Challenges and Importance of Expatriate Assignments in Multinational Corporations

Introduction/Background

Due to the rapid growth of foreign investment, multinational corporations (MNCs) have become more and more dependent on expatriates who can play a knowledge transfer role in global business environment. MNCs frequently send expatriates overseas with an aim of completing a specific assignment; the expatriates have to work and live for one year or more in this foreign country, and then return to their home country (Kraimer, et al., 2016). The overseas assignment requires expatriates with a good understanding of the local cultures, workforce environment, business trend, local government policies, etc. Quite often the expatriates have to face uncountable difficulties related to adapting themselves into a new cultural environment. In reality, most MNCs have high-failure rates of their expatriate overseas assignments, If the individuals cannot meet the task requirement for their overseas jobs, the failure rate can be very high (Tahir, 2018).

Expatriates from parent-country nations are often the employees of the MNCs’ headquarters. They are very important because most MNC operate their oversea subsidiaries by using expatriation. The definition of expatriates is “an employee of a parent company who is transferred for a particular amount of time (for several months to several years) to work in a branch of an international company located abroad” (Banerjee, Gaur, & Gupta, 2012). MNCs send expatriates as the agents of knowledge transfer from headquarters to subsidiaries or from subsidiaries to headquarters (Musasizi, et al. 2016). Expatriates failure has always been very high due to their poor overseas performance or the failure to adjust themselves into the host country culture.

A wide range of research has shown just how significant it could be for expatriates to complete their overseas assignments given other critical extenuating factors such as adjusting themselves into new cultures, language, beliefs, behaviour, environment, lifestyle, governance, and developing a deep understanding of managerial effectiveness as well as decision-making process in accordance to their roles. The expatriates’ jobs have always been a popular research area for both MNCs and host countries. Studies have shown existence of many expatriates who could not complete their overseas assignments and choose to return early or did not have good job performance (Awais et al., 2013; McGinley, 2008). The high failure rate and the high costs related to this makes training become more and more necessary (Peng, 2018).

Assigned expatriates aim to work in subsidiaries of their home country organizations overseas, research shows their motivation of doing oversea assignments normally is for their own career development as well as their company’s development (Bolino, 2007; Edström & Galbraith, 1977; Stahl et al, 2002). Another research indicated expatriates’ career progression is far fatter compared to non-expatriates (Doherty, & Dickmann, 2012). Moreover, national economies acquire benefits, and in the longer term, upon repatriation, so do the home countries. Expatriates bring experience, skill, and competencies to the host country, enriching local stakeholders. Individually, they gain opportunities of further experience, learning and career progress, and financial benefits. Upon returning home the expatriates bring back improved competencies and cultural intelligence, and inject further financial gains into their home country economy. Therefore, a successful expatriate oversea assignment is particular valuable for multinational companies. This highlights my motivation to do the research with the aim of unveiling ways of making expatriates successful.

In addition, while expatriates themselves may have a good adjustment in the foreign country, family-related problems can also lead to expatriate failure. Inadequate training or preparations before the deployment has also been known to cause significant expatriate failure (Tahir, 2018). There are high costs related to expatriate failure and repatriate turnover (Witting-Berman & Beutell, 2009). The failure not only costs MNCs money and lots of market share, but also damages the MNCs reputation and image (Wang, 2008). According to the survey conveyed by GMAC Relocation Trends, roughly 21 per cent of expatriates left their companies during the assignments and another 23% left within one year after the repatriation from their assignments.

Statics show that the cost of each expatiate failure is between 250.000 USD and 1.000,000 USD. An unsuccessful overseas assignment can cost roughly 100.000 USD (Misa et al., 1979). However, this hasn’t stopped the growth of expatriation. Over 80% of MNCs already successfully sent expatriates all over the world, the expatriate number constantly increase over the years (Black & Gregersen, 1999). GMAC Relocation Trends survey has also found that 68% of MNCs insist relocating their expatiate employees oversea despite the slowing economy (Deresky, 2011). In addition, there is a positive trend: 54% of the expatriates have being occupied by younger age group, which is 20 to 39 years old. Meanwhile, the number of female expatriates has also grown over the years, from 15% to 21% (Ball et al, 2010; Haile et al, 2010). While this is a positive development, it is still limited given that there are more than 40% of the global workforces occupied by female employees; only 22% have been given expatriate assignments (SHRM, 2014).

