Expatriates: What is your strategy?
The decision to employ an expatriate is not to be taken lightly. The most commonly cited reason that organisations employ expatriates is a shortage of specific skills in the local environment. From an employee's perspective, the attraction of expatriate assignments can be multifaceted. The opportunity is seen as a vehicle for enhanced wealth, professional and social development and the experiential component of residing in a foreign country. What approach should your organisation take for its expatriate strategy?
There are four fundamental approaches an organisation can adopt to their expatriate strategy:
1. International strategy
An international strategy seeks to create value by transferring skills and products to foreign markets where the local market is lagging in these areas. An international strategy is practical where the organisation has a core competence that is lacking in the host country. This strategy is also effective where there are limited needs for local customisation of products. Where local customisation and pricing demands are high, this strategy is not particularly effective.
2. Global strategy
A global strategy seeks to increase profitability by benefitting from the cost reductions that come from experience curve effects and location economies. Production, marketing, retail and distribution are transferred to host locations to leverage these advantages. This strategy is effective in industrial economies where the demand side for local responsiveness is minimal. However, where localised demand for differentiation (e.g. FMCG) is high, the knock on effects can prove costly. This strategy leverages cost and income differentials of different economies to enhance profitability.
3. Multi-domestic strategy
A multi-domestic strategy seeks to create mechanisms and processes geared to local responsiveness. This localisation is a key differentiator but comes at significant cost as economies of scale are diminished. The format of customised production facilities and processes can be leveraged as long as there are not significant local competitors.
4. Transnational strategy
A transnational strategy seeks to decentralise core competencies, creating a multi-directional flow rather than a head-office-to-subsidiary approach adopted in an international strategy. This strategy works where there are high local demands for customisation and opportunities to leverage off the global learning.
Where organisations adopt an international or global strategy, there are control considerations in deploying expatriates. Employees who are familiar with corporate culture and processes are able to ensure compliance in the host environment.
Expatriate assignments are key developmental drivers
While the traditional expatriate assignments incurred significant costs, a number of organisations are now viewing the assignments as a developmental curve - particularly for people under the age of 30 - that does not attract additional premiums. The mobility of this younger generation is a benefit as when people become settled with spouses, children and bonds, their desire to up-root diminishes.
The concept of developing local skills during expatriate assignments has become a key metric. The inherent costly nature of expatriate assignments implies that their duration should be limited. As local skills are a primary driver for deploying expatriates, the development and training of local resources should be the primary outcome of any expatriate assignment.
Remember: Local is lekker
Due consideration should be given to the retention of locals with newly acquired skill sets. It's often difficult to retain these people in economies where there is a dearth of the particular skill set – the main reason for the initial assignment. Retention policies need to be tightly aligned within the employee value proposition to reduce risk to your organisation!
