FOREIGN MANAGERIAL TRANSFERS
FOREIGN MANAGERIAL TRANSFERS
Some Definitions
International firms commonly categorize managers as locals (citizens of the countries where they are working) or expatriates (noncitizens). The expatriate group is further categorized as home-country and third-country nationals. These are, respectively, citizens of the country where the company is headquartered and citizens neither of the country where they are working nor of the headquarters country of the firm. Locals or expatriates may be employed in the firm's home country or in the firm's foreign operations.
Expatriates: A Minority of Managers
Most managerial positions are filled by locals rather than expatriates in both headquarters or foreign subsidiary operations. The one exception is for project management in some developing countries, such as Saudi Arabia, where there is an acute shortage of qualified local candidates.
2010 put Spanish clearly in front with 44 percent of responses. Japanese followed at 33 percent. The only other languages receiving at least a 1 percent response were French (8), Chinese (6), German (5), and Russian (l).8
Isolation
A foreign subsidiary manager must be able to work independently because many staff functions are eliminated abroad to reduce the cost of duplication. At headquarters a manager can easily walk to the next office or make a few telephone calls to get advice from specialists. The subsidiary manager, however, ends up relying much more heavily on personal judgment.
Headquarters personnel traveling abroad may face the same problems of isolation as foreign subsidiary managers, with additional isolation in their personal lives. Although many domestic positions require traveling, the domestic trips are apt to be of shorter duration because of the greater ease of returning home for weekends. One international executive presented this humorously:
Often you won't be able to plan in advance when you are leaving on business or when you will return. Being present at birthdays, school plays, anniversaries, family reunions, and other events may become the exception instead of the rule. While you're away, mortgage payments will probably be due, the MasterCard bill will arrive, the furnace will fail, your child will get chicken pox, the IRS will schedule a full audit, the family car will be totaled, and your spouse will sue for divorce.9
Mobility Many people, regardless of nationality, simply do not want to work in a foreign country; this is particularly true if an assignment is perceived to be permanent or very long term. In many cases companies have had to set up special operating units to employ people who will not work where the company would prefer. For instance, this has been a motive for setting up R&D labs and regional staff offices abroad when the personnel refused to move to the global headquarters country.
The cost of using expatriates is another factor firms must face* in filling managerial positions. Firms typically pay for moving expenses (including customs duties on household effects), settling-in expenses (such as the cost of adapting appliances to foreign electrical systems), and storage expenses for goods not shipped abroad, since employers may balk at moving pianos, antiques, boats, and hobby equipment. Generally it is more expensive for firrris to maintain expatriates than local managers after the transfer. There are legal impediments as well, such as licensing requirements that prevent the use of foreign-trained accountants and lawyers and immigration restrictions that cause delays in filling positions. Since governmental regulations and their enforcement may change drastically and quickly, firms face considerable uncertainty.
Local Competitive Needs The greater the need for local adaptations, the more advantageous it is for firms to use local management since they presumably understand local conditions better than someone from outside the country. These needs may arise because of unique environmental conditions, barriers to imports, or the existence of strong local competitors or customers.
The Local Image Sometimes it is useful for the firm to create a local image for foreign operations, especially when there is animosity toward foreign-controlled operations. Local management may be perceived locally as "better citizens" because they presumably put local interests ahead of the companies' global objectives. This local image may play a role in employee morale as well, since many subsidiary employees prefer to work for someone from their own country.10
Incentives to Local Personnel Proponents of employing local nationals sometimes argue that the possibility of advancement provides an incentive to employees to perform well; without this incentive, it is contended, they may seek employment with other firms. Opponents argue that practices restricting the best qualified people, regardless of nationality, from positions are even more damaging to employee motivation. Anyone in the organization, they say, should have the opportunity to move up to any post, including positions in the corporate headquarters.
Long-Term Objectives Since people transferred to subsidiaries usually expect to be there for only a few years, they are often more anxious than local
nationals to choose short-term projects that will materialize during their tenure in the foreign location.11 In producing highly visible and measurable results that help satisfy personal advancement needs when the foreign assignment is terminated, they may not be best serving the longer-range corporate goals. Local nationals who stay on for a longer duration therefore may take more heed of long-term objectives because of the probability of still working there when the instituted practices are completed.
Reasons for Using Expatriates
Despite expatriate managers being a minority of total managers within international firms, there are still several hundred thousand employed worldwide.
Technical Competence The major reason companies use expatriate employees is that they cannot find local candidates who have the technical qualifications for the job. This is partly a function of the level of development of the country; thus expatriates constitute a much smaller portion of subsidiary managers in industrial than in developing countries. It is also a function of the need to infuse new home-country developments abroad. When, for example, there is a transference of new products or new production methods, especially in start-up operations, there is usually a need for transfers of home-country personnel to subsidiaries or of subsidiary personnel to the home country until the changes are running smoothly.
Management Development MNEs transfer foreigners into their home country or regional operations and transfer home-country nationals abroad to train them to understand the overall corporate system.12 In firms with specialized activities only in certain countries (extraction separated from manufacturing, for example, or basic R&D separate from applied), long-term foreign assignments may be the only means of developing a manager's integrative competence. These moves also enhance managers' ability to work in a variety of social systems and are therefore valuable training for ultimate corporate responsibility, including domestic and foreign operations.
