Expatriation as a Staffing Method - Coursework Example

Advantages and disadvantages of MNE hiring expatriates Introduction Globalization forces companies across the world to consider alternate international staffing solutions to cater to business demands of diverse locations. Lane, DiStefano and Maznevski observe that ‘how business is conducted differ dramatically from one culture to another’ (2000, p.2). Expatriate assignments are capable of providing organizations with competitive advantage with the ‘transfer of tacit knowledge to new markets (Stahl and others 2006, p.142). Brewster and Harris maintain that expatriates play an important role as a ‘source of expertise, corporate control, and international learning (1999, p.91). Lane, DiStefano and Maznevski suggest that organizations observe ‘expatriation as a strategic tool…to develop managers with a global orientation…to manage key organizational and country relationships (2000, p.208). This makes it imperative for the parent country to send reliable, high performing employees on expatriate assignments. This staffing solution has implications on human resource management (HRM) activities and policies. Management of expatriates or international assignees as they are referred to is more complex than that of local employees. Apart from orientation and training prior to departure, relocation and accommodation of the family is also the organization’s responsibility. Traditional HRM works with employees within a single national boundary. International HRM goes beyond the gamut of local HRM activities by forging a relationship with three employment types, host-country nationals, parent-country nationals and third country nationals. Strategic HRM processes are required to manage these diverse appointments. Stahl and others ( Pucik 1998, 770) state that ‘the influence of the HR department has been less evident’ in organizations. This implies a lack of HR involvement at the time of strategic decision making and consequent struggle in grappling with international HRM complexities. Advantages of expatriation Control and communication Organizations garner the strategic business advantage of leaving an imprint of the style of operation and level of efficiency expected in the host country by expatriating experienced employees from the parent country. The organizational need for control is satisfied by the presence of an expatriate in a foreign location. Sparrow, Brewster and Harris observe that organizations want the advantage of key strategic and managerial positions managed by expatriates from the home country (2004, p.55). Stronger communication lines between headquarter and host country are made possible by the presence of a Parent Country National. The expatriate is responsible for facilitating headquarter capacity to influence host country processes and manage operations during crisis situations. Managerial and technical skill levels can be monitored and due processes designed to keep capabilities at par with headquarter requirements. Work culture can also be effectively spread by this form of assignment in the host country (Mead 2005, p.356). ‘Headquarters staff gain experience abroad. Managers gain understanding of international business through expatriate assignments, and the organizational culture of headquarters becomes internationalized’ (Mead 2005, p.356). Lane, DiStefano and Maznevski observe that expatriation and inpatriation provide a dual advantage of exposing the incumbent to ‘cultural orientation and views of headquarters’ in the former case and ‘headquarters processes, concerns and perspectives’ (2000, p.208) in the latter. Organizations that believe centralized control leads to higher efficiency prefer to staff their strategic and managerial positions find expatriation advantageous. When factors such as the product, the market and competition, and rights to technology enforce that headquarters keep full control of all operations, highly centralized control can be more efficient and justify the expense (Mead 2005, p.313). Talent availability Organizations choose expatriation to facilitate market expansion in countries that face a dearth of local skill availability. Dowling (2008, p.7) suggests that ‘as foreign operations mature, the emphases (sic) put on various human resource activities change.’ The need for PCNs (Parent Country Nationals) and TCNs (Third Country Nationals) declines as the local talent pool matures in capability. Expatriation is then replaced by local recruitment and growth up the ranks. Understanding of local markets Parent company understanding and managing of local market operations and performance is aided by: …expatriate managers with strong allegiance to the local market …primary information flow is within the local operation rather than between the local operation and the parent firm or between the local operation and other foreign subsidiaries. At the multidomestic stage of globalization, there is a premium on understanding the local market and the culture of host-country nationals. Managers who go native often have valuable insights into local markets, operations, markets, and the effectiveness of various managerial approaches. They often can leverage this knowledge to improve local performance (Stroh and others, p.129). Global leadership Expatriation is a route to create a group of people with a comprehensive perspective about global operations for future roles in senior positions. Organizations make an attempt to provide key responsibilities in managing country performance to create an understanding of the nuances of controlling business on a smaller scale. …observed that individuals identified by the company as future global leader role models… indicated that P&L responsibility made them wrap their minds around the overall business and how their business fits in with others across the corporation’s worldwide network (Black, Morrison and Gregersen 1999, p.225). In their opinion, in the absence of a role with P&L responsibility, organizations can consider assignments with cross functional dimensions. International assignments that provide employees this perspective provide developmental opportunities that local assignments can never offer. Disadvantages of expatriation The complications and risks related to expatriation