The Reasons behind Using Expatriates for Overseas Assignments - Assignment Example

1.0 Expatriates in International Operations Globalisation has taken companies to unfamiliar regions of the world and it is common to find that the operational heads of most companies are from the parent companies. Such appointments are known as expatriates and they face enormous difficulties in adjusting to local cultures. It is especially noted that companies making their first foray into the international scene start with larger number of expatriates for reasons of comfort, control and continuity of policy. This results from overemphasis on their ethnocentric culture (Mayrhofer and Brewster, 1996). The expatriates are considered as the fulcrum of organisational control (Beechler 1992). This paper will attempt to rationalize the reasons behind using expatriates for overseas assignments in preference over local managerial staff. It will then elaborate on the consequences of such appointments and offer strategies for meeting the requirements of overseas managers. 2.0 Rationale for using Expatriates Competitive advantage (Porter 1980) is the heart of all strategies. Over a period of time Dunning (1977; 1993; 2001) has driven home the point of why and how does a Multinational Enterprises (MNE) obtain this advantage away from their home bases. He developed the eclectic paradigm that explains the various factors that influence the MNE’s to decide on Internationalization and extensive use of expatriate management. The eclectic paradigm suggests that three conditions determine the move to expand globally. First, the firm must possess specific, ownership advantages not available to other firms. These are competencies of the firm developed with the help of its employees. This is further described by Dunning (2002) as the extension that could include relational assets. By this is meant the networking ability developed by the firm or its managers (Dimitratos & Plakoyiannaki 2003). This results in moving these competent managers to the overseas location as expatriate worker to continue the O advantage. Secondly, the foreign market should offer some locational or L advantage. It should be profitable to serve the overseas market by local production rather than by exporting. This has led to another type of L advantage that firms are now actively pursuing in the shape of Mergers & Acquisitions (M&A). The new MNE has realized that putting up new production facilities or organizing fresh marketing efforts have a long gestation period. Hence they find buying out of rivals and competition a quicker and painless way of enhancing both efficiency and markets. Cross border M&A has become a common feature and an attraction of the L advantage type. This too involves moving the managers from the owning entity to the owned entity for purpose of both direction and control. Thirdly, there should be internalization or I advantage. Ownership advantages are best exploited internally rather than offered to other firms through some contractual arrangement such as licensing, a joint venture or management contracting. The problems of unenforceable and uncontrollable contracts with overseas partners can be overcome with direct ownership. The ability to leverage its home market O advantages of the in the host market is evidenced where both the domestic and foreign operations are controlled by the common O advantages. The transaction cost economics highlight how such assets are transferred for this advantage. (Buckley and Casson, 1998, 2002, 2003). This includes both technological and human assets. Strong links between the two ensures success as its rests on the internalization of the system of governance. Internal assets such as knowledge assets (read expatriates) are transferred to avoid failures. This may or may not reduce transaction costs but certainly it offers better risk management. In addition to this many MNCs continue to be ethnocentric in their staffing policies (Mayrhofer and Brewster, 1996). This offers the conglomerate continuity of thought process as well as better governance over all its operations. 3.0 Problems of using Expatriates There are a number of serious problems that arise due to extensive use of expatriates at managerial levels. These can result in breeding discontent, lowering of morale of local talent, and indeed high attrition rate of local mangers whose aspirations get hurt (Kopp, 1994). This causes lower performances due to lower responses from local employees who either do not comprehend their expatriate bosses or resent them. Hofstede (1993) made an interesting observation saying that what we learn as children remains with us for our lifetime. Calling this as software of the mind he elaborates that this has a bearing in International Human Resource Management as this becomes a barrier for local hiring when the MNE wishes strongly to carry forward its policies based on its own organisational culture. This fact is highlighted in the case of IKEA, a Swedish company that not only appoints Swedes to top posts in its International operations but also insists that others learn the Swedish language in order to get promoted to the upper echelon of the leadership. That IKEA has succeeded despite this stringent rule is not the only exception. Most Japanese companies also follow the same pattern. While this rule is based on the misconception that expatriates from the original company are better at management, it has been forced by most companies, based on the OLI factors explained above. The disadvantages of