Control MNEs use transfers and visits to subsidiaries to control the foreign operations and coordinate organizational development. These goals are accomplished because the people who are transferred are used to doing things the headquarters way and because frequent transfers let them increase their knowledge of the company's global network.13 Likewise, foreign nationals may spend time at worldwide or regional headquarters, thereby giving a foreign perspective to the firm's global direction. Through the greater interchange brought about by moves of both home- and host-country nationals, a new hybrid corporate culture, or at least an understanding and acceptance of global corporate goals, can become a means of controlling the company's operations.14
Where there is more of a global strategy, there is a need to use more expatriates for control purposes. They are or become generally more familiar with the complexities of the business family system as a whole and tend not to see their own personal development in terms of what happens only in the country to which they are assigned.15
Home-Country versus Third-Country Nationals
Most advances in technology, product, and operating procedures originate in the home country and are transferred into foreign operations later. Since the use of expatriates in foreign facilities is dictated in part by a desire to infuse new methods, the personnel with recent home-country experience (usually home-country citizens) are apt to have the desired qualifications.
However, third-country nationals might sometimes have more compatible technical and personal adaptive qualifications than home-country expatriates. For example, a U.S. company used U.S. personnel to design and manage a Peruvian plant until local managers could be trained. Years later, the firm decided to manufacture in Mexico with a plant more closely resembling the Peruvian operations than those in the United States in terms of size, product qualities, and factor inputs. Therefore, Spanish-speaking Peruvian managers were adaptive and were used effectively in planning, start-up, and early operating phases in Mexico.
Some Individual Considerations for Transfers
Technical Competence Unless the foreign assignment is clearly intended for training the expatriate, local employees will resent someone coming in from a foreign country (usually at higher compensation) who, they feel, is no more qualified than they are. The opinions of corporate-transfer decision makers, expatriate managers, and local managers all confirm that job-ability factors are the most important determinants of success in overseas assign- ments.16 Although a variety of additional skills is important for success in an overseas assignment, the expatriate must know the technical necessities of the tasks as performed in the home country and be able to adapt to foreign variations, such as scaled-down plants and equipment, varying standards of productivity, lack of efficient internal distribution, nonavailability of credit, and restrictions on type of communications media selected. He or she must also be fully aware of corporate policies so that foreign decisions are compatible with global philosophies. For these reasons, managers usually have several years' work experience with a company before being offered a foreign assignment.
Adaptiveness Although some firms rely only on technical competence criteria in the selection of expatriates, three types of adaptive skills are important for success when entering a new culture. First, there are skills needed for selfmaintenance, such as stress reduction and self-confidence. Second, there are skills related to the development of satisfactory relationships with host nationals. Third, there are cognitive skills that help one to perceive correctly what is occurring within the host society.17 When lacking any one of these, one may not be able to function effectively. At an extreme, the expatriate may leave, either through his or her own choice or by a company decision.
Estimates vary widely on the percentage of families transferred abroad who return home prematurely or perform ineffectively because of adjustment problems. Nevertheless, the costs to international firms are generally consid- ered to be high. There are direct transfer costs and costs of lost performance because of the employee's or family's adjustment problems.18 An interna-
tional move usually means a great disruption in a family's current way of living, especially since the greatest shortage of managers is in the LDCs, and a major reason for failure in a foreign assignment is the family's inability to adjust. A move means new living and shopping habits, new school systems, and unfamiliar business practices. In addition, close friends and relatives— the personal support system—are left behind. Because some individuals do enjoy and adapt easily to a foreign way of life, it is preferable to use them if possible when transfers are necessary. Some firms maintain a specific group of international employees who are the only ones assigned abroad. A distinction needs to be made between a foreign assignment of fixed
duration and one that is open-ended. Many more people can cope with a position abroad if they know that they will return home after a specific period of time than if the assignment may turn out to be permanent.
Local Acceptance Expatriates may encounter some acceptance problems regardless of who they are. For instance, it usually takes time for managers to gain recognition of their personal authority, and expatriates may not be there long enough to achieve this. Local employees may feel that the best jobs are given to overpaid foreigners. The expatriate may have to make unpopular decisions in order to meet global objectives. Or local management may have had experiences with expatriates who made short-term decisions and left before dealing with the longer-term implications.19 If negative stereotypes are added to these attitudes, it may be very difficult for the expatriate to succeed. Therefore, certain individuals are often excluded from consideration for transfer: A black manager in South Africa, a Jewish manager in Libya, a very young manager in Japan, or a female manager in Saudi Arabia, for example, might encounter insurmountable problems in dealing with employees, suppliers, and customers. The U.S. Supreme Court ruled in 1991 that the federal law barring discrimination in employment does not apply to foreign operations of U.S. companies; however, there is considerable public opinion and congressional support for a new law that will extend antidiscrimination measures abroad.20
But do companies overreact to these acceptance problems? Take stereotypes of women, for example: They should not give orders to men, they are temperamental, their place is in the home, clients will not accept them, employees will not take them seriously, they don't have the stamina to work in harsh areas, they will not be given work permits, they don't want to upset their husbands' careers. In response to these stereotypes, firms give very few expatriate positions to women. Yet, there are women who have succeeded as expatriates, primarily in service rather than industrial products industries, in such places as Japan, Thailand, and India because they were first seen as foreigners and then as women.21 Some suggestions have been made to improve the acceptability of women as expatriates that may be applied as wefl to improve the acceptability of other groups. These include the selection of very well-qualified older, midcareer women who could command more authority; the advance dissemination of information concerning the high qualifications; the placement of expatriate women in locations where there are already some local women in management positions; and the establishment of longer than normal assignments in order to develop role models of acceptance.22
Post-Expatriate Situations
Repatriation Problems Problems with repatriation from foreign subsidiary assignments arise in three general areas: (1) personal finances, (2) readjustment to home-country corporate structure, and (3) readjustment to life at home. Expatriates are given many financial benefits to encourage them to accept a foreign assignment. While abroad they may live in the best neighborhoods, send their children to the best private schools, socialize with the upper class, and still save more money than before. But this higher life-style is lost on return: An estimated 50 percent increase in salary would be necessary to maintain the same standard of living in the United States that U.S. executives enjoy overseas. Returning expatriates often find that many of their peers have been promoted above them in their absence, that they now have less autonomy in the job, and that they are now "little fish in a big pond." In addition to a drop in social status on return, many families that have successfully adjusted to a foreign life-style have problems in readjusting to schools and other aspects of life in their home countries. Some suggestions for smoothing the reentry include early advice of return, maximum information on the new job, housing assistance, a reorientation program, bringing the expatriate manager back to headquarters frequently, and the use of a formal headquarters mentor who will look after the manager's interests while he or she is an expatriate.23
Career Movements What an overseas assignment means to one's career varies widely. Studies based on the opinions of repatriated employees and of career paths of top executives illustrate that a foreign assignment is most likely to have a neutral effect on one's long-term career; however, foreign assignments have had positive or detrimental effects for significant numbers
of former expatriates as well.24 In addition to individual differences, differences exist by company, depending on such factors as the commitment to foreign operations, the integration between domestic and international activities, and the communications linkages between headquarters and subsidiary personnel. Figure 21.1 illustrates the diversity found in one study.
