Use of Expatriates
Introduction
The world economy is moving away from the traditional economic
system, where national markets were considered as distinct
entities - which were isolated from each other by trade barriers,
barriers of distance, time and culture - towards a modern
economic system, where the national markets are merging into one
huge global market. In many industries it is no longer meaningful
to talk about the American market, the German Market or the
Japanese market. Therefore, as the development in the
international business environment are forcing companies to think
of the world as one vast market, the companies are being forced
to set up their manufacturing and marketing facilities in
different foreign countries in order to do business globally.
Ford Motors, for instance, has production plants in 38 countries
and sales outlets in over 200 countries (Ford 1997 Annual report,
www.ford.com). In this regard, there are in today's world a still
increasing number of people, who are sent by companies on foreign
assignments for a longer or shorter period of time - and it is
those people that we in this paper will refer to as expatriates.
In this paper, we will seek to present a critical discussion of
expatriates from a cost-benefit point of view. However, since we
only are allowed to do this paper in about 15 pages, we
acknowledge that this paper cannot be seen as a full-developed
academic work, but only as a preliminary academic description and
discussion of the subject, instead. Our approach will be a brief
introduction to Dunning's Eclectic Theory in order to open the
door for explaining why companies may choose expensive means to
run overseas operations. In continuation, we will explain the
actual roles of expatriates, which then will lead us to this
paper's main discussion of how expatriates are compensated and
which critical issues such compensation packages bring along for
the companies in today's and tomorrow's world. We then finally
end this paper by opening a discussion of expatriation in the
future by considering the potential challenges and benefits of
using expatriates versus local nationals in foreign operations.
1. Why
companies operate overseas
Firms that are operating in a domestic market may find that they
possess certain attributes that allow them capture international
markets, but the rise of the multinational corporations (MNCs)
confuses traditional micro economists because: "Operating
overseas usually costs more than operating at home because a
foreigner does not have the same contacts and knowledge of local
customs and business practices as indigenous competitors"
(Hennart, 1982, p.82). As the use of expatriates in MNCs can seem
confusing because of the cost involved in training and sending
managers overseas, we therefore need to understand why firms then
choose to produce in different countries and find the need to
send their own people abroad. Dunning's Eclectic Theory (Dunning,
1992) offers a theoretical based approach to why corporations go
abroad and consequently prefer to use expatriates. The
fundamental starting point for Dunning's Eclectic theory is that
firms exist to turn inputs into outputs and whether this is done
at home or abroad it depends on an enterprise's resource
endowments. Dunning's three criteria's - location and ownership;
specific resource endowments; and the incentive to internalize
the need to be met for firms to find it desirable to operate
abroad - are briefly discussed in the paragraph below.
1.1 Resource
Endowments
Resource endowments are assets that are capable of generation of
a future income stream for a corporation. Resource endowments can
consist of tangible resources (manpower, capital and natural
resources) and intangible resources (such as knowledge,
organizational access to markets and information technology
structures). These two characteristics of resource endowments
become uniquely important when location specific resource
endowments exists. This is when the resources are originating
from a specific country and are available to all firms that are
located in that market but because these resources cannot be
exported they lose their value. The second resources endowment
criterion is called ownership specific resource endowments.
Ownership specific endowments are internal organizational
resources of the home country but are capable of being used with
other resources in the home country or anywhere in the world.
Examples of these are patents, trademarks and scale of economies.
In the Eclectic theory the pattern of location endowments - that
is resources available to all firms in a specific country - will
likely explain whether firms supply a market by export or local
production. The possession of ownership advantages, internal
organizational resources, will determine which firm will supply a
particular foreign market.
1.2
Internalization
The above mentioned resource endowments, however, do not explain
why companies use expatriates, but only gives an understanding of
the markets in which corporations will operate. Expatriates first
enter the picture when corporations have strong incentives to
internalize activities. Typical, enterprises will engage in the
type of internalization most suitable for the factor combination,
market situations and government policies which they face:
"When it is more profitable for this company to exploit its
ownership advantages in another country itself rather than to
sell or license them" (Hennart, 1982, p.10). Corporations
will normally internalize for two main reasons: First, an
enterprise may try to capitalize on the advantages of
imperfections in the external mechanisms of resource allocations.
