The Right Way to Manage Expats
In today’s global economy, having a workforce that is fluent in the ways of the world isn’t a luxury. It’s a competitive necessity. No wonder nearly 80% of midsize and large companies currently send professionals abroad—and 45% plan to increase the number they have on assignment.
But international assignments don’t come cheap. On average, expatriates cost two to three times what they would in an equivalent position back home. A fully loaded expatriate package including benefits and cost-of-living adjustments costs anywhere from $300,000 to $1 million annually, probably the single largest expenditure most companies make on any one individual except for the CEO.
The fact is, however, that most companies get anemic returns on their expat investments. Over the past decade, we have studied the management of expatriates at about 750 U.S., European, and Japanese companies. We asked both the expatriates themselves and the executives who sent them abroad to evaluate their experiences. In addition, we looked at what happened after expatriates returned home. Was their tenure worthwhile from a personal and organizational standpoint?
Overall, the results of our research were alarming. We found that between 10% and 20% of all U.S. managers sent abroad returned early because of job dissatisfaction or difficulties in adjusting to a foreign country. Of those who stayed for the duration, nearly one-third did not perform up to the expectations of their superiors. And perhaps most problematic, one-fourth of those who completed an assignment left their company, often to join a competitor, within one year after repatriation. That’s a turnover rate double that of managers who did not go abroad.
If getting the most out of your expats is so important, why do so many companies get it so wrong? The main reason seems to be that many executives assume that the rules of good business are the same everywhere. In other words, they don’t believe they need to—or should have to—engage in special efforts for their expats.
Take the expat assignment process. Executives know that negotiation tactics and marketing strategies can vary from culture to culture. Most do not believe, however, that the variance is sufficient to warrant the expense of programs designed to select or train candidates for international assignments.
Further, once expats are in place, executives back home usually are not inclined to coddle their well-paid representatives. When people are issued first-class tickets on a luxury liner, they’re not supposed to complain about being at sea.
Finally, people at the home office find it difficult to imagine that returning expats need help readjusting after just a few years away. They don’t see why people who’ve been given an extended period to explore the Left Bank or the Forbidden City should get a hero’s welcome. As a result of such thinking, the only time companies pay special attention to their expats is when something goes spectacularly wrong. And by then, it’s too little, too late.
Of course, some companies do engage in serious efforts to make foreign assignments beneficial both for the employees and the organization. Very often, however, such companies consign the responsibility of expat selection, training, and support to the human resources department. Few HR managers—only 11%, according to our research—have ever worked abroad themselves; most have little understanding of a global assignment’s unique personal and professional challenges. As a result, they often get bogged down in the administrative minutiae of international assignments instead of capturing strategic opportunities.
Over the past several years, we have concentrated on examining the small number of companies that have compiled a winning track record in the process of managing their expats. Their people overseas report a high degree of job satisfaction and back that up with strong performance. These companies also hold on to their expats long after they return home. GE Medical Systems, for example, has all but eliminated unwanted turnover after repatriation and has seen its international sales expand from 10% to more than 50% of its total sales during the last ten years.
The companies that manage their expats effectively come in many sizes and from a wide range of industries. Yet we have found that they all follow three general practices:
When making international assignments, they focus on knowledge creation and global leadership development. Many companies send people abroad to reward them, to get them out of the way, or to fill an immediate business need. At companies that manage the international assignment process well, however, people are given foreign posts for two related reasons: to generate and transfer knowledge, to develop their global leadership skills, or to do both.
They assign overseas posts to people whose technical skills are matched or exceeded by their cross-cultural abilities. Companies that manage expats wisely do not assume that people who have succeeded at home will repeat that success abroad. They assign international posts to individuals who not only have the necessary technical skills but also have indicated that they would be likely to live comfortably in different cultures.
They end expatriate assignments with a deliberate repatriation process. Most executives who oversee expat employees view their return home as a nonissue. The truth is, repatriation is a time of major upheaval, professionally and personally, for two-thirds of expats. Companies that recognize this fact help their returning people by providing them with career guidance and enabling them to put their international experience to work.
Let’s explore the practices in turn, illustrating them with companies that have put them to good use over the past several years.
For as long as companies have been sending people abroad, many have been doing so for the wrong reasons—that is, for reasons that make little long-term business sense. Foreign assignments in glamorous locales such as Paris and London have been used to reward favored employees; posts to distant lands have been used as dumping grounds for the mediocre. But in most cases, companies send people abroad to fill a burning business need: to fight a competitor gaining market share in Brazil, to open a factory in China, to keep the computers running in Portugal.