For companies with a very high commitment to global operations, mul-ticountry experience may be as essential as multifunctional and multiproduct experience in reaching upper-echelon organizational levels. The opening case on Dow illustrates such a situation. Unilever's chairman described his firm's situation as follows: "Most people who rise toward the top of our business will have worked in at least two countries, probably three. They will probably speak another language, but I think that is more a symbol of internationalism than a necessity. And they almost certainly will have worked in different product areas, say, in chemicals and in food. By the time they reach the critical age when management will decide if they are going to the top or not, they are extremely well prepared."25
Some companies with high international commitments, nevertheless, so separate foreign and domestic operations that the corporation functions almost as two separate companies. If the domestic business is dominant, there may not only be little interchange of personnel, there may be little advancement of personnel with international experience to top-level positions. General Motors pointed out how career-enhancing foreign work experience was in its organization because three of its eighteen top executives had foreign assignment tours.26 That 83 percent of the executives succeeded without the foreign experience does not seem to indicate a great career enhancement from international assignments. Nevertheless, this has not daunted GM's foreign success: It is one of the largest U.S. exporters; its overseas production, espedally in the United Kingdom and Germany, is highly competitive. Its personnel and organization policies are compatible because of its largely multidomestic strategy; nevertheless, GM in 1989 instituted a policy of sending ten U.S. mid-level managers per year abroad for three to twelve months and increased the number to twenty in 1990 (out of about 100,000 salaried U.S. domestic employees).27
But very few people reach the top rungs of large companies, with or without foreign work experience. Some companies, particularly those with international divisions, depend heavily on a cadre of international specialists who may either rotate between foreign locations and international headquarters assignments or spend most of their careers abroad. Although not reaching the top levels of the parent corporations, they can reach plateaus above most domestic managers in terms of compensation and responsibility. Many people with a penchant for international living do not aspire to anything different.
Within some companies, there is a high career risk through foreign assignments, regardless of corporate executives' statements to the contrary. In one candid appraisal, a Ford Motor Company vice president said, "For the vast majority of people [in middle and senior-middle management] at Ford, foreign assignments are a career negative." This may come about for two reasons. First, there may be little provision to fit someone into the domestic or headquarters organization upon repatriation. One's old office simply does not stay vacant while one is abroad for several years; thus, the repatriated employee cannot easily bump the replacement. A senior engineer working for Westinghouse in Belgium described his finding a job with Westinghouse in the U.S. as the same as when he first applied to the company while in college.28 Second, some "out of sight, out of mind" may come into play. A General Dynamics executive said he would never have known about domestic openings if a friend had not kept him apprised of the organization's promotional pipeline.29 Reentry is further complicated if the expatriate is on lengthy assignment where older technologies and corporate policies are practiced.
When repatriated employees have career problems, it becomes more difficult to convince other people to take foreign assignments. Some companies simply explain the career risk and compensate employees so highly that they are enticed to become expatriates anyway. To combat the problem, more companies (but still a minority) are integrating foreign assignment into career planning and are developing mentor programs to look after the expatriates' domestic interests.30 Very few firms make written guarantees that repatriated employees will come back to jobs at least as good as the ones they left, as does Dow .in the opening case. Companies don't make such a guarantee of a future position to their domestic managers either.
Foreign nationals who are transferred to headquarters sometimes confront a different problem. If the assignment is a promotion from a manager's subsidiary post rather than part of a planned rotation, then the move to headquarters may be permanent. For example, the Brazilian head of the Brazilian subsidiary may have performed so well that the MNE wants to give that manager multicountry responsibility at the corporate offices in New York or Frankfurt. Since there would be no way to go back to Brazil without taking a demotion, the Brazilian manager might turn down the transfer; otherwise, he or she would give up working in the home country permanently.
Expatriate Compensation
If a U.S. company transfers its British finance manager, who is making $50,000 per year, to Italy where the going rate is $60,000 per year, what should the manager's salary be? Or if the Italian financial manager were to be transferred to the United Kingdom, what pay should be offered? Should the compensation be in dollars, pounds, or lira? Whose holidays should apply? Which set of fringe benefits should be used? These are but a few of the many questions that must be solved when firms move people abroad. On the one hand, the firm must try to prevent excessive costs; on the other hand, it must maintain high employee morale.