Various aspects of market imperfections include actually
structural imperfections, where there are barriers to competition
and where Ricardian rents are earned. Cognitive market
imperfections are the information about a product or a service
that is unavailable and expensive to acquire. Second, enterprises
will try to avoid the disadvantages that are apparent in the
market. Examples of such disadvantages are the protection of
property rights, the control of organizational information flows,
the defense of a company's reputation, quality controls for good
and services and where the market does not permit price
discrimination.
Dunning's Eclectic theory can shed some light on why enterprises
go abroad and why corporations indulge in the use of expatriates.
When a firm desires to extinguish bilateral monopoly because of
market imperfections: that is, when some markets incurs lower
cost through hierarchical co-ordination (FDI) than through
co-ordination by market prices then the need to use expatriates
becomes evident. When an enterprise has location and ownership
specific resource endowments and finds the need to internalize
these because of market imperfections then the expatriate is born
(Hennart, 1982, p. 84). The expatriate will likely be used to
take out the imperfections of the market by being the liaison for
the organization to that market. Having a manger that knows and
understands headquarters desires and wants is therefore of great
importance when investing and operation in foreign markets.
2. The role of
expatriates
From the HR-literature we know that expatriates are divided into
three types: PCNs (Parent Country Nationals); HCNs (Host Country
Nationals); and TCNs (Third Country Nationals). As we in this
paper assume that there is no need to define these types of
expatriates, we will instead focus on the different roles of
these expatriates by point of departure in the following four
general approaches to international staffing (Harzing, 1999;
Welch, 1995):
1) Ethnocentric
Approach:
Because of a lack of qualified HCNs, PCNs occupy all key
positions in the foreign operation, which means that the
subsidiary is highly dependent on the headquarters' decisions.
Some drawbacks from this approach could be limited promotion
opportunities for HCNs, income gaps between PCNs and HCNs, and
that PCNs cannot be involved in local matters.
2) Polycentric
Approach: In
this approach HCNs occupy positions in the foreign subsidiary.
Some transfers of HCNs to headquarters also take place. The
approach eliminates the language barriers, and typically HCNs are
less expensive. Some drawbacks from this approach could be
communication problems between headquarter and subsidiary and
limited career opportunities for HCNs as they cannot be promoted
to headquarter.
3) Geocentric
Approach: In
this approach the best people are selected for key positions
regardless of their nationality. Nationality is not taken into
account and a worldwide integration of employees takes place. In
this approach an international team of managers is developed.
Some drawbacks from this approach may be related to situations,
where host governments prefer employment of locals because of
i.e. labor issues.
4) Regiocentric
Approach: Here
a company's international business is divided into international
geographic regions (i.e. the European Union). The staff can only
transfer within these regions.
In order to understand in the roles of expatriates, we then
combine the above four approaches of international staffing with
the earlier mentioned Electric Theory. In doing so, we then
finally are able to suggest the major roles of expatriates as
1) securing transfer of technology/filling positions, as
companies send the expatriates abroad in order to transfer their
technology to the foreign subsidiary. I.e. in countries where
qualified people are not available, companies send the PCNs to
fill out the positions. This is mostly used by multinational and
international firms.
2) securing the headquarter control, where the companies can
exercise this control by using the PCNs in their foreign
subsidiaries. In such situations firms try to incorporate the
headquarters' culture into the foreign operations, which in some
cases may create cultural problems. Especially MNCs tend to
demand administrative and financial control in their foreign
operations.
3) opportunity for international experience/ management
development, as several firms find international experience
highly important before promoting their employees. Foreign
transfers are here important in order to learn foreign cultures
and environments. In such situations qualified HCNs are available
but managers are still transferred to foreign subsidiaries to
acquire knowledge and skills.
4) securing organizational development, which also is called the
"Geocentric approach". This role is performed only by
the best people at the best places without nationality barriers.
Transfers can take place from headquarter to subsidiary, from
subsidiary to headquarter, or from subsidiary to subsidiary.