Immediate business demands cannot be ignored. But the companies that manage their expats effectively view foreign assignments with an eye on the long term. Even when people are sent abroad to extinguish fires, they are expected to plant forests when the embers are cool. They are expected to go beyond pressing problems either to generate new knowledge for the organization or to acquire skills that will help them become leaders.
Imagine a large Canadian company that wants to open a telephone-making plant in Vietnam. It would certainly send a manager who knows how to manufacture phones and how to get a greenfield facility up and running quickly. The manager’s performance rating and compensation would reflect those objectives, but that’s where most companies would stop. Companies that manage their expats effectively, however, would require more of the manager in Vietnam. Once the plant was established, he would be expected to transfer his knowledge to local professionals—and to learn from them, too. Together, they would be expected to generate innovative ideas.
Nokia, the world’s second largest manufacturer of mobile phones, is a good example of a company that effectively uses international assignments to generate knowledge. Unlike most large technology companies, Nokia does not rely on a central R&D function. Instead, it operates 36 centers in 11 countries—from Finland to China to the United States. Senior executives scan their global workforce for engineers and designers who are likely to generate new ideas when combined into a team. They bring these people together in an R&D center for assignments of up to two years, with the explicit objective of inventing new products. The approach works well: Nokia continues to grab global market share by rapidly turning new ideas into successful commercial products, such as the Nokia 6100 series mobile telephones that were launched last year in Beijing and have quickly captured a leading position in markets around the world.
Other companies have more need to focus on the second reason for international assignments: to develop global leadership skills. Such companies would concur with a recent observation by GE’s CEO: “The Jack Welch of the future cannot be like me. I’ve spent my entire career in the United States. The next head of GE will be somebody who has spent time in Bombay, in Hong Kong, in Buenos Aires.” An executive cannot develop a global perspective on business or become comfortable with foreign cultures by staying at headquarters or taking short business trips abroad. Such intangibles come instead as a result of having spent more than one sustained period working abroad.
Indeed, the only way to change fundamentally how people think about doing business globally is by having them work abroad for several months at a time. Everyone has a mental map of the world—a set of ingrained assumptions about what people are like and how the world works. But our maps may not be able to point us in the right direction when we try to use them in uncharted territory. Consider the case of a tall American businessman who, during a recent trip to Japan, dined at a traditional restaurant. Upon entering, he bumped his head on the doorjamb. The next day, the same thing happened. It was only on the third time that he remembered to duck. People on international assignments hit their heads on doorjambs many times over the years. Eventually, they learn to duck—to expect that the world abroad will be different from the one they had imagined. Hard experience has rearranged their mental maps or, at the very least, expanded the boundaries on their maps.
It is with such a broadened view of the world that global leaders are made. A vice president for Disney, for example, was posted in 1993 to EuroDisney, the company’s struggling theme park just outside Paris. Stephen Burke arrived in France with the same mental map of the company as the senior managers at home. He believed, for instance, that families and alcohol do not mix at Disney theme parks. But after living in France for several months, Burke came to see what an affront Euro-Disney’s no-alcohol policy was to most of its potential local customers. A glass of wine with lunch was as French as a cheeseburger was American. Further, Burke came to see that Disney’s lack of focus on tour operators—a more important distribution channel in Europe than in North America—made it inconvenient to book reservations for complete vacation packages, which many Europeans prefer to arrange.
With his new perspective on the local market, Burke pushed hard to persuade Disney’s top management to sell wine at its French park and to create complete vacation packages for tour operators. He succeeded. Because of those and other changes, attendance and hotel occupancy soon skyrocketed, and EuroDisney posted its first operational profit. Burke told us afterward, “The assignment to EuroDisney caused me to challenge long-held assumptions that were based on my experiences and career at Disney. After living in France, I came to look at the world quite differently.”
The two principal goals of international assignments—generation of knowledge and development of global leaders—are not mutually exclusive. But it is unlikely that an international posting will allow a company to achieve both goals in every case or to an equal degree. Not every employee going abroad has abundant knowledge to share or the right stuff to be the company’s future CEO. What matters, however, is that executives explicitly know beforehand why they are sending a person overseas—and that the reason goes beyond an immediate business problem.
The reason for sending a person overseas must go beyond an immediate business problem.
