The Problem of Expatriate Management in Multinationals – Adaptation to Foreign Culture Report

Summary

This is a project which seeks to investigate the problem of adaptation to a foreign culture by expatriates in subsidiary firms. It is a full project research, and thus it has all components that should be contained in a research paper.

It is divided into four main parts which are the introduction, literature review, and research methodology and data analysis.

The introductory part seeks to put the topic of research into context. It has the background which elaborates on the problem being studied.

The introduction also has the problem statement and its justification which gives a clear picture of the problem being studied. The research objective and limitation are also explained in this section.

The literature review chapter contains a collection of view on the research problem collected from different researches and case studies done. It gives a bigger picture of the problem as it relates to the materials collected.

The research methodology clearly explains how the research will be conducted. The research method and tools that will be used are clearly highlighted in this section. The techniques of sampling have also been explained in this chapter.

The last chapter explains the data analysis techniques that will be used in the research. It also explains how deductions will be made from the analyzed data.

Introduction

Background to the research

According to Chew (2004) and Treven (2006), globalization has opened opportunities for businesses across the world. Firms have realized that it is beneficial to enter new markets because there are opportunities that accrue from globalization.

Therefore, many firms are entering and setting their businesses in different countries as part of diversification and the fulfillment of business growth strategies. As firms expand into new countries, the need for adaptive mechanisms of managing staffs is needed.

Therefore, international human resource management has been said to help in the management of staffs in multinational companies (Du Plessis & Beaver, 2008).

Most firms prefer to use expatriates at different levels. Expatriate refers to foreign workers, who are deployed to different countries to help in the management of subsidiary firms of a company. The workers are usually sent from the mother companies (Longatan, 2009; Grainger & Nankervis, 2001).

Research reveals that there are many advantages as well as demerits of using expatriates by multinational corporations. Many people continue to explore the subject of expatriates and their roles in the global business.

Though globalization has simplified business operations for multinational companies across the world, many challenges are still being faced by multinational firms (Grainger & Nankervis, 2001). Many companies have found it hard to adapt to the new environment due to the problem of expatriate management.

Differences in human resource policies exist between the foreign countries and the countries from where the multinational firms are situated (Stone, 2008). Cultural differences are the main factors from which the problem of expatriate management resonates.

Different companies have different human resource policies that may be favorable to some countries and not to others. While most of the expatriate managers would prefer to go with the human resource policies of the mother firms, this may not fit in the foreign countries (Short and Callahan, 2005).

The research problem

Multinational companies control the global economies because they operate in many countries. They control more than 50 percent of revenues in the world economy.

They also use both local staff and international staffs. The management of expatriates becomes quite hard due to the existence of differences in business and cultural differences between the host countries and the parent countries.

The growth and expansion of multinational companies have been applauded as a major contributor to economic growth. Multinational companies are the main drivers of trade at the global level.

Most of the multinationals have huge assets and control an enormous amount of revenues across the countries where they operate.

The relevance of multinationals in national economies has also been emphasized by many researchers. Therefore, the management of these firms has to be taken seriously because of the importance of these firms in economic development.

The multinationals find the use of expatriate firms in their subsidiaries to be relevant. Expatriates may be deployed at different levels. Some firms only use the expatriates at top management levels in the organization.

The use of expatriate workers in subsidiaries has benefits and shortfalls. One of the major problems that have been reported in expatriate management concerns the issue of adaptability to the business culture of the foreign countries. Culture defines the ethics, practices and the manner in which a firm conducts business.

As such, organizations have different cultural practices. The difference in business and social culture between different countries affects human resource practices in multinationals.

The development of better human resource management practices in multinationals using expatriate staffs has been hardened by the differences in business cultures. The problem of expatriates in multinational firms derails their performance.

This research looks into the problem of expatriate management in multinational firms. It centers on business culture and how it affects expatriate management in subsidiary firms of multinational companies.

Research objectives

Main objective

The main objective of this research is to establish the problem of expatriate management in multinational companies.

