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 costbenefit 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 longterm 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 parentcountry 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 HRliterature 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