Advantages and Disadvantages of Expats

Introduction

Nowadays, most companies have been expanding internationally, many positions have to be filled which range from entry level positions to those of senior management. As more companies go global, the need for the transfer of skills and knowledge becomes essential if the company is to succeed internationally. To ensure that the subsidiary’s goals, practices and strategies are in line with the parent company, it is necessary to have senior management filled by qualified individuals capable of leading the new, inexperienced team and steering it in the right direction. In addition, to ensure that the subsidiary inherits the culture and practices from the parent company, managers from the parent company might be deployed to fill senior management positions at the subsidiary. However, other positions at the subsidiary might be filled by personnel from local countries rather than the parent or host country. Personnel who do not hail from the host country are defined as expatriates. While recruiting the expertise of the expatriates might be advantageous, they bring a unique set of problems which need to be dealt with to ensure their efficiency. Although there are disadvantages associated with employing expatriates, there are measures that companies can adopt to ensure that the impact of these problems would be decreased.

Advantages of Expatriates

Expertise and Skills

Employing the expertise of expatriates can help a company accelerate the development of its subsidiary or return it to profitability. The skills that they already possess will enable the expatriates to pass on their knowledge and skills to their subordinates and train them in the relevant skills and knowledge. When expatriates are selected for foreign assignments, they have to be chosen based on their skill levels and their ability to adapt. Therefore, when they pass their knowledge and skills to the employees at the subsidiary, the company is able to expand successfully. Despite having a successful 20 year run in Japan, a subsidiary company’s business volumes had decreased, causing its profit levels to dip. HTM Corporation concluded that this situation required the use of expatriates with high levels of technical and communication skills to return the business to its profitable level (HTM Corporation, 2009). As seen in this case, the expertise of expatriates is able to help companies, previously profitable without expatriates, return to those levels as they have sufficient skills.

Expatriates are able to bring lot of experience to the subsidiary company because the unique experiences may enable them to help the company succeed through innovation and creativity (Radio New Zealand International, 2009). Expatriates are also able to fill vacancies when the host country nationals do not have the relevant skills or expertise (Pacific Bridge Inc, 2009). This is an alternative to providing on-the job training for the locals.

Company Culture and Practices Passed Down Easily

The parent company culture and relevant practices and procedures can be passed down quickly if training of the local employees is conducted by expatriates from the parent company. The ideals, vision and mission of the parent company can be demonstrated through the expatriate. If the expatriate embodies these principles of the company, the culture and practices of the parent company can be transferred to the subsidiary quickly and effectively.

Disadvantages of expatriates

High Costs

Although Employing expatriates are beneficial to a company, it is an expensive process. Relocating an expatriate with a family which can be time consuming and costly to the company. For instance, hiring an expatriate to work in China can cost as much as five times of hiring a local. This is due to the package that the expatriate is to receive as compensation. This compensation and benefits package usually consists of a hardship allowance, housing, insurance, tax and home leave, amongst other benefits. The compensation and benefits package is usually attractive to expatriates as a form of financial advancement. This makes the move to the subsidiary company and country attractive. To ensure that it is attractive enough to entice the highly skilled and experienced personnel, the compensation and benefits package has to result in a higher standard of living or the promise of career advancement. The company has to support its high costs, while the expatriate benefits from this package.

Other than the compensation and benefits that the expatriate receives, the parent company also has to invest time, money and effort into pre-departure training and incur other costs such as sending the potential expatriate on a trip to assess the location. Hence, there will be a loss of man-hours.

As a result of the high costs involved, it is substantial that the expatriate is well prepared for the move. This will reduce the likelihood of expatriate failure which will incur more costs.

Discontent among Locals

Due to highly trained, educated and skilled expatriates joining the new subsidiary, locals might be discontented when they feel that their opportunities are being taken away. Local mid-level managers might feel that they do not have the opportunity to advance in their careers. This would encourage the talent to leave the company in order to get promote. Consequently, staff turnover might rise because of expatriates holding all the senior positions in the company. This discontent among the locals could be damaging to the subsidiary company. If the company acquires a reputation for poor career advancement opportunities, talented locals are unlikely to pursue a career in that company. Therefore, the company should utilise expatriates while it is in its initial phase but train local managers to succeed the expatriate.

Adapting to the New Environment

Utilising expatriates to fill key positions is a risky task because of moving an expatriate and the family requires time and effort. An expatriate with children and a working spouse might be concerned about whether the spouse and children will be able to integrate into the local environment easily. To ensure ease of integration, the expatriate must be flexible and open-minded. The company also has to prepare the expatriate for the move to the new country.

Expatriates, unfamiliar with the local environment and location, require more time to adapt to their new life. As a result of this unfamiliarity, the expatriate is likely to be less efficient and productive for an initial period. With low productivity, the profits of the company might decrease. Therefore, to reduce the impact of low productivity as a result of adjusting to their new life, expatriates should receive well-structured pre-departure training, preparing them on what they are to expect in the subsidiary company and country. Also, expatriates should be hired on the basis of their ability and willingness to adapt to new environments. Alternatively, they should be allowed a period of time to settle into the new country before starting work.

Bibliography

HTM Corporation, (2009). Expatriates in Tokyo, Japan – Outsourcing by HTM. Retrieved on 11th March 2011 from http://www.htm.co.jp/Astrategicallyusingexpacts.htm

Pacific Bridge Inc., (2009). Asia – Compensation, Hiring and Retaining Employees in South East Asia. Retrieved on 11th March 2011 from http://www.pacificbridge.com/publication.asp?id=58

Pacific Bridge Inc., (2002). Asian HR eNewsletter, Retrieved on 11th March 2011 from http://www.pacificbridge.com/newslettervol.asp?vol=2&no=7

Radio New Zealand International, (2009). Samoa’s Prime Minister Defends Hiring Expatriates for SamoaTel. Retrieved on 12th March 2011 from

http://www.rnzi.com/pages/news.php?op=read&id=46480

Tripod, (n.d.). Use of Expatriates, Retrieved on 12th May 2011 from http://members.tripod.com/cometonada/HRM.htm