The amount and type of compensation necessary to entice a person to move to another country vary widely by person and locale. For companies with very few expatriate employees a foreign compensation package may be worked out on an individual basis. As international activities grow, a company cannot work out each movement this way. Questions of equity would be raised, since two people with different pay packages could end up in the same locale. As long as consistency is sought in transfer policy, some people inevitably will receive more than would be necessary to entice them to go abroad. Overall, the package may multiply the compensation cost in comparison with what the expatriate had been making domestically. Table 21.1 illustrates a typical package.
Cost Of Living Most people who move to another country encounter cost-of-living increases (sometimes called a goods-and-services differential), primarily because they are used to living in a certain manner that is expensive to duplicate in a new environment. Habits are difficult to change. Knowledge of the local country is a second consideration. Food and housing may be obtained at higher than the local rate because expatriates may not know the language well, where to buy, or how to bargain for reductions.
Most firms adjust salaries upward with a differential to account for higher costs while living abroad. When returning home, the differential is removed. When moves are to areas with a lower cost of living, firms rarely reduce the size of the employee's paycheck, since this would have a negative impact on morale; thus the expatriate may receive a windfall. Companies rely on estimates of cost-of-living differences, even though they do not fit everyone's situation perfectly. Some commonly used sources are the U.S. State Department's cost-of-living index published yearly in Labor Developments
Abroad, the U.N. Monthly Bulletin of Statistics, and surveys by the Financial Times, Business International, and the International Monetary Fund Staff Papers. In using any of these indexes, firms must determine what items are included so as to adjust other expenditures separately. Some items commonly handled separately are housing, schooling, and taxes. The ultimate objective of cost-of-living adjustments is to ensure the expatriates' after-tax income will not suffer as a result of a foreign assignment. Because taxes are usually assessed on the overseas premiums in addition to the base salaries, the premiums must be adjusted even further upward if the foreign tax is higher than in the home country. In Sweden it is sometimes less expensive for expatriates to commute daily by plane from Germany rather than be subject to the Swedish personal income taxes, which are among the highest in the world. Since differences in inflation and exchange rates may quickly render surveys and indexes obsolete, it is necessary to update cost-of-living adjustments frequently.
A suggestion often made but seldom followed is that cost-of-living differentials be reduced the longer the employees are in a given country. The rationale is that, as expatriates become better assimilated, they should be able
Job-Status Payment Some employees may not accept a position abroad unless it is considered to be a promotion, and a promotion without a pay increase is considered inequitable by most people. Because expatriates com- ^ eqmty 0f trieir compensation with other managers in both the coun-
try to which they are sent and the country of which they are citizens, companies will also normally temporarily raise the salary for individuals while they are working in a country where the going rate for the job is higher than in the home country.
Foreign-Service Premiums and Hardship Allowances There are bound Employees may encoun- to be things employees will have to do without when living abroad. Such sacrifices range from nuisance to hardship. For example, employees may miss following particular sports results, certain foods, a holiday celebration, or television in the native language. Or children may have to attend school away from home, perhaps even in another country. There is also the problem of adjusting to a new culture, which may cause adverse psychological effects and social frustrations. Given these adjustments, firms frequently give foreign-service premiums just for being posted in a foreign location; however, there has been some tendency to eliminate these in so-called world capitals where there is assumed to be little deprivation and where it is not difficult to get people to transfer.
Few would deny that living conditions in certain locations present particularly severe hardships, such as harsh climatic or health conditions or political insurrection or unrest that places the employee and family in danger. For instance, in recent years, antigovernment groups kidnapped for ransom expatriate employees of such companies as Ford, Kodak, and Owens-Illinois. In fact, the growing incidence of kidnapping and terrorism has caused firms not only to rethink their hardship allowances, but also to purchase ransom insurance and to embark on training programs to advise personnel and families of dangers and how to deal with them. Corporations have been hit by legal suits from victims' families, which have alleged that companies mishandled ransom negotiations. Firms also have been hit by shareholder suits claiming that the company should not pay ransoms.31
Finally, a hardship may occur because of potential changes in total family income and status. In the home country, all members of the family may be able to work. Seldom will more than the transferred employee be given permission to work in a foreign country, so if an individual is moved abroad, his or her spouse (or live-in companion) may have to give up well-paying and satisfying employment.32 Firms realize that changes in location present various types of hardship problems and attempt to compensate their employees accordingly.
Choice of Currency Expatriate employees' salaries are usually (but not always) paid partly in local currency and partly in the currency of the employee's home country. This allows employees to save in their home countries and often to forgo host-country taxes on the home-country portion of income. Some other factors influencing the preference for payment in home versus host currencies include whether hard currency expenditures can be charged to the local operation, whether exchange control exists, and whether the expatriate can receive more local currency by exchanging the hard currency through a free market.
Remote Areas Many large-scale international projects are in areas so remote that MNEs would get few people to transfer if the companies did not create an environment more like the one at home or make other special arrangements. Lockheed Aircraft, for example, set up its own color television broadcasting station in Saudi Arabia for its expatriates there. INCO built schools, hospitals, churches, supermarkets, a golf course, yacht club, motel, and restaurant for its expatriates in Indonesia.33
Expatriate employees in these remote areas are often handled very differently from those in other locales. To attract the large number of people necessary for construction and start-up, MNEs will usually offer fixed-term contract assignments at high salary and hire most people from outside the firm. Some are attracted to these assignments and are willing to undergo different living conditions because they can save at a rate that would be impossible at home.
