for. Some of these issues are foreseeable and should be addressed prior to placement as an expatriate; some must be dealt with when they occur. According to Dowling and Welch (2004), the more support that is available for the family early in the placement consideration, the greater the family's ability to deal with these situations will be. It may be that perceived support is a necessary factor in adaptation: the idea of knowing that people are 'there' for the expatriate. This correlates with Tung's (1982) observation that the larger the expatriate community, the greater the chance of successful completion of the assignment.

2.7.7 Technical Incompetence

Technical incompetence must be detected prior to placement. Adequate interview and testing process ensure that the expatriate has adequate job skills before assignment.

2.8 Expatriate Selection

In 1983, Chaganti and Phatak reported that very few multi-national companies seem to have a clear-cut method of selecting staff for international assignments. Borg and Harzing (1995) even went so far as to suggest that some companies have nospecific method of selecting a good candidate for foreign assignment, though others make a selection based on a review of the individual's past performance, interview with their supervisors, and/or a battery of tests. As we examine the list of failure factors detailed above, it becomes clear that more work needs to be done during the selection process of expatriate candidates. The situation is complicated by the very nature of business: jobs in the same job category may have certain core job skills that are necessary for success, but every single job will have slightly different operational needs that may impact on the success of the chosen candidate. Still, it seems that the individual must, first and foremost, have basic technical job competence for the position. Without this competence, there is no reason to even consider the person for an overseas assignment! It is noted that this concept, while eminently logical, and again, appears to be self-evident, must not occur to all recruiters. The need to select individuals for jobs who have a basic technical level of job competence is an issue that undoubtedly impacts on the general turnover rate in companies, as well as turnover rate of expatriates. This concept will be explored further in Chapter Four, Analysis.

Tung (1982) suggested that human resources experts in MNCs concentrate on hiring expatriate candidates who have technical competence at work, personality traits/relational abilities, ability to cope with environmental variables, and favourable family situation, since they are factors that signal high rates of failure. Teagarden and Gordon (1995) organised the selection factors more generally, suggesting that recruiters concentrate on the candidates' technical skills, skills relating to dealing with people, their motivation, and their family situation.

Teagarden and Gordon ranked the selection criteria for a successful expatriate candidate in the order shown in Table 2, below, adapted from Teagarden and Gordon (1995). Based on the table, it is easy to see how Teagarden and Gordon (1995) arrived at their four general areas of concentration for international human resources selections for expatriate positions. The authors go so far as to suggest that any successful expatriation must include interviews with the candidate's family. Unfortunately, the more intense the selection process, the more expensive it becomes per candidate, and the higher the rate of rejection of the candidates, increasing the cost of selection.

Selection Criteria in Order of Importance

Technical skills

Overall flexibility

Managerial skills

Emotional stability

Sensitivity to culture of others

Interest in working in another nation

Adaptability and enthusiasm of family

Stable family relations

Administrative skills

Communications skills

Support from family members

Non-ethnocentric attitude

Perception of the assignment as a positive career move

Knowledge of the host country's language

Active interest in the host country's culture

Table 2. Selection criteria for a successful expatriate candidate

In somewhat of a paradox, Latta (2006) has suggested that a typical 'tour of duty' for an expatriate can cost nearly $1,000,000 USD. The high cost of the expatriation appears to make companies reluctant to spend large amounts of money on their selection when the process would lead to large numbers of rejections.

Dowling and Welch (2004) have pointed out that the cost of expatriation is high, and significant indirect costs are associated with failed expatriation. They suggest that the indirect costs may actually be much higher than the direct costs. If the expatriation fails, the company's reputation may be in a shambles; they may lose market share; local employees lose morale and productivity falls; home office employees may lose morale; the host nation's government may look on the company with less favour, and the expatriate himself may face loss of reputation with the home company's headquarters. At a minimum, his career with the company will be affected; it is quite possible the company will lose the employee entirely.

Thus, though it may be extremely expensive to interview, test, and thoroughly investigate a number of candidates and their families before selecting an expatriate, it may more appropriately be regarded as a cost-saving method.