Specific Objectives

  • The first objective is to find reasons why multinational firms use expatriate staffs and managers in their subsidiary firms.
  • The second objective is to identify circumstances and different levels at which multinational companies use expatriates.
  • The other objective is to find out the real benefits of using expatriates in multinational corporations.
  • Also, the research seeks to identify the cultural issues related to human resource management and general business practices and culture affecting expatriate management.
  • The research seeks to find out how multinationals adapt to the business environment in multinational firms.
  • The paper also seeks to identify how firms are dealing with the problem of expatriate management.
  • Basing on literature, the research will try to come up with recommendations on how multinationals can deal with the problem of adapting to the foreign culture and practices.

Significance of the research

This research is meant to establish the common practices that affect human resource practices in expatriate management by multinationals. Basing on the nature of the problem, the research will develop recommendations.

These recommendations will respond to specific problems, hence acting as probable solutions to the problem under study. In this era, business growth is a denominator of economic growth. The growth of economies lies in the operations of big companies.

Therefore, this research will open into a problem affecting multinational companies, which could be a basis for finding solutions to the problem and the growth of business. The recommendations made in this research will add to the investigative literature available, thence contribute to a solution.

Definition of terms

There are several terms, which will be used throughout this research which must come into the attention of people who will be referring to this research.

Expatriates – This term means foreign workers who are working for subsidiary firms of multinational corporations.

Expatriate management – This phrase means using foreign workers; from mother firms to manage the subsidiary firms. The phrase will also mean employing foreign staffs in multinational subsidiaries – not basically those acquired from the mother company.

Multinationals – Multinationals is a term used to mean firms that are controlling production activities in more than a single country. The term will also refer to companies that are operating globally.

Subsidiaries – Subsidiaries are firms that are located in foreign countries; outside the countries where their mother firms are operated. Subsidiaries refer to sub-companies of major companies located outside the company, where the mother plants are located in different countries in the world.

Culture – culture is used as an elaborate term in this research. It will refer to the business practices and policies in a given country. The culture will also to some extent mean the social factors affecting the interaction between workers in an organizational setup.

Mother firm – Mother firm as used in this research means the major company that is controlling the subsidiary companies. Mother firms are the pioneer companies for the subsidiary firms. The parent company will also be used to refer to mother firm in this research.

Host country – As used in this research, host country means the country where the subsidiary firms for a given multinational company is located.

Parent country – This phrase is used in this study to refer to the country where the headquarters of a company is located.

Limitations of the study

This research will use primary and secondary data hence it will be exposed to all weaknesses of secondary and primary research.

Secondary data will be used in this research it may not cater for the current issues concerning the problem under study. Time will also be a limitation in this research.

The limit in time may affect the intensity and range of data collected and details and outcomes of the analysis. The research will also be limited to a specific country with specific multinationals operating in that country.

Cultural factors in the business environment differ from one country to the other. The findings and recommendations may not apply to all countries in the world. Also, different multinationals are governed by different cultures, which affect how they manage subsidiaries using expatriates.

Timescale

This research will take place within two months. The collection of data or literature will take place within the first three weeks of research. The review of the data collected will be done within two weeks. This will be to ensure that only important data is availed for analysis and for making deductions.

This will be followed by analysis of the data collected. Data analysis will take place within two weeks. The last one week will be used for checking the inferences or recommendations to ensure that they match the analysis done.

Review of literature

What are multinationals and how do they manage subsidiaries? Multinational corporations are business entities, which controls production activities in more than one country in the world. In different industries in the world today, there are many business companies, which have expanded to the global business arena.

Some of the multinationals have a large capital base to the extent that they control production in almost every continent in the world. Other multinationals are restricted to certain regions of the world (Mayerhofer, Hartmann, Michelitsch-Riedl & Kollinger, 2004).

Multinationals bring with them a lot of benefits to economies. On of their major contribution to economies is that they offer employment opportunities in countries where they operate.

Besides this, multinationals contribute directly to national economies by submitting huge monies in the form of taxes to national governments. As multinationals expand into new areas, they are forced to adapt to new cultures and norms in the new environment.

Most multinationals prefer using the staffs from their mother firms as they understand the company better and can hold up to the norm of the company. This is common at the top level management of the company. The management of staff in the international context has become quite important for businesses today.