Some Definitions
International firms commonly categorize managers as locals (citizens of the countries where they are working) or expatriates (noncitizens). The expatriate group is further categorized as home-country and third-country nationals. These are, respectively, citizens of the country where the company is headquartered and citizens neither of the country where they are working nor of the headquarters country of the firm. Locals or expatriates may be employed in the firm's home country or in the firm's foreign operations.
Expatriates: A Minority of Managers
Most managerial positions are filled by locals rather than expatriates in both headquarters or foreign subsidiary operations. The one exception is for project management in some developing countries, such as Saudi Arabia, where there is an acute shortage of qualified local candidates.
2010 put Spanish clearly in front with 44 percent of responses. Japanese followed at 33 percent. The only other languages receiving at least a 1 percent response were French (8), Chinese (6), German (5), and Russian (l).8
Isolation
A foreign subsidiary manager must be able to work independently because many staff functions are eliminated abroad to reduce the cost of duplication. At headquarters a manager can easily walk to the next office or make a few telephone calls to get advice from specialists. The subsidiary manager, however, ends up relying much more heavily on personal judgment.
Headquarters personnel traveling abroad may face the same problems of isolation as foreign subsidiary managers, with additional isolation in their personal lives. Although many domestic positions require traveling, the domestic trips are apt to be of shorter duration because of the greater ease of returning home for weekends. One international executive presented this humorously:
Often you won't be able to plan in advance when you are leaving on business or when you will return. Being present at birthdays, school plays, anniversaries, family reunions, and other events may become the exception instead of the rule. While you're away, mortgage payments will probably be due, the MasterCard bill will arrive, the furnace will fail, your child will get chicken pox, the IRS will schedule a full audit, the family car will be totaled, and your spouse will sue for divorce.9
Mobility Many people, regardless of nationality, simply do not want to work in a foreign country; this is particularly true if an assignment is perceived to be permanent or very long term. In many cases companies have had to set up special operating units to employ people who will not work where the company would prefer. For instance, this has been a motive for setting up R&D labs and regional staff offices abroad when the personnel refused to move to the global headquarters country.
The cost of using expatriates is another factor firms must face* in filling managerial positions. Firms typically pay for moving expenses (including customs duties on household effects), settling-in expenses (such as the cost of adapting appliances to foreign electrical systems), and storage expenses for goods not shipped abroad, since employers may balk at moving pianos, antiques, boats, and hobby equipment. Generally it is more expensive for firrris to maintain expatriates than local managers after the transfer. There are legal impediments as well, such as licensing requirements that prevent the use of foreign-trained accountants and lawyers and immigration restrictions that cause delays in filling positions. Since governmental regulations and their enforcement may change drastically and quickly, firms face considerable uncertainty.
Local Competitive Needs The greater the need for local adaptations, the more advantageous it is for firms to use local management since they presumably understand local conditions better than someone from outside the country. These needs may arise because of unique environmental conditions, barriers to imports, or the existence of strong local competitors or customers.
The Local Image Sometimes it is useful for the firm to create a local image for foreign operations, especially when there is animosity toward foreign-controlled operations. Local management may be perceived locally as "better citizens" because they presumably put local interests ahead of the companies' global objectives. This local image may play a role in employee morale as well, since many subsidiary employees prefer to work for someone from their own country.10
Incentives to Local Personnel Proponents of employing local nationals sometimes argue that the possibility of advancement provides an incentive to employees to perform well; without this incentive, it is contended, they may seek employment with other firms. Opponents argue that practices restricting the best qualified people, regardless of nationality, from positions are even more damaging to employee motivation. Anyone in the organization, they say, should have the opportunity to move up to any post, including positions in the corporate headquarters.
Long-Term Objectives Since people transferred to subsidiaries usually expect to be there for only a few years, they are often more anxious than local
nationals to choose short-term projects that will materialize during their tenure in the foreign location.11 In producing highly visible and measurable results that help satisfy personal advancement needs when the foreign assignment is terminated, they may not be best serving the longer-range corporate goals. Local nationals who stay on for a longer duration therefore may take more heed of long-term objectives because of the probability of still working there when the instituted practices are completed.
Reasons for Using Expatriates
Despite expatriate managers being a minority of total managers within international firms, there are still several hundred thousand employed worldwide.
Technical Competence The major reason companies use expatriate employees is that they cannot find local candidates who have the technical qualifications for the job. This is partly a function of the level of development of the country; thus expatriates constitute a much smaller portion of subsidiary managers in industrial than in developing countries. It is also a function of the need to infuse new home-country developments abroad. When, for example, there is a transference of new products or new production methods, especially in start-up operations, there is usually a need for transfers of home-country personnel to subsidiaries or of subsidiary personnel to the home country until the changes are running smoothly.
Management Development MNEs transfer foreigners into their home country or regional operations and transfer home-country nationals abroad to train them to understand the overall corporate system.12 In firms with specialized activities only in certain countries (extraction separated from manufacturing, for example, or basic R&D separate from applied), long-term foreign assignments may be the only means of developing a manager's integrative competence. These moves also enhance managers' ability to work in a variety of social systems and are therefore valuable training for ultimate corporate responsibility, including domestic and foreign operations.