Nationality of employees does not matter in this situation, as
the objective of this staffing strategy is to get to know about
different cultures, create international networks,
decentralization, and interaction between managers of different
nationalities. In general, this strategy is mostly followed by
larger global companies.
3. Compensating expatriates
3. 1 Why do companies compensate their expatriates?
The purpose of compensation packages for expatriates is first of
all to enable a company to attract potential job applications,
and secondly to be internally equitable and externally
competitive in order to retain suitably qualified employees.
Thirdly, compensation packages should stimulate employees by
rewarding performances that are essential to a company's success,
and fourthly to enable a company to optimize its total wage
level. In general, the longer a planned assignment abroad is, the
more the principles and local environment of the host company
determine the compensation packages for the expatriates (CBS,
lecture 15/10 1999, NMN). Also when speaking of compensation, it
is relevant to determine the time period of an assignment, as the
literature distinguishes between three different assignment
stages for expatriates: a) short-term assignment, which is up to
one year and without the family, b) long-term assignment, which
is for more than a year, and c) permanent assignment. Both
long-term and permanent expatriation include moving the family
along.
3.2 How do companies compensate their expatriates?
3.2.1 Types of compensation packages
When designing a compensation package, companies usually choose
among the following six approaches (Briscoe, 1995, ch.5):
a) Negotiation: When firms first start sending expatriates abroad
(and while they still have only few expatriates), the common
approach to determine compensation and benefits for those
expatriates is to negotiate a separate compensation package for
each individual expatriate. This approach is build up around each
expatriate, and because of the inexperience of the company of
sending expatriates, it can be a difficult task to find the right
balance of compensation. In such cases, the expatriates are often
overcompensated, and it can lead to inconsistencies between many
expatriates and the firm.
b) Localization: It is a relatively new approach used to address
problems of high cost and perceived inequality among staff in
foreign subsidiaries. The expatriates are paid comparably to
local nationals, which can make it relatively simple to
administer. However, since expatriates come from different
standards of living than they experience in the foreign country,
special supplements may still have to be negotiated.
c) Lump sum: To avoid intrusion into expatriate's life-styled
decisions, the lump sum approach can be used. Here the firm
determines a total salary for the expatriate, and then lets the
expatriate determine how to spend it.
d) Cafeteria: This approach is increasingly used by highly
salaried expatriate executives to provide a set of choices of
benefits. This enables the expatriate to gain benefits such as a
company car, insurance, company-provided housing, and the like
that do not increase the expatriate's income for tax purposes.
e) Regional systems: For expatriates who make commitment to job
assignments within a particular region of the world, some firms
are developing a regional compensation and benefits systems to
maintain equity within that region.
f) Balance sheet: As this approach is followed by most companies
when their international business expands to the point where the
firm has a larger number of expatriates, we have chosen to dwell
on this approach for a moment. The balance sheet approach is
primarily used when the MNCs are sending expatriates from the
parent firm to its foreign subsidiaries. It is particularly used
for experienced senior and mid-level expatriates and keeps them
whole compared to their home country peers while encouraging and
facilitating their movement abroad and return home at the end of
their assignment. In essence, the balance sheet approach involves
an effort by the multinational to ensure that its expatriates are
"made whole" (that is at a minimum the expatriates
should be no worse off for accepting an overseas assignment).
Ideally, the compensation package should also provide incentive
to take the foreign assignment, to remove any worry about
compensation issues while on that assignment, and to ensure that
the individual and his or her family feel good about having been
on the assignment. The balance sheet approach of an expatriate's
compensation begins with the employee's existing parent-company
compensation in form of salary, benefits etc. To this is added
two more components: A series of incentives to accept and enjoy
the foreign posting and a series of equalization components that
ensure the expatriate does not suffer from foreign-country
differences in salary or benefits. These components should cover
the foreign compensation the expatriates are to receive (see
Appendix A).
