Are+You+Taking+Your+Expatriate+Talent+Seriously

8/8/2019 Are+You+Taking+Your+Expatriate+Talent+Seriously

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GREG HARGREAVES


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shortage of leadership talent is the greatest obstacle Fortune 500

companies face as they seek to operate on a global scale. McKinsey

research shows that most companies have identified rich opportunities

created by the globalization of markets, the opening of formerly closed

economies, the ability to arbitrage differences in skill and productivity from

one region to another, and ready access to a vast pool of capital. But com-

panies also recognize that so long as they do not have enough talent, theirreach will continue to exceed their grasp of these opportunities (Exhibit 1,

on the next page). In a world of intensifying competition for human capital,

a strong global talent pool has become a strategic asset and one of the few

sources of sustainable competitive advantage. As John S. Reed, Citicorps

chairman, once commented, Our global human capital may be as important

a resource as, if not more important than, our financial capital.

A

Tsun-yan Hsieh is a director and Johanne Lavoie and Robert Samek are consultants in McKinseys

Toronto office. Copyright 1999 McKinsey & Company. All rights reserved.

G L O B A L I Z A T I O N 71

To exploit overseas opportunities, multinational corporations must usually

transfer executives into them | Yet these expatriatesa scarce and very

dear resourceoften fail, and many leave their employers even after they

succeed overseas | What can multinationals do to protect their investment?

?Are you taking

yourexpatriate

talent seriously?

Tsun-yan Hsieh, Johanne Lavoie,

and Robert A. P. Samek

?


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For most companies, expatriate managers are the cornerstone on which

international ventures are built. Once the deals have been signed, the last

toast has been drunk, and the corporate jet has left for the return flight

to North America

or Europe, it is the

expatriate managers

who stay behind to

get the new business

up and running.

These expatriates are

among the scarcest

and most expensive

resources of multina-

tional companies;

salaries and benefits

can easily run to more

than $500,000 ayear. They also play

the critical role in

the process of trans-

forming opportunities into thriving businesses by transferring (typically

from the companys home base) the required institutional resources,

technologies, and know-how; by building country-specific knowledge

and relationships; and by developing the local talent that is the key to

long-term success and profitability.

Clearly, however, companies have not given enough thought to the prob-

lem of helping this critical resource to succeed. Failure rates for overseas

postings can run as high as 70 percent and typically range between 15 and

25 percent; furthermore, companies often see their successful expatriate

managers leave for other opportunities. As a result, costs rise and interna-

tional growth slows.

In this article, we focus on approaches to establishing a first-class cadre ofexpatriates and on the problems that arise when companies attempt to do so.

Building local operations and transferring skills

Although most companies agree on the need to develop local talent for

running international operations, expatriate managers will long be with

us. Even leading global companies that have substantial local management

resources use expatriates extensively. Shell, a truly global company, has asmany as 5,600 of them, in more than 120 countries.

72 THE McKINSEY QUARTERLY 1999 NUMBER 3

E X H I B I T 1

Too few leaders for too many opportunities

Source: McKinsey Global Opportunities initiative, December 1996

Percent of respondents

45

1 2 3 4 5 6 7

45

40

35

30

25

20

15

10

5

01 2 3 4 5 6 7

We have more global opportunitiesthan we can deal with

I do not have enough leaders tomanage and develop my globalbusinesses

Sample size = 152

Strongly disagree Strongly agree Strongly disagree Strongly agree

40

35

30

25

20

15

10

5

0

Sample size = 144


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end prematurely.1 Failure rates among US expatriates are particularly

high, while those of Europeans are much lower. (The better failure rate

among Europeans might be explained by several factorsfor example, the

more extensive cross-

cultural training of

expatriates undertaken

by European compa-

nies and their longer

history of doing busi-

ness abroad.) Theserates rise significantly

in developing coun-

tries, where they can

reach 70 percent.2

The impact of such

fiascoes on a com-

panys reputation andmomentum can be

significant: relations

with stakeholders may

be damaged and cus-

tomers lost, and many

candidates for international postings may reject them for fear of failing.

Moreover, the direct cost of each failure can easily reach $1 million

including time and money wasted in selection, visits to the location before

the executive takes up an assignment, training, and relocation. Furthermore,

unsuccessful expatriate managers can suffer major career setbacks and

therefore a loss of self-esteem and self-confidence.

Leading multinationals take this investment seriously and strongly

emphasize finding, developing, and retaining expatriate business builders.