Control MNEs use transfers and visits to subsidiaries to control the foreign operations and coordinate organizational development. These goals are accomplished because the people who are transferred are used to doing things the headquarters way and because frequent transfers let them increase their knowledge of the company's global network.13 Likewise, foreign nationals may spend time at worldwide or regional headquarters, thereby giving a foreign perspective to the firm's global direction. Through the greater interchange brought about by moves of both home- and host-country nationals, a new hybrid corporate culture, or at least an understanding and acceptance of global corporate goals, can become a means of controlling the company's operations.14
Where there is more of a global strategy, there is a need to use more expatriates for control purposes. They are or become generally more familiar with the complexities of the business family system as a whole and tend not to see their own personal development in terms of what happens only in the country to which they are assigned.15
Home-Country versus Third-Country Nationals
Most advances in technology, product, and operating procedures originate in the home country and are transferred into foreign operations later. Since the use of expatriates in foreign facilities is dictated in part by a desire to infuse new methods, the personnel with recent home-country experience (usually home-country citizens) are apt to have the desired qualifications.
However, third-country nationals might sometimes have more compatible technical and personal adaptive qualifications than home-country expatriates. For example, a U.S. company used U.S. personnel to design and manage a Peruvian plant until local managers could be trained. Years later, the firm decided to manufacture in Mexico with a plant more closely resembling the Peruvian operations than those in the United States in terms of size, product qualities, and factor inputs. Therefore, Spanish-speaking Peruvian managers were adaptive and were used effectively in planning, start-up, and early operating phases in Mexico.
Some Individual Considerations for Transfers
Technical Competence Unless the foreign assignment is clearly intended for training the expatriate, local employees will resent someone coming in from a foreign country (usually at higher compensation) who, they feel, is no more qualified than they are. The opinions of corporate-transfer decision makers, expatriate managers, and local managers all confirm that job-ability factors are the most important determinants of success in overseas assign- ments.16 Although a variety of additional skills is important for success in an overseas assignment, the expatriate must know the technical necessities of the tasks as performed in the home country and be able to adapt to foreign variations, such as scaled-down plants and equipment, varying standards of productivity, lack of efficient internal distribution, nonavailability of credit, and restrictions on type of communications media selected. He or she must also be fully aware of corporate policies so that foreign decisions are compatible with global philosophies. For these reasons, managers usually have several years' work experience with a company before being offered a foreign assignment.
Adaptiveness Although some firms rely only on technical competence criteria in the selection of expatriates, three types of adaptive skills are important for success when entering a new culture. First, there are skills needed for selfmaintenance, such as stress reduction and self-confidence. Second, there are skills related to the development of satisfactory relationships with host nationals. Third, there are cognitive skills that help one to perceive correctly what is occurring within the host society.17 When lacking any one of these, one may not be able to function effectively. At an extreme, the expatriate may leave, either through his or her own choice or by a company decision.
Estimates vary widely on the percentage of families transferred abroad who return home prematurely or perform ineffectively because of adjustment problems. Nevertheless, the costs to international firms are generally consid- ered to be high. There are direct transfer costs and costs of lost performance because of the employee's or family's adjustment problems.18 An interna-
tional move usually means a great disruption in a family's current way of living, especially since the greatest shortage of managers is in the LDCs, and a major reason for failure in a foreign assignment is the family's inability to adjust. A move means new living and shopping habits, new school systems, and unfamiliar business practices. In addition, close friends and relatives— the personal support system—are left behind. Because some individuals do enjoy and adapt easily to a foreign way of life, it is preferable to use them if possible when transfers are necessary. Some firms maintain a specific group of international employees who are the only ones assigned abroad. A distinction needs to be made between a foreign assignment of fixed
duration and one that is open-ended. Many more people can cope with a position abroad if they know that they will return home after a specific period of time than if the assignment may turn out to be permanent.
Local Acceptance Expatriates may encounter some acceptance problems regardless of who they are. For instance, it usually takes time for managers to gain recognition of their personal authority, and expatriates may not be there long enough to achieve this. Local employees may feel that the best jobs are given to overpaid foreigners. The expatriate may have to make unpopular decisions in order to meet global objectives. Or local management may have had experiences with expatriates who made short-term decisions and left before dealing with the longer-term implications.19 If negative stereotypes are added to these attitudes, it may be very difficult for the expatriate to succeed. Therefore, certain individuals are often excluded from consideration for transfer: A black manager in South Africa, a Jewish manager in Libya, a very young manager in Japan, or a female manager in Saudi Arabia, for example, might encounter insurmountable problems in dealing with employees, suppliers, and customers. The U.S. Supreme Court ruled in 1991 that the federal law barring discrimination in employment does not apply to foreign operations of U.S. companies; however, there is considerable public opinion and congressional support for a new law that will extend antidiscrimination measures abroad.20
But do companies overreact to these acceptance problems? Take stereotypes of women, for example: They should not give orders to men, they are temperamental, their place is in the home, clients will not accept them, employees will not take them seriously, they don't have the stamina to work in harsh areas, they will not be given work permits, they don't want to upset their husbands' careers. In response to these stereotypes, firms give very few expatriate positions to women. Yet, there are women who have succeeded as expatriates, primarily in service rather than industrial products industries, in such places as Japan, Thailand, and India because they were first seen as foreigners and then as women.21 Some suggestions have been made to improve the acceptability of women as expatriates that may be applied as wefl to improve the acceptability of other groups. These include the selection of very well-qualified older, midcareer women who could command more authority; the advance dissemination of information concerning the high qualifications; the placement of expatriate women in locations where there are already some local women in management positions; and the establishment of longer than normal assignments in order to develop role models of acceptance.22
Post-Expatriate Situations
Repatriation Problems Problems with repatriation from foreign subsidiary assignments arise in three general areas: (1) personal finances, (2) readjustment to home-country corporate structure, and (3) readjustment to life at home. Expatriates are given many financial benefits to encourage them to accept a foreign assignment. While abroad they may live in the best neighborhoods, send their children to the best private schools, socialize with the upper class, and still save more money than before. But this higher life-style is lost on return: An estimated 50 percent increase in salary would be necessary to maintain the same standard of living in the United States that U.S. executives enjoy overseas. Returning expatriates often find that many of their peers have been promoted above them in their absence, that they now have less autonomy in the job, and that they are now "little fish in a big pond." In addition to a drop in social status on return, many families that have successfully adjusted to a foreign life-style have problems in readjusting to schools and other aspects of life in their home countries. Some suggestions for smoothing the reentry include early advice of return, maximum information on the new job, housing assistance, a reorientation program, bringing the expatriate manager back to headquarters frequently, and the use of a formal headquarters mentor who will look after the manager's interests while he or she is an expatriate.23
Career Movements What an overseas assignment means to one's career varies widely. Studies based on the opinions of repatriated employees and of career paths of top executives illustrate that a foreign assignment is most likely to have a neutral effect on one's long-term career; however, foreign assignments have had positive or detrimental effects for significant numbers
of former expatriates as well.24 In addition to individual differences, differences exist by company, depending on such factors as the commitment to foreign operations, the integration between domestic and international activities, and the communications linkages between headquarters and subsidiary personnel. Figure 21.1 illustrates the diversity found in one study.