The balance sheet approach becomes much more complex as the firm
evolves into moving individuals between foreign subsidiaries and
from its foreign subsidiaries back to its headquarters or other
home-country locations. With a large numbers of expatriates, this
approach can become complex to administer. Some firms have found
that this approach begins to lead managers to view the incentives
and adjustments as entitlements that are sometimes difficult to
change. Other expatriate managers have complained that this
approach to determining their overseas compensation is much more
intrusive into their personal lives than is true for the
traditional domestic compensation package.
3.2.2 What
should a fair compensation package take into account?
First - and most obvious - an expatriate should to be compensated
for the costs that she or he will experience as a consequence of
the expatriation and for retaining the same standard of living as
in the home country. Secondly, the company that is sending the
employee overseas needs to ensure itself that the expatriate is
enough motivated in order to be successful at the assignment.
Motivation includes self-motivation, career prospective and so
forth, as well as personal/technical development, so he or she
will still be able to compete in the market.
A fair compensation package should therefore consist of two
components: financial (extrinsic) and non-financial (intrinsic)
compensation (Harzing, 1999). As the extrinsic compensation
concerns the financial part of the compensation, it can be
divided in two subcategories: direct and indirect compensation,
where the direct compensation consists of the fixed and variable
income, such as salary and bonus, and the indirect compensation
consists of the deferred income, such as pension and benefits.
The intrinsic compensation is related directly to the nature of
the work, such as possibilities for personal development and
career moves.
3.2.2.1 The
extrinsic compensation approach
One of the key complications in the balance sheet approach is the
determination of the base upon which to add incentives and
adjustments. A number of possibilities exist, including:
Parent-country salaries; International standards; Regional
standards; and Host country salaries. The choice of which base to
use should be related to the nature of the company as well as the
kind of expatriation the company is using. For example, if the
company is using long international assignments, and the
assignees often go from one foreign-country assignment to
another, then an international standard is probably most
appropriate. To date most companies compensate their expatriates
based on either a home- or a host- country philosophy.
Once the base salary has been determined, the firm must then
decide which incentives that are necessary in order to convince
its employees that it will be to the employees' financial
advantage to take the assignment abroad. Additional incentives
usually include housing allowances, either to ensure the
expatriate lives as well as his ore her foreign peers or to make
the expatriate's housing comparable to what he or she had
"back home". In addition to the many incentives that
firms have offered to their expatriates, MNC's have also
traditionally provided a number of equalization adjustments, like
compensation for any fluctuation in exchange rates between the
expatriate's parent-country currency and that of the foreign
assignments.
3.2.2.2 The
intrinsic compensation approach
As mentioned earlier, we use the term "intrinsic
compensation" to describe the incentives that companies use
to motivate their expatriates - that is incentives, where the
expatriates do not directly get "money in the pocket"
compensation but more in terms of benefits, instead.
Intrinsic compensation includes scope for development, career
movement, and personal development. An interesting job could
compensate for a comparably low pay or long transportation hour
or even move abroad. One example could be to give fast track
managers experience in running a larger organization without
close oversight from headquarters.
4. A critical
note on expatriate compensation
4.1 The need
to adjust compensation packages
In finding ways of cutting costs as much as possible, several
MNCs have in their recent annual reports stated that they now are
seriously beginning to focus on the high costs of using
expatriates, as they in average estimate that their typical
expatriate costs are about three to five times as much as a
comparable domestic employee. Several companies do not even have
an exact handle on the costs of using expatriates, because their
accountings are so fragmented - i.e. some of their accounting is
in the local country, some in the regional headquarters, and some
at the home office (www.euromoney.com). But even without a clear
picture of what is going on, companies that are operating in
foreign countries are becoming more and more aware that the
actual costs of their expatriates are very high, and in many
cases too high for them to compete in their foreign locations.
For instance, if a company is using expatriates and its
competitors are using locals, then the company may have a rather
big cost disadvantage. And in addition, in some multinational
companies the culture is about to change toward a climate, where
it is understood that career development requires taking a
foreign assignment, and where these companies therefore do not
pay compensation premiums or generous cost-of-living adjustments
to attract good people.