Just as important, it is critical that expats themselves know the rationale for their assignments. Are they being sent abroad to generate knowledge or to develop their leadership skills? At the effective companies we studied, this kind of information helps expats focus on the right objectives in the right measure. For example, a communications company recently transferred one of its top lean-manufacturing experts from Asia to the United States. His task was to help managers understand and implement the practices that had been perfected in Singapore and Japan. The company’s senior executives did not expect him to hone his leadership capabilities because they did not believe that he would ascend the corporate ranks. Knowing the main purpose of his posting, the expert was able to focus his energy on downloading his knowledge to other managers. Moreover, he did not build up unrealistic expectations that he would be promoted after returning home.
Companies with foreign operations will always face unexpected crises from time to time. But the companies that reap the most from sending their people abroad recognize that international assignments can’t just be about sending in the medics. They must also be about ensuring the organization’s health over the long term.
Just as managers often send people abroad for the wrong reasons, they frequently send the wrong people. Not because they send people who don’t have the necessary technical skills. Indeed, technical skill is frequently the main reason that people are selected for open posts. But managers often send people who lack the ability to adjust to different customs, perspectives, and business practices. In other words, they send people who are capable but culturally illiterate.
Managers often send people on overseas assignments who are capable but culturally illiterate.
Companies that have a strong track record with expats put a candidate’s openness to new cultures on an equal footing with the person’s technical know-how. After all, successfully navigating within your own business environment and culture does not guarantee that you can maneuver successfully in another one. We know, for instance, of a senior manager at a U.S. carmaker who was an expert at negotiating contracts with his company’s steel suppliers. When transferred to Korea to conduct similar deals, the man’s confrontational style did nothing but offend the consensus-minded Koreans—to the point where suppliers would not even speak to him directly. What was worse, the man was unwilling to change his way of doing business. He was soon called back to the company’s home office, and his replacement spent a year undoing the damage he left in his wake.
How do you weed out people like the man who failed in Korea? The companies that manage expats successfully use a variety of tools to assess cultural sensitivity, from casual observation to formal testing. Interestingly, however, almost all evaluate people early in their careers in order to eliminate some from the potential pool of expats and help others build cross-cultural skills.
Although the companies differ in how they conduct their assessments, our research shows that they seek the following similar characteristics in their expats:
Most expats will try to communicate with local people in their new country, but people who end up being successful in their jobs are those that don’t give up after early attempts either fail or embarrass them. To identify such people, the most effective companies in our research scanned their ranks for employees who were both enthusiastic and extroverted in conversation, and not afraid to try out their fractured French or talk with someone whose English was weak.
The tendency for many people posted overseas is to stick with a small circle of fellow expats. By contrast, successful global managers establish social ties to the local residents, from shopkeepers to government officials. There is no better source for insights into a local market and no better way to adjust to strange surroundings.
It is human nature to gravitate toward the familiar—that’s why many Americans overseas find themselves eating lunch at McDonald’s. But the expats who add the most value to their companies—by staying for the duration and being open to local market trends—are those who willingly experiment with different customs. In India, such people eat dal and chapatis for lunch; in Brazil, they follow the fortunes of the local jai alai team.
Expats with a cosmopolitan mind-set intuitively understand that different cultural norms have value and meaning to those who practice them. Companies that send the right people abroad have identified individuals who respect diverse viewpoints; they live and let live.
When expats negotiate with foreigners, the potential for conflict is much higher than it is when they are dealing with compatriots. Different cultures can hold radically different expectations about the way negotiations should be conducted. Thus a collaborative negotiation style, which can be important enough in business at home, becomes absolutely critical abroad.
Consider the approach taken by the vice chairman of Huntsman Corporation, a private chemicals company based in Salt Lake City with sales of $4.75 billion. Over the last five years, Jon Huntsman, Jr., has developed an informal but highly successful method for assessing cultural aptitudes in his employees. He regularly asks managers that he thinks have global leadership potential to accompany him on international trips, even if immediate business needs don’t justify the expense. During such trips, he takes the managers to local restaurants, shopping areas, and side streets and observes their behavior. Do they approach the strange and unusual sights, sounds, smells, and tastes with curiosity or do they look for the nearest Pizza Hut? Do they try to communicate with local shopkeepers or do they hustle back to the Hilton?