For companies with a very high commitment to global operations, mul-ticountry experience may be as essential as multifunctional and multiproduct experience in reaching upper-echelon organizational levels. The opening case on Dow illustrates such a situation. Unilever's chairman described his firm's situation as follows: "Most people who rise toward the top of our business will have worked in at least two countries, probably three. They will probably speak another language, but I think that is more a symbol of internationalism than a necessity. And they almost certainly will have worked in different product areas, say, in chemicals and in food. By the time they reach the critical age when management will decide if they are going to the top or not, they are extremely well prepared."25
Some companies with high international commitments, nevertheless, so separate foreign and domestic operations that the corporation functions almost as two separate companies. If the domestic business is dominant, there may not only be little interchange of personnel, there may be little advancement of personnel with international experience to top-level positions. General Motors pointed out how career-enhancing foreign work experience was in its organization because three of its eighteen top executives had foreign assignment tours.26 That 83 percent of the executives succeeded without the foreign experience does not seem to indicate a great career enhancement from international assignments. Nevertheless, this has not daunted GM's foreign success: It is one of the largest U.S. exporters; its overseas production, espedally in the United Kingdom and Germany, is highly competitive. Its personnel and organization policies are compatible because of its largely multidomestic strategy; nevertheless, GM in 1989 instituted a policy of sending ten U.S. mid-level managers per year abroad for three to twelve months and increased the number to twenty in 1990 (out of about 100,000 salaried U.S. domestic employees).27
But very few people reach the top rungs of large companies, with or without foreign work experience. Some companies, particularly those with international divisions, depend heavily on a cadre of international specialists who may either rotate between foreign locations and international headquarters assignments or spend most of their careers abroad. Although not reaching the top levels of the parent corporations, they can reach plateaus above most domestic managers in terms of compensation and responsibility. Many people with a penchant for international living do not aspire to anything different.
Within some companies, there is a high career risk through foreign assignments, regardless of corporate executives' statements to the contrary. In one candid appraisal, a Ford Motor Company vice president said, "For the vast majority of people [in middle and senior-middle management] at Ford, foreign assignments are a career negative." This may come about for two reasons. First, there may be little provision to fit someone into the domestic or headquarters organization upon repatriation. One's old office simply does not stay vacant while one is abroad for several years; thus, the repatriated employee cannot easily bump the replacement. A senior engineer working for Westinghouse in Belgium described his finding a job with Westinghouse in the U.S. as the same as when he first applied to the company while in college.28 Second, some "out of sight, out of mind" may come into play. A General Dynamics executive said he would never have known about domestic openings if a friend had not kept him apprised of the organization's promotional pipeline.29 Reentry is further complicated if the expatriate is on lengthy assignment where older technologies and corporate policies are practiced.
When repatriated employees have career problems, it becomes more difficult to convince other people to take foreign assignments. Some companies simply explain the career risk and compensate employees so highly that they are enticed to become expatriates anyway. To combat the problem, more companies (but still a minority) are integrating foreign assignment into career planning and are developing mentor programs to look after the expatriates' domestic interests.30 Very few firms make written guarantees that repatriated employees will come back to jobs at least as good as the ones they left, as does Dow .in the opening case. Companies don't make such a guarantee of a future position to their domestic managers either.
Foreign nationals who are transferred to headquarters sometimes confront a different problem. If the assignment is a promotion from a manager's subsidiary post rather than part of a planned rotation, then the move to headquarters may be permanent. For example, the Brazilian head of the Brazilian subsidiary may have performed so well that the MNE wants to give that manager multicountry responsibility at the corporate offices in New York or Frankfurt. Since there would be no way to go back to Brazil without taking a demotion, the Brazilian manager might turn down the transfer; otherwise, he or she would give up working in the home country permanently.
Expatriate Compensation
If a U.S. company transfers its British finance manager, who is making $50,000 per year, to Italy where the going rate is $60,000 per year, what should the manager's salary be? Or if the Italian financial manager were to be transferred to the United Kingdom, what pay should be offered? Should the compensation be in dollars, pounds, or lira? Whose holidays should apply? Which set of fringe benefits should be used? These are but a few of the many questions that must be solved when firms move people abroad. On the one hand, the firm must try to prevent excessive costs; on the other hand, it must maintain high employee morale.