Such companies apply a combination of conventional and innovative

approaches: unlocking their internal supplies of best talent and breaking

limiting mindsets to cast a wider net. They also try to increase the oddsof success by carefully choosing qualified candidates (and families) and

keeping those candidates well connected while maintaining a healthy

pressure to perform. Finally, they maximize their return on investment

by keeping attrition rates under control and by using returning expatriates

to best advantage.


E X H I B I T 3

Expatriate business buildersan expensive resource

7

Annual compensation1

$ thousands, percentTotal average package$

Compensation1 $246,000

Additional cost to companyHousing2 84,000Schooling3 22,500Rest-and-relaxation trips4 22,500Allowances5 98,400

$473,400

Other benefits6

Three-week vacationMedicalTax evaluationCar and driver

1 Salary and 2550% bonus, sometimes not offered until the joint venture is profitable.2 Rent ranges from $4,000$10,000 a month.3 $15,000/child; assumes 1.5 children/family.4 Three rest-and-relaxation t rips at $7,500/trip/family.5 20% cost-of-living allowance; 20% hardship allowance.6 Expatriate benefits are declining or even nonexistent for middle managers.

Source: Survey of 59 senior Western multinational managers in China, McKinsey Shanghai office, 1997;

Korn/Ferry International

< 100 200300 300400 > 400

25

60

54

23 21

0

10

Successful companies

Less successfulcompanies

1A. Bross and J. S. Matte, Selecting International Employeesa Corporate Investment, Toronto: Family

Guidance International, 1997.

2Selection and training of personnel for overseas assignments, Columbia Journal of World Business,

Spring 1981, p. 77.


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Unlock the best talent

No one likes to lose valued team members, so business leaders often

hang on to their best candidates and refuse to send such people abroad.

Rigorous performance evaluation and incentive systems created for

domestic operations are the root of the problem: companies evaluate the

heads of domestic business units mainly by assessing their performance,

so those executives resist serving up (and will even attempt to hide) high-

performing candidates.

Such behavior impedes international expansion and limits development

opportunities for top candidates. Multinationals must bring forward, not

just sufficiently good people, but the very best: high-potential men and

women who are committed to coaching local talent and have developed the

credibility and organizational networks needed to access the right resources

and get things done.

To unlock these people, the essential requirements are strong incentivesencouraging managers to identify them, well-tuned HR processes, and

attention from senior managers. Indeed, some multinational corporations

have instituted formal mechanisms to

ferret out promising candidates for

postings abroad. Procter & Gamble,

aided by an on-line database, identi-

fies the competencies a given overseas

assignment demands and seeks the

best internal person for it, instead of

merely accepting someone who wants to go. Other multinational companies

use quid pro quo arrangements: they ask the heads of home-based business

units to present their top ten performers and to let one or two go for interna-

tional postings. The vacated positions are backfilled by drawing on the

companys strong management bench.

Other multinationals go the extra mile by dealing with family issues that

impede mobility, for these rank among the main problems making it hardfor leading-edge corporations to staff their fast-growing international

operations with top talent. According to a 1994 National Foreign Trade

Council survey, 80 percent of employees who refused international assign-

ments did so for family reasons. In a survey of more than 11,000 expatriates

and their spouses, Shell found that the two main factors blocking interna-

tional mobility were the reluctance of spouses to move and concerns about

the education of children. The problem will become even more acute as

the demand for global talent intensifies and the number of dual-careercouples increases.

75A R E Y O U T A K I N G Y O U R E X P AT R I A T E T A L E N T S E R I O U S L Y ?

Family issues rank amongthe leading problems impedinginternational mobility


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To break down these barriers, leading multinationals are implementing

a range of policies to help spouses before, during, and after expatriation(Exhibit 4). Shell and Colgate-Palmolive have set up comprehensive spousal-

assistance programs, including in-house counseling and job-searching services

and significant financial assistance for spouses wanting to go back to school

or start a business.

Source creatively

Very few multinationals have the luxury of a large corps of mobile and

experienced expatriate managers developed through many years of operating

in foreign markets. Even leading companies with big talent pools must

continually refresh and broaden the supply to sustain their advantage by

going beyond the talent pools at hand and sourcing creatively.

Experienced multinationals, recognizing that softer skills and certain

personal characteristics are particularly important in emerging markets,

develop the technical skills of those candidates who have high intrinsic

potential. These skills which are in short supply at many companieswith global aspirationsinclude the ability to handle foreign govern-

ments, to build deep networks of relationships, to negotiate and manage

across cultures, to develop and coach local managers, and to find

creative ways of circumventing underdeveloped market infrastructures.

Furthermore, global market pioneers must have a particular mindset.

A McKinsey study of 59 senior multinational managers in China identified

a number of attributes that characterized successful expatriates: optimism,

drive, adaptability, foresight, experience, resilience, sensitivity, andorganization (Exhibit 5).