So, what exactly is expatriate failure? The failure normally described as “a premature return”, which could mean one not finishing overseas assignment before the end of the contract, or it could be poor performance and adjustment issues (Forster ,1997).The expansion of expatiate failure could be retention during the overseas assignment as well. A wide range of factors can be highlighted to explain expatriate failure. Mendenhall and Odour (1985) suggest that HR should not compare the domestic performance with overseas performance given the two are not the same concept.

Expatriate failure can have a wide-ranging impact on both the company and the employee. In terms of impact on the company, there are both direct and indirect costs to consider. Direct Costs of expatriate failure pertain primarily to the relocation costs of both the employee and their families, including airfares and shipping costs. Neumann (1992) estimates the direct cost per assignment for U.S. multinational expatriates who return early to lie between USD 55,000 - 150,000 (Naumann, 1992). Indirect costs primarily include loss of productivity both in terms of underperformance whilst on overseas assignment and the days occupied with relocating. Indeed, indirect costs associated with expatriate failure often exceed estimated direct costs (Ashamalla & Crocitto, 1997; Harvey, 1985). In terms of impact on the employee, failed assignments can be damaging to the employee’s physical and mental well-being due to low self-esteem, loss of prestige and respect among colleagues, weakening of the psychological contract, family issues, damage to an employee’s career path including reduction of promotion opportunities (Cuzzo et al.1994; Shaffer et al. 2006; Varner & Palmer 2002).

The insufficient preparation before departure results in the high failure rate, in addition, inappropriate training and selection, lack of enough support and family issues can lead to expatriates failure as well. Statistics shows there are over 57% of expatriates fail because they are incapable of adapting into the new environment (Olsen & Martins, 2009). In other words, MNCs did not provide professional training (Wild, 2012). Language barrier could also be a big problem, misunderstanding the culture often results in the failure. As for the expatriates with families, success relies on the family adjustment as well, so the family members also should be included in the pre-departure training activities. In fact, as for them, if the family failed to adapt, they may return earlier (Shaffer & Harrison, 2006). Therefore, family issues should be practically considered in the selection process of the expatriates (Wild, 2012).

Aim and Objectives

This study will attempt to show what other researchers have done in terms of the reasons and conflicts resulting in expatriate failure, what the possible solutions they discovered in order to increase the successful rate of expatriation.

Objectives of the study

To critically evaluate literature on expatriation, expatriate failure, effect of cultural and environment change to expatriate, and concepts on expatriation

To investigate the negative outcome and influence of expatriate failure

To conduct interview and questionnaire examining the causes of expatriate failure and Human Resource departments’ strategies to increase successful rate of expatriation

To appraise the findings and make founded recommendation on expatriation failure and appropriate steps to be taken to increase success rate

Summary

In today’s global economy, many multinational companies send their managers and executives abroad as expatriates in order to obtain the skills, knowledge and information they need to help the company grow and develop. However, there is commonly a high rate of expatriate failure among overseas assignments. Scholars some of which include challenges of adjustment in overseas environment, family issues, different policies, and conflicts have highlighted a wide range of reasons for these failures. Meanwhile, many HR strategies have been suggested in the existing literature concerning increasing expatriate success, these include emphasis on cross-cultural training, improving expatriate selection process and developing sufficient support during their oversea assignment. The overall purpose of this study is to examine whether the reasons and strategies in the existing literature is still suitable in today’s economy.

Reference

Awais B. M., Battour, M. M and Rageh I. A., 2013. Expatriates adjustment and job performance: an examination of individual and organizational factors. International Journal of Productivity and Performance Management, 62(7), pp.694-717.

McGinley, J., 2008. Expatriate adjustment within a social context: Examination of a sample in Russia. Journal of Social, Evolutionary, and cultural psychology, 2(2), p.56.

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