Why Do International Companies Use Expatriate Managers?

Topics: Globalization, Multinational corporation, Management Pages: 13 (3927 words) Published: January 18, 2011
Long before the globalisation, the internet and advanced telecommunications many companies with an international orientation have applied expatriate managers - some even since the early days of international trade. The theme for this essay is critically to evaluate the reasons why international companies continue to use expatriate managers even though it is a very expensive option.

The term expatriate originates from the Latin words ex patria (out of fatherland) and refers to an employee from one country that temporarily works and resides in another. Expatriates may either be send out for assignments from the parent company as parent-country nationals (PCNs), send in as an ‘inpatriate’ to the parent company from the host country subsidiary as host-country nationals (HCNs) or send from one to another third country subsidiary as third-country nationals (TCNs). Referring to the resource-based school, emphasizing the importance of organization-specific resources, the HRM strategy of using expatriate managers is an ‘inside out’ strategy based on the human capital and capabilities of expatriate managers in acquiring a competitive edge by levering company core competences in new markets. An expatriate is typically an employee with a management and/or a technical key competence, or a younger employee with a high potential. In 2005, 54 percent of US-expatriates were between the age of 20 and 39 (HR Magazine, 2006). The 11.annual GMAC Global Relocation Survey in 2005 found that women accounted for 23 percent of international assignees, up 5 percent from the 2004 survey. Referring to Janssens et al. (2006), “all foreigners are foreigners regardless of their sex, meaning that female expatriates are not associated with local women but rather with male expatriates.” The usual length of long-term assignments is up to 3 years for 57% of companies and up to 1 year for 55% of companies by short-term assignments (Knapp, 2010). However, short-term ‘commute’ assignments, where a spouse and any children remain at home, are gradually increasing. Besides good health, important personal characteristics for a successful expatriate are soft skills (Barham & Antal, 1994) like the understanding and the ability to adapt into a foreign culture, demonstrating good emotional intelligence for building relationships and for working in international teams. Professionally an expatriate manager must process strategic awareness, a contextual intelligence (Mayo & Nohria, 2005) and the ability to think ‘outside the box’. As well, the necessary leadership, management, entrepreneur and language skills are required for acting as a change agent. From an HRM point of view, further prerequisites for a successful expatriation are clear defined success criteria, clear reporting lines and a close contact and back-up from parent company, including a plan for repatriation. Last but not least, a successful adjustment of any family into the foreign country is crucial for a successful expatriation.

Although the theme of the essay basically is a postulate, the validity is supported by a recent report from the Economist Intelligence Unit[1] concluding that four out of ten international companies actually plan to increase their expatriate staff over the next five years. An earlier study from 2006 also showed that ‘47 percent of US-companies reported an increase in the size of their expatriate population from the last year and 54 percent expect additional growth this year’ (HR Magazine, 2006). Even stronger support is referred by Knapp (2010) with an increase over 2 years of 63 percent in companies using long-term assignments and 67 percent increase in companies using short-term assignments. However, studies also show high expatriate failure rates. From 20-40 percent (Mendenhall, Dunbar & Oddou, 1987; Dowling, et. al., 1999; Forster, 1997) to 40-55 percent (Johnson et. al., 2006) and the reasons are many! From inadequate selection criteria, lack of training and family...
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