By Harvey Thorpe · January 10, 2012
A study by people management experts Jaime Bonache and Chris Brewster for the Thunderbird International Business Review on globalisation, expatriates and international management, titled Knowledge Transfer and the Management of Expatriation, has revealed some key insights into the workings of expatriate assignments at large multinational companies. The study found that despite huge advances in communications technology both in terms of accessibility and functionality, the trend for expatriate assignments has been upwards. The key driver for this has been the need for multinational companies to ‘control and coordinate’ operations, effectively replicating the head office culture and practices in offshore subsidiaries, ensuring the organisation functions uniformly across the globe.
The study looks at some of the unusual characteristics found in expatriate assignments which seem to defy conventional labour market theories. Why is it that firms insist on sending over managers from primarily the company’s home country to subsidiary countries, when there are plenty of highly skilled people there already? And why do (some) companies insist on only sending employees from the home country and nowhere else? (if this brings to mind some Japanese conglomerates, you’re not alone). By basing their study on a Spanish multinational banking institution (we guess it may be the bank Santander, but they do not reveal this), they’re able to give practical insight to how a large MNC relies heavily on the employment of expatriates for ‘knowledge transfer’.
For firms, the key justifications for forking out the dough to send one of their employees to another country included, in order of importance: lack of availability of management and technical skills in the subsidiary country; better control of local operations and greater trust, especially when an overseas acquisition had been made; for representation, and for management training and development. Knowledge transfer from the home country to the subsidiary country was of course one of the overriding characteristics in all expatriate assignments. For many Western firms entering developing markets, particularly in Asia, the Middle East and South America, the researchers found that although particular knowledge may not be necessarily superior in the home country, it may turn into an advantage relative to local competition in a foreign country. For the Spanish bank which was the subject of the study, transferring knowledge from Spain to less developed countries in Latin America made for notable competitive advantages, helping to increase market share and profitability. On the other hand, they noted that the bank’s private banking subsidiaries in Miami and Switzerland have generated more knowledge than they received.
How much does a bank value its ‘corporate culture’? The research points out that one of the key advantages the bank recognised in sending employees overseas was in transmitting the bank’s own internal culture. Expatriate employees were usually placed in positions of seniority, allowing them to pass on the bank’s values down through the hierarchy of the subsidiary company. Such knowledge and values transfer were all about ‘tacit’ information which cannot be documented or codified, rather than explicit information which is better communicated through written means.
Regarding repatriation, this is where the biggest surprises were found. Contrary to the popular notion (maybe now becoming a myth?) that the failure rate of firms who sent employees overseas was disproportionately high, this particular bank had a failure rate of less than 3% – defined as the percentage of expatriates returning home prior to planned end date of their assignment, other than for health reasons. Perhaps in a more globalised, expat-friendly world, international assignments are becoming far easier and much more common. Advances in products including international health insurance and financial planning have certainly helped, with individuals now able to move more freely around the world without the significant disruption to their finances compared to, say, 20 years ago.