are manifold. Inappropriate management of expatriation and concurrent performance issues in the host country highlight the disadvantages of the arrangement. Insufficient involvement of the HR group and lack of realization of the complexity of issues related to the move lead the administrator and the recipient of service dissatisfied. The organization must consider appropriate staffing to manage the expatriate policy of the host country. Cost of expatriation According to Vance and Paik (2006, p.143) the estimated cost on expatriate compensation is 3 to 5 times more than the normal salary. “In addition, the adjustment period of expatriates to their host country surroundings, as well as of the HCNs to the new expatriate, often takes considerable time. This adjustment period, or “learning curve,” itself represents a time span of timely suboptimal performance and a chance for costs to be greatly expanded by mistakes and poor decisions.” They further opine that the mutual adjustment period between the Host Country Nationals and Parent Country Nationals is a cost that organizations tend to overlook. According to Black, Morrison and Gregersen, the firm not only spends time and money to replace the individual but also ‘receives no long term return on the $1 million or more it has invested on the average three-year assignment (1999, p.203). The time and expense for the expatriate to develop the local network adds to the initial costs incurred in sending the employee over. Skewed emphasis on expatriates Additional work is generated with an expatriation. Dowling (2008, p.5) mentions the new activities that come into play when an expatriate arrangement is decided. The HRM activities in the host country expand to include international taxation with host and parent country liabilities, international relocation and orientation, assuaging discomfort regarding repatriation. Besides, the host country is required to provide administrative services in getting work permits and necessary certifications, accommodation, schooling, healthcare and safety. If the host country organization is new to these activities, the learning curve makes the adjustment period for the expatriate more time consuming and stressful. In the absence of a perspective on expatriate compensation, there is likely to be a perceived skew in the mind of the local employee regarding the attention and expenses incurred on the expatriate and an attempt to equate expatriate compensation with local payouts. Firms that do not correctly estimate the complexities and consequent requirements of expatriation face the risk of failing as ‘business failures in the international arena are often linked to poor management of human resources’ (Dowling 2008, 9). Brewster and Harris quote the view of Kim and Mauborgne that local managers must be trusted by the multinational company for the subsidiary to return growth and profitability. They further put forward the argument by Hope and Hailey that the decision of sending expatriates instead of hiring locally is a matter of trust and not about availability of local talent (1999, p.94). Consequently, some roles are not open for local managers to grow into and this leads to dissonance in the host country. Local employees should feel empowered to be able to perform successfully in the local environment. In the presence of an expatriate, the MNE tends to overlook the training needs of the local staff members. Local staff rightfully expect to see personal and career growth in the MNE (1999, p.95) and react strongly when this is denied to them. Women as expatriates Few women are considered for expatriate assignments. Companies tend to prefer male employees over female employees for expatriate assignments for a variety of reasons. Dowling highlights the external barriers that come in the way of women taking international assignments like, HR managers reluctance to select females, culturally tough locations precluding females and stereotypes that influence the selection (2008, p.131). Dual-career issues and safety in the host country are other considerations that affect selection. Companies tend to take a view of a female expatriate on international assignment can come in the way of the effectiveness and the image formed by business associates about the woman. Companies hesitate and are in fact, reluctant to send women on foreign assignments. Patriarchal cultures tend to view the role of women as subordinate and are expected to face a difficulty in accepting a woman expatriate as a superior. Some countries are hostile to the prospect of a female expatriate working within. Martin and Chaney point out that ‘if a culture gives women lower social status, it may undermine a female expatriate’s authority both inside and outside of the organization (p.43).The commonality across various studies of female expatriates is that ‘assignment location, level of organization support, spouse/ partner satisfaction and inter-cultural experiences are important in terms of performance (Dowling 2008, p.131). It is important that a female expatriate is provided expatriation on a permanent basis rather than a temporary one with the status and title appropriate to the role that she is to play. This will aid her in overcoming initial reluctance or prejudice in the host country. Women need to, on their part work at being excellent and well qualified as this gives a boost to credibility among business associates. Assignment failure Dowling states that an organization’s decision to expand operations is primarily based on ‘the reliance of the multinational on its home country domestic market’ (2008, p.14). Failure of the expatriate to create and expand the host country markets and bring operations to an acceptable level of profitability leads to a massive increase in cost. The cost of failure includes identifiable costs like that associated with orientation, training, and compensation and may be ‘as high as three times the domestic salary plus relocation expenses, depending on currency exchange rates and location of assignments.’ (2008, p.8). Hidden costs relate to opportunity cost, company reputation, high likelihood of turnover, image of exercise among existing employees and compromised repatriation. An argument has been made that fallouts of failure like ‘damaged relations with host country organizations, loss of market share and requests that parent country nationals be replaced with host country nationals’ (Scullion2006, p.60) be considered more important since they can cause permanent damage to successfully developing business prospects. Failed international assignments can lead ‘the best and brightest throughout the organization’s worldwide operations to view international assignments as the “kiss of death” for their careers’ (Black, Morrison and Gregersen 1999, p.203). This makes it difficult to recruit and send the best candidates for future international postings. Repatriation Early termination of an expatriate agreement and completion of term lead to a situation of the employee returning to the parent country with a sense of uncertainty about the assignment that will be provided. At the time of return, the employee does not exist on the rolls of either the host or parent. Ambiguity about the new role for the individual impacts motivation about the return and increases the difficulty in adjustment to the workplace. Besides, there are others who observe the management of the individual’s career by the company and form an opinion about whether to accept future international postings on that basis. Dunlap-Hinkler and Parente (2004, p.12) consider the impact of poor repatriation on observers within the company. The extent of observable justice in assigning a new responsibility to a repatriate and the extent of identification with the repatriate impact the observer’s view of justice done. This is directly related to consequent acceptance of international assignments in the future. Poor repatriation of a successful resource results in under-utilization of human talent, inadequate utilization of knowledge garnered during the assignment regarding local market conditions and future scope of the market and leads to a sense of dissatisfaction in the repatriate leading to ‘repatriation turnover problems’. Companies also face the dilemma as to whether the repatriate should be compensated at par with others of similar experience in the organization or maintain a differential. Conclusion In conclusion, it is clear that an organization’s preference for centralized business and operational control determines the decision of selecting expatriation as a staffing method. The advantages of control and process formation as per headquarter requirements allow for uniformity in processing. Given the cost of expatriation, success is a key concern for organizations. Harris points out five person-related factors that predict expatriate success. They are agreeableness, conscientiousness, extraversion, emotional stability and openness to experience (2007, p.185) Organizations have the choice of starting a subsidiary from scratch or through acquisition. Acquisitions are commonly the preferred route since this means the necessary human talent is readily available. Strategic positions are taken over by expatriates while the rest of the organization is untouched by manpower changes. The success of expatriation should be seen from the context of successful term completion as well as the organization’s capability to provide alternate career growth paths to employees of the host country. Organizations that view expatriation only in a parent country model forego the benefit of identifying potential talent in other locations. The staffing model can be profitably extended across boundaries to enable the formation of a talent pool of individuals with global experience. Repatriation is another concern for organizations. Black, Morrison and Gregersen cite the examples of companies like Monsanto and Samsung that ensure returning employees go through programs designed to help them understand “reverse culture shock” (1999, 207). …augmentation of competencies achieved through integration of the expatriation and repatriation processes suggests that a global network organization needs to develop a strategic orientation to repatriation to integrate new international competencies of strategic relevance into the common knowledge base of the firm through the development of effective programmes (sic) of repatriation (Stahl and others 2006, 325). Organizations need to strategize ways to manage their overseas staffing concerns wherein talent is provided from any of the global set ups for a required period and relocation is pre-planned to avoid uncertainty at the end of the term. Organizations can facilitate the success of women who undertake expatriate assignments by providing a mentor who is another expatriate or a local who can help break barriers within the organization and deal with issues of being a visible part of a minority group of women employees. References Black, J. Stewart, Morrison, Allen J. & Gregersen, Hal B 1999, Global explorers: the next generation of leaders, Routledge, UK. Brewster, Chris & Harris, Hilary 1999, International HRM: contemporary issues in Europe, Routledge, UK. Dowling, Peter J. 2008, International Human Resource Management, Cengage Learning EMEA, USA. Dunlap-Hinkler, Denise & Parente, Ronaldo 2004, Observer effects of repatriate assignments: a justice framework, viewed 1 March 2009, . Lane, Henry W., DiStefano, Joseph J. & Maznevski, Martha L. 2000, International management behavior: text, readings, and cases, Blackwell Publishing, Oxford. Martin, Jeanette S. & Chaney, Lillian H. 2006, Global business etiquette: a guide to international communication and customs, Greenwood Publishing Group, Connecticut. Mead, Richard 2005, International management: cross-cultural dimensions, Blackwell Publishing, Oxford. Scullion, Hugh 2006, Global Staffing, Routledge, USA. Sparrow, Paul, Brewster, Chris & Harris, Hilary 2004, Globalizing human resource management, Routledge, USA. Stahl, Günter K., Björkman, Ingmar, Ott, Attiat & Cebula, Richard 2006, Handbook of research in international human resource management, Edward Elgar Publishing, UK. Stroh, Linda K. J., Black, Stewart, Mendenhall, Mark E & Gregersen, Hal B. 2005, International assignments: an integration of strategy, research, and practice, Routledge, UK. Vance, Charles M. & Yongsun Paik 2006, Managing a global workforce: challenges and opportunities in international human resource management, M.E. Sharpe, USA. Read More