The amount and type of compensation necessary to entice a person to move to another country vary widely by person and locale. For companies with very few expatriate employees a foreign compensation package may be worked out on an individual basis. As international activities grow, a company cannot work out each movement this way. Questions of equity would be raised, since two people with different pay packages could end up in the same locale. As long as consistency is sought in transfer policy, some people inevitably will receive more than would be necessary to entice them to go abroad. Overall, the package may multiply the compensation cost in comparison with what the expatriate had been making domestically. Table 21.1 illustrates a typical package.
Cost Of Living Most people who move to another country encounter cost-of-living increases (sometimes called a goods-and-services differential), primarily because they are used to living in a certain manner that is expensive to duplicate in a new environment. Habits are difficult to change. Knowledge of the local country is a second consideration. Food and housing may be obtained at higher than the local rate because expatriates may not know the language well, where to buy, or how to bargain for reductions.
Most firms adjust salaries upward with a differential to account for higher costs while living abroad. When returning home, the differential is removed. When moves are to areas with a lower cost of living, firms rarely reduce the size of the employee's paycheck, since this would have a negative impact on morale; thus the expatriate may receive a windfall. Companies rely on estimates of cost-of-living differences, even though they do not fit everyone's situation perfectly. Some commonly used sources are the U.S. State Department's cost-of-living index published yearly in Labor Developments
Abroad, the U.N. Monthly Bulletin of Statistics, and surveys by the Financial Times, Business International, and the International Monetary Fund Staff Papers. In using any of these indexes, firms must determine what items are included so as to adjust other expenditures separately. Some items commonly handled separately are housing, schooling, and taxes. The ultimate objective of cost-of-living adjustments is to ensure the expatriates' after-tax income will not suffer as a result of a foreign assignment. Because taxes are usually assessed on the overseas premiums in addition to the base salaries, the premiums must be adjusted even further upward if the foreign tax is higher than in the home country. In Sweden it is sometimes less expensive for expatriates to commute daily by plane from Germany rather than be subject to the Swedish personal income taxes, which are among the highest in the world. Since differences in inflation and exchange rates may quickly render surveys and indexes obsolete, it is necessary to update cost-of-living adjustments frequently.
A suggestion often made but seldom followed is that cost-of-living differentials be reduced the longer the employees are in a given country. The rationale is that, as expatriates become better assimilated, they should be able
Job-Status Payment Some employees may not accept a position abroad unless it is considered to be a promotion, and a promotion without a pay increase is considered inequitable by most people. Because expatriates com- ^ eqmty 0f trieir compensation with other managers in both the coun-
try to which they are sent and the country of which they are citizens, companies will also normally temporarily raise the salary for individuals while they are working in a country where the going rate for the job is higher than in the home country.
Foreign-Service Premiums and Hardship Allowances There are bound Employees may encoun- to be things employees will have to do without when living abroad. Such sacrifices range from nuisance to hardship. For example, employees may miss following particular sports results, certain foods, a holiday celebration, or television in the native language. Or children may have to attend school away from home, perhaps even in another country. There is also the problem of adjusting to a new culture, which may cause adverse psychological effects and social frustrations. Given these adjustments, firms frequently give foreign-service premiums just for being posted in a foreign location; however, there has been some tendency to eliminate these in so-called world capitals where there is assumed to be little deprivation and where it is not difficult to get people to transfer.
Few would deny that living conditions in certain locations present particularly severe hardships, such as harsh climatic or health conditions or political insurrection or unrest that places the employee and family in danger. For instance, in recent years, antigovernment groups kidnapped for ransom expatriate employees of such companies as Ford, Kodak, and Owens-Illinois. In fact, the growing incidence of kidnapping and terrorism has caused firms not only to rethink their hardship allowances, but also to purchase ransom insurance and to embark on training programs to advise personnel and families of dangers and how to deal with them. Corporations have been hit by legal suits from victims' families, which have alleged that companies mishandled ransom negotiations. Firms also have been hit by shareholder suits claiming that the company should not pay ransoms.31
Finally, a hardship may occur because of potential changes in total family income and status. In the home country, all members of the family may be able to work. Seldom will more than the transferred employee be given permission to work in a foreign country, so if an individual is moved abroad, his or her spouse (or live-in companion) may have to give up well-paying and satisfying employment.32 Firms realize that changes in location present various types of hardship problems and attempt to compensate their employees accordingly.
Choice of Currency Expatriate employees' salaries are usually (but not always) paid partly in local currency and partly in the currency of the employee's home country. This allows employees to save in their home countries and often to forgo host-country taxes on the home-country portion of income. Some other factors influencing the preference for payment in home versus host currencies include whether hard currency expenditures can be charged to the local operation, whether exchange control exists, and whether the expatriate can receive more local currency by exchanging the hard currency through a free market.
Remote Areas Many large-scale international projects are in areas so remote that MNEs would get few people to transfer if the companies did not create an environment more like the one at home or make other special arrangements. Lockheed Aircraft, for example, set up its own color television broadcasting station in Saudi Arabia for its expatriates there. INCO built schools, hospitals, churches, supermarkets, a golf course, yacht club, motel, and restaurant for its expatriates in Indonesia.33
Expatriate employees in these remote areas are often handled very differently from those in other locales. To attract the large number of people necessary for construction and start-up, MNEs will usually offer fixed-term contract assignments at high salary and hire most people from outside the firm. Some are attracted to these assignments and are willing to undergo different living conditions because they can save at a rate that would be impossible at home.
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