However, only very few companies have today actually managed to
change their expatriate compensation packages (www.hbs.edu), as
it is our opinion that most international companies still are
locked into expensive compensation packages that were developed
in a much different era - that is when globalization and career
boosting through overseas postings were unknown issues, and where
these compensation packages were formulated primary according to
the earlier mentioned "balance-sheet" approach. This
point of ours should by no means be misunderstood, as we
acknowledge that if today's companies are simply exporting or
using wholly owned or licensed distributors to sell their goods
in a few international markets, a balance-sheet approach makes
sense. Those companies are simply using their overseas business
as an extension of the domestic operations. But in contrast, what
we are claiming is that when companies become truly
multinational, with substantial manufacturing, marketing,
distribution, and management investments in many countries around
the world, and when international revenues account for a large
part of total revenues, then the company's business is no longer
simply an extension of the home office, whereby adjustments of
the compensation packages are needed in order to keep up with
reality. Theoretically, we can rephrase this as the more global a
company becomes and the more involved it is in foreign markets,
the more flexible its compensation policies should be, as for
multinational or transnational companies, the goal is to maximize
operations for the good of the global organization, not just for
the home office. Therefore, expatriate compensation must take
into consideration such things as what competitors are paying or
how expatriate compensation compares with compensation of local
employees in the same job.
4.2 What are
the new industries doing ?
Companies in the newer industries, especially those in
information technology, biochemicals, and electronics, have
reported to be more flexible in formulating
expatriate-compensation packages and more willing to break with
the balance-sheet approach (www.fortune.com). These companies are
more and more using younger members of the staff and sending them
abroad for shorter periods of time - often technical people in 6
months or less - as most of today's young skilled employees are
much more flexible in terms of cross-culture
orientation/exploration and family life. The shorter assignments
also seem to be better for the employee-company relationship
because it means that the employees are not "out of sight,
out of mind" long enough to lose close contact with the
parent company.
Companies in the new industries therefore seem to be riding on
the fittest wave in terms of expatriation expenditures, as their
talent pool primary are among younger people (www.borsen.dk), who
in general seem to consider short-term assignments as a
combination of a personal and a professional development (and a
good career move), whereby these employees agree to make some
extrinsic and intrinsic sacrifices when going abroad. As a
consequence, the expatriate compensation packages in these newer
industries do not aim to keep the employees' standard of living
whole, instead the companies want the expatriates to live as
local as possible - and not as part of an i.e. German expatriate
community. However, this does not mean that the person taking a
development assignment will be paid in local wages. For instance,
from their web-site, Deloitte & Touche states that they pay
the same base salary in the foreign post as the employee gets at
home: "We don't want someone from Lisbon (Portugal) working
next to someone from New York in London who is making a lot more
money, but we recognize that in some cases we may have to
increase the base pay if the person is going to a higher-paying
country like Switzerland" (www.deloitte.com).
5. The use of
locals vs. the use of expatriates
From the previous chapter it becomes quite clear that (in light
of cost-cutting strategies) the managers of today's
internationalized companies are increasing their efforts to find
new ways of minimizing the costs of their global expansions by
questioning the costs of their expatriates in terms of
adjustments of expatriate compensation packages and increased use
of younger and more globalized employees. As also mentioned in
the beginning of the previous chapter, most companies are in
addition increasingly questioning whether they should continue to
send costly expatriates to run foreign operations or to take
advantage of the local workforce. However, going through the
HR-literature it has become obvious to our group that there is no
fully developed theoretical framework for weighing the exact
challenges and benefits of employing local talent versus
expatriate employees. But with background in our disperse
HR-readings we suggest to summarize an approach to such weighing
in the model found in Appendix A building upon the works of Doz
& Prahalad (1986) and Hamil (1989). With respect to the
restricted limit of this paper we will, however, not comment on
each of the parameters in the model, but use the model as point
of departure for further discussion, instead.