E X H I B I T 4

Partner-family policies for expatriates

Before expatriation

Frame tailor-made solutions (location,timing, duration)

professional preferences personal circumstances (e.g., tune

timing to education of children)

Approach employer of partner and jointlyprepare expatriation proposal for couple

Offer multiyear leave of absence to followpartner with option to rejoin afterward

Set up virtual spouse community

Have entire family participate in cultureand language courses

Facilitate paid or unpaid employment(job database)

Subsidize education

Stimulate own business start-ups

Reward language ability and socialintegration of entire family

Support spouse housesnational clubsfor spouses in foreign countries

Cooperate with other multinational ormultilateral institutions

Gather feedback and act on it

Organize (social) reintegration courses

Subsidize reemployment advice to spouse

Support easy access to housing andschooling

Cover additional risks (medical and

economic)

During expatriation After expatriation

Source: McKinsey survey of five multinationals (banking, energy, retail energy, packaged consumer goods, and packaging) based in the Netherlands


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Samsung, for example, sends employees who have high potential and the

right intrinsic qualities to university to develop the required expertise

in international patent law, finance, and other specialized fields. To less

experienced multinationals, this policy may seem counterintuitive, but

the lesson is clear: dont select candidates on the basis of functional

expertise alone.

Another conventional approach involves reaching out to external sources

of talented people with closely related industry experience. Often, they are

expatriates poached from competitors that failed to use them effectively.Even multinationals, such as Gillette, that have strong internal-recruiting

cultures are prepared to parachute high-priced external executives on a

just-in-time basis into global operations. If these candidates are not suffi-

ciently familiar with the business of the company posting them, they must

be put through an accelerated development program before they go off to

head local operations. In the mid-1990s, when Sara Lee Corporation was

having problems integrating its international acquisitions, it went outside,

hiring experienced managers as global marketing consultants to operatinggroups. These newly created senior positions were designed to give new

hires a rapid 18- to 24-month orientation before they were sent out to

lead international subsidiaries.3

In addition to these

techniques, multina-

tionals must often

try more innovative

approaches. One

option is to build

the required bundle

of skills by using a

number of people.

Nortel typically sends

three expatriates to

start operations in

emerging markets: anexpert in international

finance, an entrepre-

neurial sales manager, and a line manager with the softer skills required to

handle relationships. Frances Carrefour develops stores in new emerging

markets by sending in a team that stays on site until the operation is on its

feet and then moves on to another new site. And when Procter & Gamble

was building its Chinese operations, it dispatched a team of high-potential


E X H I B I T 5

Important characteristics of a China pioneer

Source: Survey of 59 senior Western multinational managers in China, McKinsey Shanghai office, 1997

Number of times mentioned as the

most important characteristic

Optimistic: Believes future challenges can be overcome 14

Driven: Has burning passion to succeed 12

Adaptable: Handles ambiguity well 10

Farsighted: Imagines the future 8

Experienced: Has seen and done a great deal 7

Resilient: Recovers quickly from failure 6

Sensitive: Adapts management style to cultural differences 4

Organized: Plans ahead, follows through 2

3 Interview with a former Sara Lee international marketing manager, January 1997.


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people (from market research, logistics, and marketing) who spent three

years in that country.

Other multinationals, moving away from the assumption that their expatriate

managers must come from their home countries, are looking at sources like

nationals of developing countries, including employees of their joint ventures.

At Gillette, only 15 percent of the companys expatriates are natives of

the United States; 85 percent come from the other 27 countries where the

company operates.4

Finally, some multinationals, such as ABB, cleverly insist on the right to

transfer top talent from one joint venture to others. Trained managers who

have demonstrated their ability in difficult situationsbuilding distribution

systems in markets with poor infrastructure, for example, or starting up

operations in tough emerging marketsmay well replicate their successes

in other emerging markets. At one major global bank, the leading expert

on getting office automation systems up and running in new countries

originally came from one of its joint ventures in the Middle East.

Early-assessment programs

About 70 percent of failed assignments result directly from personal

and family difficulties rather than incompetence on the job,5 so most experi-

enced multinationals have early-assessment programs that solicit the feel-

ings of spouses and weigh family-related issues. Nortels selection program,

which starts by assessing employees and their families, screens candidates

against a list of known personal and family risk factors and encourages

inappropriate candidates to decline international assignments. PepsiCo

gives its employees a special test to assess their adaptability to life and

work in foreign cultures.