2.9 Training of Expatriate Staff

A tremendous amount of information is available on training of expatriate staff, but much of it concentrates on the cross-cultural nature of the assignment. Mendenall and Black (1990) state that the failure rate of expatriates is high unless they have received effective cross-cultural training prior to the beginning of their assignments. They stress that nearly 40% of the assigned expatriates return early, but the ones that remain on assignment, only 50% function effectively unless they are thoroughly prepared prior to departure. Peppas (2004) points out that much of the cross-cultural training received is not adequate for assignments, contributing to project and expatriate failure. He also suggests that shorter assignments need more intensive pre-assignment training as there is no time for the assignee to acclimate during a short assignment; the expatriate must "hit the ground running" and so has no time to adjust.

Littrell and Salas (2005) emphasise that cross-cultural training must be effective in order for assignments to be successful. They also stress that 'completion' of an assignment is not the same as being successful. They state that even if expatriates complete their assignment, the assignment is not necessarily a success for the company, and even if they compete the assignment, many expatriates leave the company after their return to their home nation. Mendenhall, Dunbar, and Oddou (1997) point out that by far and large, expatriate training programs do not meet the needs of the companies that source them, or of the employees who are expatriates. They stress that cross-cultural training must take place, and it must include the spouse and children of the expatriate if adaptation is to be successful.

Sizoo, Plank, Iskat, and Sernie (2005) encourage companies to provide intense cross- or inter-cultural sensitivity training to all employees, not just expatriates. "Regular" employees may come into contact with members of other cultures. In this day and age, this category would encompass most employees of MNCs. The authors conclude that adequate cross-cultural training greatly increases employee effectiveness and can lead to increased promotions and pay raises, which cut turnover rates in both expatriate and home nation employees.

2.10 Current Cycle of Repatriation

Based on the information acquired in the literature review, the current cycle of expatriate employment is presented in Figure 1. While the figure is based loosely on materials by Dowling and Welch (2004), significant changes have been made.

2.11 Case Study Materials

The literature review has addressed the academic literature relating to the role of international human resources in the recruitment, training, and management of expatriates. We now turn to three case studies that will be utilised as examples of companies with successful programmes of expatriation. The United States Peace Corp, while not a company-for-profit, is a non-profit organisation that cannot, by the nature of its mission, function without expatriates. It provides, therefore, an excellent case study for success of the expatriate. Tyco Flow Control of Japanand Electrolux of Swedenhave also been selected as case studies. The approach of all three companies to expatriation will be provided in the case study materials.

2.11.1 The United States Peace Corp

Members of the United States Peace Corp Volunteer organisation sign on for a 27 month commitment. Each year, the Peace Corp repatriates over 3,500 Peace Corp members who are returning from assignment in a wide variety of foreign nations. The Peace Corp serves 139 nations and has over 190,000 alumni. The company has three primary goals: to help train people of other nations, to help citizens of the United States understand citizens of other nations, and to help citizens of other nations understand the citizens of the United States (Peace Corp, 2008). Applicant must be a citizen of the United States and the age range of the volunteers is from 18 up, with the average age of 27 and the median being 25. As of this date, the oldest working volunteer is 80. 95% of the volunteers have an undergraduate degree and 11% have an advanced degree. However, local language skills are a plus but are not required in all positions.

Recruitment: Volunteers are recruited from all races, ages, and walks of life. After an extremely brief initial (online) screening, potential recruits fill out an application and are contacted by a recruiter. The evaluation process takes from 9 to 12 months and includes medical clearances, educational reviews, skills reviews, and psychological reviews. The medical review is very thorough and certain conditions are excluded, including certain psychiatric conditions (Peace Corps, 2008a).

Benefits: Peace Corp members do not receive a salary. Instead, they receive a stipend that covers basic living expenses that will allow them to live at the same standard as local residents. After successful completion of duty, the volunteer receives $6,000 to assist with reintegration into the community. Volunteers receive 48 days of vacation time during their 24 months overseas, but if they choose to return home for a visit they must pay for the travel. Student loans can be deferred during service and can be cancelled at the rate of 15% per service year. Full medical insurance with 100% coverage is provided for free to the volunteer, and reduced price health insurance is available for 24 months after the volunteer's return. Medical benefits cover vision, dental, medical care, and medicines. Many universities will combine Peace Corp service with credits, and several programs exist to provide Peace Corp students with reduced price tuition upon return. The Peace Corp provides job transitionassistance for repatriates looking for work. Finally, repatriates who wish to enter Federal service can do so without competition provided they meet minimum job standards(Peace Corp, 2008b).