International human resource management pays emphasis on the management of staffs in multinational firms. It seeks to seal all the human resource management gaps which are prevailing in multinationals. One of the gaps is the cultural barrier in expatriate management in multinationals (David and John, 2006).

Factors affecting the operation of multinational companies

Research shows that there are a number of factors which affect how expatriate activities are conducted and the level of success which can be attained in expatriate management.

When the multinational firms are choosing expatriate staffs, they consider technical ability, cultural empathy, managerial skills, diplomacy, language ability and adaptability. Others are attitude, maturity and adaptability of the family member of the expatriates.

Managing human resources in foreign locations or countries poses a great challenge to human resource managers. The management of employees who originate from the same country proves to be easier than managing employees in a foreign environment (Kumar, 2011).

Research has revealed that multinationals have been facing many challenges of operating using expatriate staffs. The problems range from the cost of sustaining the expatriates to problems of adapting to the culture and the general business climate in foreign countries.

Cultural adaptation has been a major concern for firms that exercise expatriate management. Many western firms have been reporting an increase in expatriate failure where they are forced to recall their expatriate staffs.

Expatriate failure is caused by many factors among them being the difficulties in adjusting to the new business environment in the countries where they are assigned to work (Mayerhofer, Hartmann, Michelitsch-Riedl & Kollinger, 2004).

The selection of staff for international assignments has been a concern for human resource in many multinationals. Some of the factors that surround the selection of these staffs are the understanding and ability to function in foreign countries, tolerance to new changes and flexibility of behaviors.

International human resource management policies have been trying to standardize the policies governing performance appraisal. However, the differences in culture between the host countries and the parent countries make it hard for the standardization to work (Warner, 2004).

The dilemma in the management of subsidiaries using expatriates

The management of expatriates is one of the factors that determine the survival of multinational firms. The staffing decisions made have to be pegged on the cultural differences, as well as similarities between the host country and the parent country.

In addition, such decisions have to consider the orientation at the top management of firms and the strategic considerations such as the relationship between localization and standardization (Mayerhofer, Hartmann, Michelitsch-Riedl & Kollinger, 2004).

As it is now, the problem of human resource in international firms does not call for adjustment to the new environment. It is demanding a total understanding of the economic culture as well as the social culture of the country in which the company is operating.

In this case, historical understanding and experience in the economic culture and practices is appropriate. With competition in global business, firms are rushing to capture new markets.

Multinationals do not reflect about the best international human resource management practices to be used in their new firms within new locations.

Such practices could focus training on adaptation to all forms of culture as well as considering the benefits of using local staffs in managing the expatriate firms (Mayerhofer, Hartmann, Michelitsch-Riedl and Kollinger, 2004).

Expatriate assignments can pose great challenges not only to the employees but also to their families. In such scenarios, companies design compensation programs for their expatriate workers. High compensation packages are awarded to the expatriate staffs in order to sustain them in the host country.

Foreign tasks include a substantive increase in responsibility. Managing a firm outside its home country calls for more responsibility because of the limited access to corporate support and the cultural shift.

International human resource management experts have emphasized on the aspect of cultural training to the expatriate staff for multinational which highly embrace expatriate management. Cross cultural training helps the expatriates to prepare for what they will encounter in the foreign countries.

The development of international compensation policies for multinationals requires these companies to align the policies to those of the host country.

This proves to be difficult for expatriate managers especially so that such policies touch on many issues some of which touch on the tax policies of the country (Vance and Paik, 2011).

It has been recognized that the management of human resources at the global level is complex because of the nature of the practices in the in the international business environment.

International human resource management practices are going a step in solving the problems that are inherent in the management of multinational organizations. This is because international human resource practices has been forcing on training staffs on aspects of adaptability to different business environments.

This resonates from the recognition that business is no longer centered by focusing on the creation and utilization of chances at local and international level (Vance and Paik, 2011).

Can international human resource management take charge in expatriate management? Mila, Lazarova and Jean-Luc Cerdin (2007) have observed that expatriate failure has become a worry to many multinationals and thus the reason why international human resource management was codded.

The main aim of international human resource management is to develop policies that can be used for better management of staffs in multinationals. A number of measures have been suggested to avoid the problem of expatriate management.

