چه هنگامی مدیران بین المللی، یک راه حل مقرون به صرفه بشمار می روند؟ منطق اقتصاد هزینه معامله به کار گرفته شده در تصمیم گیری نیروی انسانی در شرکتهای چند ملیتی

A common claim in the literature of expatriation is the one referring to the high costs of expatriation. In this paper, on the basis of transaction cost economics (TCE), we show how limited this approach is. In particular, we consider a set of costs that, although ignored in traditional expatriation literature, must be accounted for when a MNC is deciding on whether to recruit expatriates or local managers in its subsidiaries. These costs include selection, training, and performance evaluation costs. We also formulate a series of hypotheses around the situations in which the total costs of recruiting expatriates are lower than those generated by local managers. We then test these hypotheses in a sample of 96 Spanish MNCs. Findings may help explain the apparent paradox between the increasing pressures to reduce costs and the use of an apparently costly practice, such as expatriation.

One of the key decisions that multinational companies must make is whether to select local or expatriate personnel to manage their foreign subsidiaries. Despite the alleged globalization of businesses, the predominant trend in MNCs seems to be ethnocentric (Mayrhofer and Brewster, 1996). This effectively is the case in Japanese companies, in which, according to a survey by Koop (1994), 75% of their subsidiaries' directors are expatriates. But it is also the case in European and U.S. MNCs, in which expatriates occupy 54% and 51% of senior management posts, respectively. Although the ethnocentric orientation is predominant in MNCs, there are certain obvious problems associated with it. It is noted, for example, that it creates problems of adaptability to foreign environments and cultures (Black et al., 1998, Shaffer et al., 1999 and Caligiuri et al., 1998), leads to high failure rates (Tung, 1987), has a discouraging effect on local management morale and motivation (Min-Toh, 2003), and may involve high salary costs (Chen et al., 2002). With regards to the latter problem, international assignments seem to be an “expensive” option for an enterprise. A survey of the Management Europe Center reports that the salary cost of an expatriate is approximately three times as high as a local employee's. In some countries, such as China, expatriates have been estimated to earn between 20 and 50 times as much as local employees do (Chen et al., 2002). A thorough summary of these expatriation problems is provided by Bonache et al. (2001). If we focus only on costs, what is certainly surprising is why, within a business context, under unremitting pressure to keep costs down, MNEs should continue to implement such an apparently costly solution, such as expatriation. Explaining this apparent paradox will require more theoretical guidance than past work on expatriation has received. In this study, we tested the viability of the transaction cost perspective as an explanation for firm's reliance on expatriates to manage foreign subsidiaries. The remainder of this paper is organized as follows. The next section explains why this theoretical perspective is particularly suited to examining the central question of our paper. In the following section, we analyze the overall costs, above and beyond the purely salary-related costs to which traditional expatriate literature limits its attention, that are implicit in management personnel recruiting in subsidiaries. Then, we formulate a series of hypotheses around the situations in which the total costs of recruiting expatriates are lower than those generated by local managers. The data collection and measurement procedures are then described, followed by a report of the empirical results. The final section discusses the findings of the study, points out its limitations, and suggests directions for further research.

A common claim in the literature on expatriation refers to the high costs of expatriates. In this paper, on the basis of TCE, we have shown how limited this approach is. In particular, we have considered a set of costs that, although ignored in traditional expatriation literature, must be accounted for when a MNC is deciding on whether to recruit expatriates or local managers in its subsidiaries. These costs include selection, training, and performance evaluation costs. We have also defended the premise that, in companies with a lower level of international expansion, a lower degree of technological innovation, a global strategy, and operations in very culturally distant environments, expatriates can be a cost-effective solution. This explains the apparent paradox, formulated at the beginning of this paper, of how it is possible, in a business context defined by the need to reduce costs, that companies continue to make intensive use of such an apparently costly solution. The empirical investigation supports three of our four hypotheses, which illustrates the viability of our approach. That expatriates are more extensively used in companies with a global strategy and a low level of international expansion, two of our study’s findings, is consistent with the findings obtained by Edstrom and Galbraith (1977) in the late 1970s. In contrast, the third supported hypothesis in our study, i.e., that expatriates are used less in multinational companies with a higher level of technological innovation, is a finding that, as far as we know, has not resulted from any previous studies on this subject. In view of this, the TCE not only makes it possible to confirm findings already obtained from other theoretical perspectives, but also results in new findings that provide sound arguments for defending their potential and interest in this area. Our data did not support the hypothesis concerning a diminished use of expatriates when companies operate in increasingly culturally distant environments. Instead, we have found that, at least in Spanish multinationals, the target country has no influence on the recruitment option. A possible reason for this is that the importance of cultural distance starts decreasing as the company acquires a solid international presence. In this case, and consistent with our line of reasoning, information asymmetries and opportun- ism, two of the factors that generate higher or lower employment costs, are reduced. Companies with a solid international base have already acquired information on how to operate in local job markets, and they also have a local personnel base in their subsidiaries to select the more trustworthy individuals. The study has some limitations. First of all, we recognize that our framework may be incomplete. Other transaction costs that have not been identified may also be significant to the employment relation in a subsidiary of a MNC (e.g., the costs of enforcing contracts). Second, the existence of transaction costs associated with the recruitment decision in multinationals helped us formulate the hypotheses tested in the empirical investigation, but they were not specifically measured. In this respect, we understand that this study is of a merely exploratory nature and should be complemented by other future studies to fill this gap. Finally, the study has not measured how staffing decisions, based on transaction cost considerations, influence the future performance of the company’s subsidiary, depending on which candidate was chosen. Future research on this issue is clearly needed. Despite these limitations, we consider that the study points to some interesting elements that do more than shed some light on the apparent contradiction mentioned above. In the first place, the study establishes and explains, from a sound theoretical perspective, an area of management (i.e., expatriate management) that tends to be criticized as being a merely descriptive field lacking in analytical rigor. Second,it not only integrates a specific international human resource management decision with the company’s international strategy, but also jointly considers different human resources policies or decisions; in particular, it demonstrates the influence that other human-resource decisions, such as training, compensation, and performance evaluation, have on the selection decision. Therefore, it involves the two types of integration (external and internal) that are usually attributed to human resource policies for them to be considered strategic. As the need to introduce the b strategic Q point of view in expatriate management is a claim made by several authors ( Taylor et al., 1996 ), we consider that this work also makes a contribution in this direction.