But such programs can be effective only if employees found to be unsuit-

able for foreign assignments dont suffer professionally. Although moving

abroad may be difficult for some high-potential people, they may nonethe-

less be able to derive international experience from creative job design andexposure. A company could, for example, pair a high-potential manager

from headquarters with an executive located in a foreign market. As John

Fulkerson, vice president of organization and development at Pepsi-Cola

International, puts it, We dont have a penalty box. There are lots of

ways to have a great career.6


4Building a global management team, Personnel Journal, August 1993, p. 75.

5Selecting International Employees, Toronto: Family Guidance International, 1997.6The care and breeding of global managers, Training, July 1992.


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Most multinationals also recognize the importance of investing in

education cross-cultural and language trainingto prepare expatriates

and their families for the move. Developed and developing countries can

have vastly different cultural and business expectations. Anyone who

relies solely on English as the worldwide business language will be

unable to tap into valuable local sources of business information and

influential business networks and can have only a limited ability to

conduct negotiations.

Training must go beyond a few days spent in classrooms discussing thehost countrys history, politics, economy, and culture. The duration of

the overseas assignment and the difficulty of making the adaptation to

the host country should determine the length of the training period and

the level of immersion, from classes at home to foreign travel. Although

it may be hard to quantify the benefits of these educational investments,

the benefits are real. S. C. Johnson & Son attributes its low expatriate

failure rate (less than 2 percent) to the cross-cultural training received

by the companys international workforce. Experience also shows thatJapanese and European expatriates, more of whom receive more cross-

cultural training than do their US counterparts (57 and 69 percent,

respectively, as opposed to 32 percent), had lower failure rates in interna-

tional assignments (an average of 1 in 15 for the Europeans versus 1 in 3

for the Americans).7

A less conventional approach to preparation involves identifying

potential candidates early and either giving them short-term foreign

assignments or getting them involved in negotiations with foreign

business partners and government

officials before making the decision

to post them abroad. That approach

may require an extra investment

up front, but the return is worth-

while; seeing candidates in action

is one of the best ways for senior

executives to evaluate their fit andpotential. Furthermore, early par-

ticipation offers candidates a unique development experience: they

can familiarize themselves with local living conditions and business

environments, start developing critical relationships, and influence key

strategic and operating decisions. All of this promotes a greater sense

of ownership.


7Selection and training of personnel for overseas assignments, Columbia Journal of World Business,

Spring 1981, p. 77.

Anyone who relies solely onEnglish will not be able to tapinto valuable resources ofinformation and influentialbusiness networks


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Keep expatriates well connected

Top-performing multinationals not only demand superb performance

from expatriate managers but also accept some responsibility for

ensuring that their families are happy in the host country and that the

expatriates themselves remain well connected to the organization and

enthusiastic about their career development. All three are prerequisites

for success.

To minimize the risk of failure, experienced multinationals start by pro-viding basic personal support for expatriates and their families. Nortel, for

instance, works with external suppliers to provide ongoing remote and local

counseling services to employees abroad. Some multinationals even invest in

specialized in-house resource operations: Honeywell has a Global Leadership

Center that provides workshops, mobility assistance in the form of an infor-

mation hotline, language training, welcome packages, and global forums.

Multinationals must also institute connectivity mechanisms to makeexpatriates feel well anchored in the broader organization; otherwise, they

can easily feel out of the action,

lose motivation, and start looking

for more involved employers. To

prevent this kind of professional

isolation, Samsung assigns each

expatriate a senior home office

mentor who periodically touches

base to provide news about events

in the home country and the head

office, as well as career advice. Coca-Colas expatriates move from one

international assignment to the next but maintain strong connections to

their mentors at the Atlanta headquarters.

These efforts to keep expatriates well connected also play a very important

role in facilitating the two-way transfer of knowledge. Once expatriates

have gone abroad, they must be able to locate expertise, best practices,and resources throughout the company and to transfer those assets to

operations in the host country. Back home, the company must be able to

assimilate the knowledge expatriates have picked up overseas. To open up

these channels, such leading multinationals as ABB consciously promote

formal and informal networks across markets through global conferences,

special projects, and cross-country task forces. Eli Lilly uses its corporate

intranet to stimulate communication among expatriates in different mar-

kets, with the ultimate goal of enhancing the companys problem-solvingabilities and building a culture of trust and support.


Efforts to keep expatriateswell connected play a veryimportant role in facilitatingthe two-way transferof knowledge


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Support and encouragement, while essential, are not enough: leading

multinationals are careful to maintain a high (but not unhealthy) level

of pressure on expatriates to keep them motivated. Setting clear targets

for managers and monitoring their performance are no less important in

emerging markets than in domestic ones. But someone who is trying to

build a business from scratch abroad should not be judged by the same

criteria as a colleague who is extending and optimizing a core business

at home.