The first measure or approach of embracing expatriate management is the element of planning. Most firms take expatriate management as a simple exercise. They thus employ the aspect of planning to a very low degree which ends up affecting the whole exercise of expatriate management.

Prior planning helps in broadening the look in the whole exercise of expatriate management. All possible hindrances are factored into the plans and strategies for mitigating or addressing them for instance training enforced.

Planning is a key preparedness factor which will ensure that these firms assess the host countries culture before picking on the modalities of expatriate management (Vance and Paik, 2011).

High costs of operation have been reported in multinationals due to the costs that are associated with expatriate management. While most multinationals continue to incur a lot of costs associated with catering for their staffs, they still record high rates.

Multinationals tend to ignore cross-cultural communication training which could be resourceful in cutting down the sums of money spend on expatriates. Research shows that staffs who are trained on cultural issues of the host country adopt better to the host countries.

They make an insightful contribution to the subsidiaries. This is contrary to expatriates who are not trained in cross cultural communications as these groups of expatriates record a high rate of failure (Du Plessis, Venter and Prabhudev, 2007).

Research Methodology

Research design

This research will take the form of a case study. This case study design will be favorable for this research as it will be looking at a specific problem in multinationals. It will focus on ten multinationals operating in a single host country.

Sampling techniques

The final sample will be composed of ten companies that will be selected from amongst the multinationals operating in one country. The sample will be composed of five multinationals operating in the services sector and five others which are operating in the manufacturing sector.

Both of these groups of subsidiaries will be sampled from amongst a group of companies lying in each of these sectors. Stratified sampling will be used to group the companies in the two main sectors under which they lie. After this, random sampling technique will be used to select samples from each of the two groups.

Data collection tools and methods

Data will be collected using different tools. Questionnaires and interview guides will be the major tools that will be used in collecting information from the employees of the sampled subsidiaries.

Questionnaires will be used in collecting information from the staffs of the subsidiaries while the interview guides will help in getting information from the topmost management of these firms. Focused group discussions will be used in administering the question guides to the managers.

Interview guides generate more comprehensive data than the questionnaires. Secondary data will be collected from secondary authentic literature materials published not more than ten years ago.

Journals will be the most preferred sources from which secondary data will be extracted. The questionnaires and the interview guides will be administered within the same time frame. The questionnaire will be self-administered.

Ten multinationals

In this research study, a total of ten multinationals will be considered. Data will be collected from the ten different multinationals. However, these companies will be chosen from the same country.

In this case, the multinationals that will be chosen are those based in the United States. The ten multinationals that are to be considered in the study include the following:

Microsoft Inc.: This is a United States based multinational that has been listed in the US, as well as in most European countries. Microsoft Inc. is a huge company that has over 90 000 employees.

SAS: This is a multinational based in the US. This company has its operations within the IT industry. It is listed in the US and Europe. It has over 12 000 employees. SAS is a private company.

FedEX Express: This company has its headquarters in the US. It is listed in some European nations, the US, as well as in the United Arab Emirates. It is in the transport industry and has over 150 000 employees.

Marriott: this is a multinational based in the US. It is listed in countries such as Brazil, Mexico, Peru, India, UAE, and in the US. It is a public company operating in the hospitality industry and has over 120 000 employees.

Cisco: This is another multinational with headquarters in the US. It has been listed in countries within Europe such as Portugal, Spain, and the Netherlands, as well as in American nations such as Brazil, Mexico, and the US. It is a public company with over 60 000 employees.

McDonald’s: This is one of the biggest company in the food and beverage industry. It is based in the US and has been listed in other American and European nations. It is a public company with over 1,800,000 employees.

Kimberly-Clark: This company has its headquarters in the US. It has been listed in most American nations, as well as in some European nations. It is a public company in the manufacturing and production industry. The company has over 57 000 employees.

SC Johnson: This company has its headquarters in the US. The company has been listed in other American countries, as well as in Europe. It is a private company in the manufacturing and production industry and has about 12, 000 employees.

American Express: It is based in New York, US. It has been listed in India, Japan, Mexico, US, and Sweden. It is a public company with over 63,000 employees. The company operates in the financial services and insurance industry.