Huntsman also observes how managers act among foreigners at home. In social settings, he watches to see if they seek out the foreign guests or talk only with people they already know. During negotiations with foreigners, he gauges his managers’ ability to take a collaborative rather than a combative approach.
Although time consuming and sometimes costly, Huntsman’s approach to screening potential expats is actually remarkably efficient. He is able to assess candidates before the pressures of an impending international problem make a quick decision necessary. Consequently, he makes fewer expensive mistakes when choosing whom to send abroad.
Other companies, such as LG Group, a $70 billion Korean conglomerate, take a more formal approach to assessing candidates for foreign assignments. Early in their careers, candidates complete a survey of about 100 questions designed to rate their preparation for global assignments and their cross-cultural skills. Afterward, LG employees and their managers discuss how specific training courses or future on-the-job experiences could help them enhance their strengths and overcome their weaknesses. From this discussion, a personalized development plan and timetable are generated. Because LG’s potential expats are given time to develop their skills, about 97% of them succeed in meeting the company’s expectations when they are eventually sent on international assignments.
The surveys used by LG were purchased from an outside company and cost from $300 to $500 per person. Other organizations develop them in-house, with the help of their training or HR departments. In either case, the survey questions generally ask people not to evaluate their own characteristics but to describe their past behavior. For example, they might be asked when they had last eaten a meal from a cuisine that was unfamiliar to them.
A third approach to identifying potential expats is used by Colgate-Palmolive, which has about 70% of its sales outside the United States and decades of international experience. To fill its entry-level marketing positions, the company recruits students from universities or business schools who can demonstrate an ability to handle cross-cultural situations. They may have already worked or lived abroad and will at the very least have traveled extensively; they will often be able to speak a foreign language. In this way, Colgate-Palmolive leverages the investment that other companies have made in an employee’s first experience abroad.
Colgate-Palmolive takes a similarly cautious approach once such promising young people are on staff. Instead of sending them on long assignments abroad, it sends them on a series of training stints lasting 6 to 18 months. These assignments do not come with the costly benefits that are provided to high-level expats, such as allowances for housing and a car. This strategy means the company can provide young managers with a broad range of overseas experience. One manager hired in the United States, for example, spent time in the Czech Republic and the Baltic states and recently became country manager in Ukraine—all before celebrating his thirtieth birthday.
Companies face a trade-off between the accuracy and the cost of expat assessment. Although Colgate-Palmolive’s approach is probably the most accurate way to assess an individual’s potential to succeed on international assignments, it comes with a substantial price tag. That approach is probably most appropriate for a multinational that needs a large cadre of global managers. For companies with lesser workforce requirements, the less costly approaches of Huntsman and LG may make more sense. In any case, the key to success is having a systematic way of assessing the cross-cultural aptitudes of people you may want to send abroad.
Virtually every effective company we studied took the matter of repatriation seriously. Most companies, however, do not. Consider the findings of our research: about one-third of the expats we surveyed were still filling temporary assignments three months after coming home. More than three-quarters felt that their permanent position upon returning home was a demotion from their posting abroad, and 61% said that they lacked opportunities to put their foreign experience to work. No wonder the average turnover rate of returning professionals reaches 25%. We know of one company that over a two-year period lost all the managers it sent on international assignments within a year of their return—25 people in all. It might just as well have written a check for $50 million and tossed it to the winds.
The story of a senior engineer from a European electronics company is typical. The man was sent to Saudi Arabia on a four-year assignment, at a cost to his employers of about $4 million. During those four years, he learned fluent Arabic, gained new technical skills, and made friends with important businesspeople in the Saudi community. But upon returning home, the man was shocked to find himself frequently scolded that “the way things were done in Saudi Arabia has nothing to do with the way we do things at headquarters.” Worse, he was kept waiting almost nine months for a permanent assignment which, when it came, gave him less authority than he had had abroad. Not surprisingly, the engineer left to join a direct competitor a few months later and ended up using the knowledge and skills he had acquired in Saudi Arabia against his former employer.
International assignments end badly for several reasons. First, although employers give little thought to their return, expats believe that a successful overseas assignment is an achievement that deserves recognition. They want to put their new skills and knowledge to use and are often disappointed both by the blasé attitude at headquarters toward their return and by their new jobs. That disappointment can be particularly strong for senior expats who have gotten used to the independence of running a foreign operation. As one U.K. expatriate recently observed, “If you have been the orchestra conductor overseas, it is very difficult to accept a position as second fiddle back home.”