Metrics must be in the line of sight of expatriates that is, under theircontroland simple enough to let them understand the effects of their

actions on the evaluation. Such simple performance metrics as the growth

of sales or volume, the number of new accounts, or specific milestones

in developing local businesses, for example, are often more appropriate

than metrics based on profits or option-pricing schemes that sound

good but are often overly complex. If companies expect their expatriate

employees to originate new businesses, they can add such measures as

the number of deals that actually end up doing so or the number of dealsthat are in progress.

How well expatriates score will depend to some extent on the duration of

an assignment. Managers need clear deadlines to spur their performance,

but not such tight deadlines that they have no time to achieve significant

results. Balancing these two considerations isnt easy. Coca-Cola does not

repatriate managers

until they have had a

chance to show that

they have made an

impactthree to five

years, depending on

the country and the

assignment. This

kind of performance

monitoring serves

as a great motivator,but to be inspired,

managers require

something more. McKinseys study of 59 senior managers of multinationals

in China clearly demonstrated the benefit of frequent visits by chief execu-

tive officers. On average, the CEOs of the ten most successful companies

(reckoned by market share, revenue growth, corporate position, employee

morale, and profitability) made 2.2 trips a year, while those of the less suc-

cessful ones made only 1.7. More than 70 percent of respondents foundthese visits to be a very powerful motivator (Exhibit 6).


E X H I B I T 6

The importance of visible senior management attention

Source: McKinsey survey of 59 senior Western multinational managers in China, 1997

Frequency of CEO visitsNumber of times a year

Ten most successfulcompanies

2.2

Percent of respondentsthinking visits are useful

78

Successfulcompanies

1.8 83

Less successfulcompanies

1.7 71


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Prevent the leakage of talent

Leading multinationals never forget that expatriates represent a significant

investment and strive to keep them and to capitalize on their experience.

To ensure that valued employees are not lost, companies should make careful

planning for repatriation a priority. Too many of them now fail in this task.

Upon returning to domestic operations, expatriates often discover that

during their absences their counterparts have passed them by. Others return

to jobs that do not use their new skills and find themselves with reduced

autonomy and compensation.

A survey by the US Bureau of National Affairs, a government organization,

found that 68 percent of managers were unsure of their next positions before

returning, 77 percent believed that

they had been demoted upon repa-

triation, and a stunning 91 percent

felt that their companies didnt value

their international experience. As aresult, repatriated managers in the

United States leave their companies

at twice the rate of managers with

purely domestic experience; about 25 percent of them leave within one

year of returning. This wastes valuable resources.

Systematic repatriation planning that rewards and exploits the returning

expatriates skills and experience is the key to preventing this talent drain.

Komatsu has a return ticket policy: an assurance that the company

views international postings as a broadening experience, not as a trial, and

that returning expatriates will have positions waiting for them in Japan.

At some multinationals, such as ABB, sponsoring managers are responsible

for finding them new positionsa process that starts about six months

before the conclusion of an international assignment.

Often, reverse culture shock provokes an expatriates decision to leave

a company upon returning to the home country; the Bureau of NationalAffairs found that 69 percent suffered from this syndrome. To control it,

Monsanto offers repatriation-training programs for expatriates and their

families. In what amounts to a warm corporate hug, the program addresses

the expectations of returning expatriates for reentry and gives them an

opportunity to showcase their new knowledge in a debriefing session.

Multinationals must not only preserve the expatriates loyalty but also

engage them in the process of preparing their replacements, so that theirknow-how, experience, and networks are not dissipated when they leave


One survey found that 91percent of respondents felt

that their companies did notvalue their international expertise


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their foreign operations. Samsung, for instance, has learned that returning

expatriates can give candidates preparing to go overseas a dose of reality

and make their preparation and training more credible. Moreover, leading

multinationals take advantage of the knowledge of returning executives and

cultivate their networks of contacts by arranging to keep them involved

with their former foreign operations, even when they have been promoted

to new areas of responsibility.

Organizations hoping to extract value from the gaps in skills between

emerging and developed markets will need to rely on expatriates for some

time. But these people are a scarce and very expensive resource and, unfortu-

nately, they often fail. To maximize the return from international expansion,

multinationals must take their investment in expatriates more seriously.

They must free up their best talent by reducing barriers to mobility within

their organizations and across geographical boundaries. They must raise

the odds of success through better screening, preparation, and connectivity.Finally, these companies must improve the internal transfer of knowledge

by encouraging communication and retaining expatriates after their foreign

tours of duty have ended.


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