In our view, managers should determine the advantages of both
types of employees (expatriates or locals) with regard to the
general strategic goals, costs and productivity of their
companies. Different strategic objectives of a company will
typical dictate when to send expatriates and when to localize the
business, so it is therefore crucial to determine whether
expatriates can meet these objectives most effectively or whether
local nationals can accomplish them as well. In order to clarify
this perspective we suggest - with reference to the model in
Appendix B and to the work of Boyacigiller (1990) - that a
manager in such situations could solve this dilemma by comparing
each of the company's assignment situations with the in chapter 2
earlier mentioned four most common reasons for using expatriates:
1) to establish a corporate culture (communicating and
translating the corporate vision), and in addition, if the
company is setting up a new business, it only has the expertise
to establish it through expatriate transferees; 2) to transfer
knowledge (locals as a choice, but expatriates to transfer
technology to three or four locals at one time, which can be a
major cost advantage); 3) to fill a skills gap (providing skills
that are not available in the local marketplace); and 4) to
develop the individual worker for future assignments (which has
long-term implications for a company and continued understanding
of the global market).
If the manager looks at the value of each of the above four
reasons for sending someone from the home office, then the
business case should become more clear because of the fact that
if the assignment fits into all of these four common reasons,
then the price of an expatriate might be worth paying. We
recognize, however, that even if the above reasons speak for
expatriation, there surely are abundant difficulties as well,
when choosing to expatriate. From the expense of moving an
individual or family overseas to dual-career concerns to the
down-time that it takes for expatriates to adjust to culture and
life abroad, expatriates can be "high maintenance" and
present a raft of complications in administration. Also according
to the literature there are even more concerns when expatriates
after a longer assignment return to the home location and face
readjusting back to life at headquarters.
On the other hand, if a company already has a strong global
mindset, it will most likely be able to find talent anywhere
around the world and assign them based on expertise - and not on
geography - and then the company should consider using local
talents as soon as possible, as local staff brings its own set of
benefits: 1) understanding the local business environment and how
to transact business most effectively; 2) knowing the local
culture and the nuances that are important in that country; 3)
grasping the marketplace from an insider's perspective and being
more in-tune with the quickly changing market; 4) providing
insight into local marketing, sales and product development.
However, using local staff also has its challenges - from
availability of talent to training so they understand the
corporate culture of the home office. Though, choosing locals are
not without costs as practical evidence (www.kmpg.co.uk) shows
that when managers discuss staffing overseas, they often see
local employees as cheaper, as they do not actually stop to
consider the real costs of bringing a local onboard (as these
costs can be considerably higher than the cost of a expatriate
employee because of a wide range of regulations regarding
overtime, mandatory time off, and severance benefits). Further,
some local laws (i.e. Germany) require a thirteenth month pay,
and there can be enormous issues surrounding retirement and
social security, so a company's labor costs can therefore
skyrocket depending upon the location that the company chooses.
In short, this group will not recommend any final solution
whether companies should use expatriates or locals, as we
recognize that both choices seem to present an array of benefits
and challenges dependent on the companies' specific assignment
situations. Instead, we therefore argue that most companies might
be better off finding their own best combination of expatriates
and locals, as the time it takes to "nationalize" an
operation (from expatriates to host country individuals) is as
unique as each company.
6. Conclusion
As we have learned from Dunning's Eclectic Theory, an expatriate
is born when a company has location and ownership specific
resource endowments and then finds the need to internalize these
because of market imperfections. The expatriate will therefore
likely be used to take out the imperfections of the market by
being the liaison for the organization to that market -
especially by securing the transfer of technology; securing the
headquarter control; and securing the organizational development.
With point of departure in the general compensation literature,
we conclude that the financial (extrinsic) and the non-financial
(intrinsic) factors are crucial components for clarifying the
issue of why and how companies compensate their expatriates.
However, since the costs of using expatriates are estimated as
three to five times as much as a comparable domestic employee, we
have in this paper focused upon some of the different ways
companies can keep such costs down. By looking on how the
companies in the newer industries are doing, we conclude that one
approach to minimize these costs is to incorporate more flexible
expatriation programs that are willing to break with the ordinary
compensation packages and terms for expatriation. Especially
younger people and shorter assignments are suggested as means to
achieve lower costs, as younger people in today's world seem to
consider expatriation as a combination of personal and a
professional development, whereby such employees agree to make
some extrinsic and intrinsic sacrifices when going abroad. On the
other hand, as most companies still are locked into ordinary
expatriation programs - as i.e. the balance sheet approach -
these companies are increasingly about to question whether they
should continue to send costly expatriates to run foreign
operations or to take advantage of the local workforce. However,
as we have found that both choices seem to present an array of
benefits and challenges that are related to the specific
situations of each company, we conclude that most companies might
be better off finding their own best combination of expatriates
and locals.
