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Trade Routes: The Hidden Cost of Expatriate Executives

Michael Wynne

How would you like a job as a top executive for an American company in a foreign country? Pay could be one and a half to two times your current salary. In addition, you would receive extra cost-of-living pay, a company car with chauffeur, country club membership, paid vacation airfare back to the U.S., and an ample expense budget.

That might be the typical compensation, benefits, and perks package for an expatriate’s assignment in a foreign country. Sounds expensive for the company, right? You bet, but it’s only part of what it might cost the company.

Most major companies, regardless of industry, already are aware of the expense of paying out-of-country executives higher compensation packages and benefits. What they may not realize is the huge hidden cost of these workers’ mistakes while they go up the learning curve abroad.

I know this from personal experience, having followed other expatriates in overseas positions. I was more fortunate in that I already had substantial experience in living abroad, adapting to cultures, learning the languages, and running overseas businesses. My predecessors were not as fortunate, which made my job that much more challenging.

Expatriate workers tend to make their most expensive and damaging business decisions during their first 18 months in a foreign country. Two major causes of their mistakes are communications and cultures.

Often handicapped by a lack of fluency in the local language, expatriates tend to rely on the local manager who speaks the best English. This puts local managers into a position where they can slant information to fit personal agendas. Therefore, experienced out-of-country workers learn to develop broader information sources that help them make better decisions early on.

Many U.S. expatriates have never lived in a foreign country. They don’t know how to adapt and maneuver in a foreign environment. Newly arrived, they rarely are aware of the subtleties of local politics, the sources of power and influence, and the quality of the competition, which they tend to underrate.

Underestimating local competition can be a fatal business mistake. Local competitors have learned how to survive in their own environment. They often are capable, agile, aggressive, and not intimidated by large foreign companies with powerful brands. It is a common strategic flaw of major multinational companies to rely mostly on the power of their brands to overwhelm local competition. Powerful brands without appropriate local strategy and support cannot succeed.

Another common corporate mistake is to choose both expatriates and their local successors primarily based on their product knowledge. The fact is that 80% of the challenges they face abroad are people- and market-related.

It takes years, not months, to adapt completely to new cultures and markets. Yet, multinationals continue to send executives abroad on two-year assignments. Just as they learn how to maneuver in the local environment, they return home.

It’s not at all surprising that American companies have a reputation for prematurely abandoning potentially good markets. As soon as the local economy softens, inexperienced, short-term focused executives tend to view normal local downward economic cycles as long-range trends. On the other hand, Japanese and European companies usually will stay the course and benefit from the eventual economic upswing.

What is the Alternative?

If a company has no other choice but to send an expatriate, then it should at least choose someone who shows some of the qualities that lead to successful adaptation.

Multicultural and international business training and mentoring prepare employees for the challenges they will face. Unfortunately, most acculturation trainers tend to focus more on academic aspects of local cultures rather than on the skills needed to manage an overseas business successfully. This can be offset by providing executives with an experienced international business mentor, and it will make their learning curve much shorter and far less expensive.

The Best Alternative

The prime mission of expatriate executives should be developing local management leadership. Identifying talented management potential is a demanding task in any environment, much more so in a foreign one. Another challenge is that once local leaders are hired, trained and in place, they immediately become the target of competing firms. Either that or the talented leaders start successful businesses of their own. Nevertheless, developing local managerial talent is still the best alternative; it is essential to long-term success.

What are the perils of hiring local management talent? Although their experience in the local market may be good, their lack of corporate savvy can be a handicap. As previously mentioned, just finding qualified candidates can be a daunting task. Fortunately, today most major U.S. executive search firms have established operations in countries around the world.

According to Alvaro Cadavid, managing director of Spencer Stuart Executive Search in Bogotá, Colombia, U.S.-educated managers are now increasingly available in most countries. Cadavid does point out that U.S.-educated is not the same as U.S.-trained. Many foreign executives have gone to college in the U.S., but never worked in the American corporate environment.

U.S. expatriates are not the only ones exposed to the challenges of decision-making during their learning curve period. Foreign executives coming to work in the U.S., and sometimes referred to as “inpats,” face many of the same problems. They, too, often lack a working knowledge of the American business culture. Again, training can make a significant impact by helping them navigate in the new business culture.

Learning curve performance of local managers improves substantially by intensive training at both headquarters and field operations levels. In addition, during and after the foreign managers’ stay, senior executives who have experience managing foreign operations should mentor them.

There may be no alternative to sending expatriates to manage operations abroad on a temporary basis. It is important to shorten their learning curve, and to replace them with local management as early as possible. The key to accomplishing both of these objectives is to train them and their local successors for the specific cultural and business challenges of their assignments; it will make all the difference in the world.

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