use of expatriates has been seen in the disaster stories from world over, especially from China, where the foreign companies like Coca Cola found this to be the cause of low growth compared to its close rival Pepsi. While Coke entered China earlier it was easily overtaken by Pepsi due to the latter’s choice of having least expatriate controlled operations. Cultural factors do play a great role in the growth and profitability of companies. Despite pros and cons generally it is accepted by academics that both expatriates and locals do contribute positively towards the company goals in their own way. Unifying and closely following company policies, coordinating between the headquarters and subsidiaries and smooth transfer of management is possible with expatriates (Bonache et al 2001). As against this the local managers are effective in enabling local requirements and overcoming limitations and barriers in the local decision making process (Doz and Prahalad, 1986). 4.0 Strategies Bartlett and Ghoshal (1989) were the premier supporters of those companies which have followed the doctrine of think globally, act locally. Taylor (1991) and Maljers (1992) have also observed that balancing the opposite factors of organisational integration and differentiation has paid rich dividends to companies. But this capability cannot be easily developed or sustained. It requires far sighted strategies and the ability to overcome fear of loss of control. It needs to be conceded by the MNE’s that there must be diversity at the workplace, particularly in the global environment. This means that local talent must be nurtured not only to meet their aspirations but also to be able to promote the company and its products through the insights of the local managers. While it is true that overall company policies must be laid down by the headquarters; the local units or subsidiaries must have the operational control, through local managers for higher performances and better results. Newcomers to any organisation, especially in the international context, are filled with apprehensions about their jobs and their performance evaluation, and are especially conscious of the interpersonal relationships and social practices that they will be facing (Miller 1996). A successful socialization will certainly help in reduction of these tensions and will build productive working relations between the old and the new members for the eventual benefit of the organisation (Jablin 2001). The real test of the individual fitting the organization, or the person-organisation fit, is tentative at best and has been defined as the similarity of patterns of the organisational values and individual values. These may be further defined as those things that the individual values in an organisation, such as being team-oriented or innovative (Chatman, 1989). Values are fundamental building blocks in most definitions of organisational culture (Barley et al 1988), and culture plays a key role in determining how well an individual fits into an organisational framework (Rousseau, 1990). When individual values and priorities match the values and priorities of a particular organisation the individual is happier and will be more likely to maintain an association with that organisation. Value systems offer detailed and comprehensive justifications both for suitable associate behavior and for the activities and functions of the system (Enz 1988). Organizational values are often considered as a group or collective product (Schein 1985), and while all members of the group may not hold the same values they will support a given value. A common value system will then come into existence when key values and behaviors are shared in an organisation. In different cultures production synergies are possible when there is language or religious affinity. It is difficult to take advantage of management and technical know-how transfers in different cultural contexts and these results in lower efficiency and performance (Bartlett and Ghoshal 1990; Jain 1989). Firms that effectively manage their workforce through diversity management practices experience positive outcomes. For the above reason there is great need for effective supervisors to intervene and guide the individuals and groups in diversity initiatives. A good or effective supervisor is one who is approachable, communicable, willing and empathetic listener, oriented towards asking and persuading, not demanding and sensitive t the feelings of his subordinates (Dansereau & Markham, 1987). There is no doubt that these qualities pave the way for excellent diversity planning. The long term strategy in diversity lies in mentoring. Organisations are now introducing Mentoring programmes as the means for creating new opportunities for open communications between employees. This is also beneficial in introducing newcomers joining the company and integrating with the corporate culture. These organizations range from professional associations to educational institutions, and their initiatives range from the formation of ad hoc committees on mentoring and the adoption of resolutions on mentoring programs (Gaudino, 1996) to the inclusion of mentoring as a strategy for achieving institutional objectives in universitys six-year plan (Six-Year Plan, 1995). Bibliography Barley, Stephen R., Gordon W. Meyer, and Debra C. Gash., (1988), "Cultures of culture: Academics, practitioners, and the pragmatics of normative control." Administrative Science Quarterly, 33: pp 24-60. 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