General Training: The Peace Corp emphasises that it takes an integrated approach to volunteer training. Through language, cross-cultural, and health and safety instruction, training is designed to raise the Volunteer's awareness of their new environment, build their capacity to effectively cope with the many challenges they will face, and provide the tools the Volunteers need to adopt a safe and appropriate lifestyle(Peace Corps, 2008c).

A complete list of training materials is provided in Appendix B, but they are so numerous that it is impossible to discuss them all here. Two programmes that are of particular interest to the topic of this dissertation are discussed here: Building Bridges: A Peace Corps Classroom Guide to Cross-Cultural Understanding, and Culture Matters: The Peace Corps Cross-Cultural Workbookand its accompanying Culture Matters Trainers' Guide. These programmes form the core of the Peace Corp experience and are instrumental in its success as expatriate managers. The Peace Corp also asserts that cross-cultural training and understanding is absolutely key to safety in assignments.

Over and over, the Peace Corp emphasises the value of learning local customs and blending into the community, while treating residents with respect. The concept, as they express it, is that "local community members" will be their primary support system during their expatriation. The Peace Corp places members with local families for 2-3 months before putting them out into the community on their own (Peace Corp, 2008d), again to foster the sense of community in a foreign culture.

Cross-Cultural Training: The Peace Corp guide Culture Matters makes the point that "cross-cultural exposure is not cross-cultural knowledge" (Peace Corp, 1999: 1). In other words, just because you know about something does not mean you will truly understand it. The cultural training by the Peace Corp teaches how other cultures view the "self", emphasises how diverse Americans are, points out that some societies are oriented to self and others to the collective (a theory shared by Hofstede), and emphasises how very differently cultures can view time, place, and locus of control. Relationships, whether business or personal, are emphasised; the process of adjusting to a new country is reviewed, and other resources materials are provided. The teacher's manual that accompanies the training provides field exercises so that members can face simulated situations. The teacher's manual does note at points that new Peace Corp members may be reluctant to believe that situations described in the materials actually occur, a sure sign that there are indeed cultural issues.

 

2.11.2 Tyco Flow Control / KTM of Japan

Tyco Flow is a business unit of Tyco International, which is a MNC headquartered in the United States. Tyco Flow specialises in the manufacture of industrial valves. Their Japanese subsidiary, KTM of Japan, frequently transfers information to one of the company's sites in Taiwan (Kohlbacher and Krahe, 2007). KTM then utilises information it receives from Taiwan to revise the knowledge base and update information to other subsidiaries. The process is complicated by the multi-national nature of the work and the fact that information, or knowledge, must flow quickly. There is no time for misunderstanding or misinterpretation. Cultural difference, or lack of cultural understanding, has even been described as the barrier that prevents the flow of information to and from the market. Thus, placing communication in the correct cultural and technical context is essential.

Schulz and Jobe (2001) point out that MNCs can actually achieve market advantage by having a good knowledge transfer programme in place. In the case of Tyco, rapid knowledge exchange between the multi-national subsidiaries allows the company to adapt its product to local market requirements and conditions and thus gain advantage. Without a high level of communication, this adaptation would not occur. Schulz and Jobe (2001) go so far as to point out that this knowledge transfer is the only thing that allows a multi-national company to acquire advantage over a more local organisation.

Several years ago, Tyco Flow of Japan acquired KTM and the Taiwan Valve Company (TVC). At the time both Tyco Flow of Japan and KTM had manufacturing operations, but they manufactured different valves. The parent company determined that transferring all manufacturing to KTM could help to save money. The development and administration of the valves that Tyco Flow had manufactured was kept at Tyco Flow. This set up a situation where information needed to flow, and flow rapidly and accurately, between Tyco International, Tyco Flow, KTM, and TVC, an operation that involved numerous employees and the Japanese, English, and Chinese languages and cultures.

In beginning the transfer of knowledge, the company sent many of its engineering materials, including drawings, to TVC to be translated into Chinese. The documents were transferred back to KTM, where employees checked for errors and for technical correctness. Once corrections were made, they were sent back to TVC to be incorporated. Comments and additional clarifying information had to be translated into both a language and a cultural context that would be both acceptable and understandable to TVC's employees. TVC, which was the cost expert, helped KTM understand cost factors while KTM engineers imparted t


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