Changes in and out of the office can also make homecoming difficult. The company may have reshuffled its top management, reorganized its reporting structure, or even reshaped its culture. Old mentors may have moved on, leaving the returning employee to deal with new decision makers and power brokers. Things change in people’s personal lives, too. Friends may have moved away, figuratively or literally. Children may find it hard to settle back into school or relate to old playmates.
The effective companies in our research used straightforward processes to solve these problems. At Monsanto, for example, the head office starts thinking about the next assignments for returning expats three to six months before they will return. As a first step, an HR officer and a line manager who is senior to the expat—both with international experience—assess the skills that the expat has gained during her experience overseas. They also review potential job openings within Monsanto. At the same time, the expat herself writes a report that includes a self-assessment and describes career goals. The three then meet and decide which of the available jobs best fits the expat’s capabilities and the organization’s needs.
In the six years since it introduced the system, Monsanto has dramatically reduced the turnover rate of its returning expatriates. And because returning employees participate in the process, they feel valued and treated fairly—even if they don’t get their job of first choice.
Along with finding their returning expats suitable jobs, effective companies also prepare them for changes in their personal and professional landscapes. For example, the oil and gas company Unocal offers all expats and their families a daylong debriefing program upon their return. The program focuses on common repatriation difficulties, from communicating with colleagues who have not worked abroad to helping children fit in again with their peers. The participants watch videos of past expats and their families discussing their experiences. That sets the stage for a live discussion. In many cases, participants end up sharing tips for coping with repatriation, such as keeping a journal. The journal is useful, many returning expats say, because it helps them examine the sources of their frustrations and anxieties, which in turn helps them think about what they might do to deal with them better.
Although participants find repatriation programs useful, it is seldom cost effective for a company to provide them in-house unless its volume of international assignments is heavy. Most companies that offer such programs outsource them to professional training companies or form consortiums with other companies to share the costs. Effective companies have realized that the money they spend on these programs is a small price to pay for retaining people with global insight and experience.• • •
Companies that manage their expats successfully follow the three practices that make the assignments work from beginning to end. They focus on creating knowledge and developing global leadership skills; they make sure that candidates have cross-cultural skills to match their technical abilities; and they prepare people to make the transition back to their home offices.
Given the poor record that most companies have when it comes to managing expats, it’s probably no surprise that we often encounter organizations in which none of the three practices are at work. Some companies, however, are committed to one or two of the practices, and so the question arises, Do you have to follow all three to see a payback on your expat investment? The answer, our research would suggest, is yes. The practices not only reinforce one another, they also cover the entire expat experience, from assignment to return home.
Consider the dividends reaped by Honda of America Manufacturing, perhaps one of the best examples of a company that implements all three practices. Honda starts expat assignments with clear strategic objectives such as the development of a new car model or improved supplier relations. Assignees then complete a survey to identify personal strengths and weaknesses related to the upcoming assignment. Six months before an expat is scheduled to return home, the company initiates an active matchmaking process to locate a suitable job for that person; a debriefing interview is conducted upon repatriation to capture lessons learned from the assignment.
As a result of Honda’s integrated approach, nearly all of its expats consistently perform at or above expectations, and the turnover rate for returning employees is less than 5%. Most important, its expats consistently attain the key strategic objectives established at the beginning of each assignment.
Companies like Honda, GE, and Nokia have learned how to reap the full value of international assignments. Their CEOs share a conviction that sustained global growth rests on the shoulders of key individuals, particularly those with international experience. As a result, those companies are poised to capture tomorrow’s global market opportunities by making their international assignments—the largest single investments in executive development that they will make—financially successful today.
J. Stewart Black (stewart.black@insead.edu) is the associate dean of executive development programs in the Americas at Insead, an international business school in France, Singapore, Abu Dhabi, and the United States.
Hal Gregersen is Executive Director of the MIT Leadership Center, a Senior Lecturer in Leadership and Innovation at the MIT Sloan School of Management, and the founder of the 4-24 Project. A Thinkers50 globally ranked management thinker, he is the author of the forthcoming book Questions Are the Answer: A Breakthrough Approach to Your Most Vexing Problems at Work and in Life (HarperCollins) and co-creator (with Sam Abell) of “Leadership and the Lens: Reframing the Question to Unlock Insight and Impact,” a unique executive education experience delivered by MIT Sloan Executive Education in association with Santa Fe Photographic Workshops.
The Right Way to Manage Expats
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