Looking ahead, our group is of the opinion that as the world will
become more and more globalized, companies and people may develop
such strong global mindsets that the use of locals instead of
expatriates may be more efficient and more in-tune with the
quickly changing globalized market. However, as we acknowledge
that this opinion of ours needs much more study in order to be
accepted as an academic statement, we hope that by bringing this
opinion into discussion the door for further research of this
issue has been opened a bit wider.
7. A note on the group work
Intense healthy discussions combined with a climate of
cooperation and critical honesty were the main conditions while
performing this term paper. All the group members were actively
involved in the process of gathering, analyzing and interpreting
the available literature and data, as well as, critical
constructive comments with the objective of widening the group's
perspective. In short, the results established in this paper can
therefore best be described as a process of motivation,
cooperation, self-discipline and busy coffee machines
The background diversity of the international members in our
group was another important factor that led to the creation of
creative solutions and helped open the spectrum of our
discussions.
Finally, developing this paper was not only challenging but also
pedagogical interesting in the way that theoretical assumptions
were linked with practical dilemmas in the complex reality of the
today's world.
References
Boyacigiller, N.:
Role of expatriates in the management of interdependence,
complexity, and risk of MNNs, 1990, Journal of international
business studies, 3rd quarter
Briscoe, Dennis R.:
International Human Resource Management, 1995, Prentice-Hall
Inc., New Jersey.
Dunning, John H.:
Multinational enterprises and the global economy, 1992,
Addison-Wesley, Harlow
Doz, Y. & Prahalad, C.K.:
Controlled variety: a challenge for human resource management in
MNCs,1986, Human Resource Management, Issue 21
Hamil, J.:
Expatriate policies in British MNNs,1989, Journal of general
management, Issue 14
Harzing, Anne-Wil:
International Human Resource Management, 1995, SAGE Publications
Ltd., London
Hennart, Jean-Francois:
Theory of multinational enterprise, 1982, Ann Arbor, Michigan
Welch, Denice E.:
International Human Resource Management, 1998, South-Western
College Publishing, Canada.
Web-sites:
www.borsen.dk
www.euromoney.com
www.deloitte.com
www.ford.com
www.fortune.com
www.hbs.edu
www.kmpg.co.uk
Appendix
Appendix A
International Compensation Balance Sheet Approach
(Briscoe, 1995, p.113)
Appendix B
Benefits and challenges of the use of expatriates vs. the use of
locals
(building upon the works of Doz & Prahalad,1986; and Hamil,
1989)
The use of expatriate staffing in international
subsidiariesBenefits Challenges
ü cultural similarity with parent company ensures transfer of
business/management practicesü permits closer control and
coordination of international subsidiariesü gives employees a
multinational orientation through experience at parent companyü
establishes a pool of internationally experienced executives ü
involve high transfer and salary costs ü increases the
foreigness of the subsidiary ü may have disinfective effect on
local- management morale and motivationü may be subject to local
government restrictionsü may create problems of adaptability to
foreign environment and cultureü may result in personal family
problems
The use of local staffing in international subsidiariesBenefits
Challenges
ü lower labor costsü demonstrates trust in local citizenryü
increases acceptance of the company by the local environmentü
leads to recognition of the company as a legitimate participant
in the local economyü effectively represents local
considerations and constraints in the decision-making process ü
makes it difficult to balance local demands and global prioritiesü
leads to postponement of difficult local decisions (such as
layoffs) until they are unavoidable, when they are more diifult,
costly and painful than they would have been if implemented
earlierü may make it difficult to recruit qualified personellü
may reduce the amount of control exercised by headquarters