The Medtronic Company: It has headquarters in the US and is listed in Portugal, Spain, Holland, Germany, Italy, and Ireland, as well as in Greece and Canada (Great Place to Work, 2012).

Data analysis discussion and recommendations

Data analysis will be done through the help of SPSS software. In this case, after data has been collected, it will be fed into the software for analysis. The results will be obtained, and they will be used to create graphs and charts. These results will be helpful in drawing up the conclusion.

Nonetheless, it has to be mentioned that the data will be analyzed in stages. In this respect, the data for each company will be analyzed separately first before the various conclusions are analyzed together. This is meant to ensure that all the data that will be collected from the various companies are included in the final analysis.

The data collected from each company will be sorted analyzed individually. Afterwards, the analyses made from the individual subsidiaries will be brought together and analyzed collectively.

After the collection of the primary data, it will be codded according to the response categories in the questionnaires and the interview guides. After coding the data, analysis will follow.

Data will be analyzed using a statistical method. Statistical tools of analysis like graphs, charts and percentages will be employed in the presentation and analysis of the primary data. Data points, which are easily interpretable, will be formed.

The data points will then be compared with the secondary data so as to come up with comprehensive deductions. This will be expected to give a wider view of the problem being studied.

A conclusion will be made by observing all the outcomes from the research. Recommendations will then be made by critically observing the outcomes of the research. The recommendations will form part of reference for scholars who are interested in studying areas related to this research.

Reference List

Chew, J 2004, “Managing MNC Expatriates through Crises: A Challenge for International Human Resource Management”, Research and Practice in Human Resource Management, vol. 12 no. 2, pp.1-30.

David, C M & John J A 2006, “The Repatriation and Retention of Employees: Factors leading to successful programs”, International Journal of Management, vol. 23 no. 3.

Du Plessis, A J & Beaver, B 2008, “The Changing Role of Human Resource Managers for International Assignments”, International Review of Business Research Papers, vol. 4 no. 5, pp.166-181.

Du Plessis, A. J, Venter, F & Prabhudev, N 2007, “IHRM and HRM: Two Sides of theSame Coin?”, The International Journal of Knowledge, Culture and Change Management, vol. 7, no. 4, pp. 59-68.

Grainger, R J & Nankervis, A R 2001, “Expatriation Practices in the Global Business Environment”, Research and Practice in Human Resource Management, vol. 9 no. 2, pp.77-92.

Great Place to Work 2012, World’s Best Multinational Workplaces: Great Place to Work, viewed 15 October 2012. < http://www.greatplacetowork.net/best-companies/worlds-best-multinationals/list-of-the-25-best-from-2011>

Kumar, R 2011, Human resource management: Strategic analysis text and cases, I.K. International, New Dehli.

Longatan, N 2009, Human Resources Management for Expatriation: Globalization Means More International Work and Workers, viewed 18 June 2012, <http://suite101.com/article/human-resources-management-for-expatriation-a102339.>

Mayerhofer, H, Hartmann, L C, Michelitsch-Riedl, G & Kollinger, I 2004, “Flexpatriate Assignments: A Neglected Issue in Global Staffing”, International Journal of HRM, vol. 15 no. 8, pp. 1371-1389.

Mila, B Lazarova and Jean-Luc Cerdin 2007, “Revisiting repatriation concerns: organizational support versus career and contextual influences”, Journal of International Business Studies, vol. 38, pp. 404–429.

Short, D C and Callahan, J L 2005, “Would I Work for a Global Corporation? And Other Ethical Questions for HRD”, HR Development International, vol. 8 no. 1, pp. 121-128.

Stone, R J 2008. Human resource management, John Wiley and Sons, Australia Ltd.

Treven, S 2006, “Human Resources Management in the Global Environment”, Journal of American Academy of Business, vol. 8 no. 1, pp. 120-125.

Vance, C M., & Paik, Y 2011, Managing a global workforce: Challenges and opportunities in international human resource management. Sharpe, Armonk, NY [u.a.:

Warner, M 2004, “Human resource management in China revisited: introduction”, International Journal of Human Resource Management, vol. 15 no. 4/5, pp.617-634.

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