Why Organizations Decide to Expand Internationally
Deciding to expand your business to international markets can be both exciting and intimidating. In this three part article series, we will discuss topics organizations need to consider when venturing outside their country of origin for business. For Part 1, let's discuss why organizations decide to expand internationally.
An organization, depending on its industry, will have unique reasons for expanding and deploying human capital resources overseas. Regardless of the industry, there are five common and interrelated reasons organizations expand into overseas markets. They are: 1) globalization; 2) fill positions; 3) transfer knowledge; 4) management development; and 5) organizational development.1
Globalization has been gaining steam for the past four decades. As firms continue expanding their business on a global scale, they need a method of capturing information from remote parts of the world and use the information to build a competitive edge against competitors. One successful method of capturing information is to send an employee on an international assignment. Once the employee has been deployed on the assignment, he/she can look for new markets and growth areas for the business.
As firms continue expanding their business overseas, they have limited options regarding the fulfillment of their human capital needs. Those options include using third country nationals, local nationals or expatriate staff. The most common practice, at present, is the use of an expatriate staff member to fill a human capital need. Utilizing expatriate staff is more common now as developing nations have not had human capital resources with the technical knowledge to complete a task or project needed from a firm originating from a developed nation.2 This does not mean the developing nation's human capital resources are not capable of learning or understanding the technical knowledge; instead, it means the human capital needs are so vast, that the resources available locally cannot fulfill the expectations and demands of the firms wishing to do business in a particular area.
Beyond filling positions, organizations utilize an international assignee to help transfer knowledge from the parent company to the local entity. Transferring knowledge is not meant to benefit only the organization. Instead, it is meant to help the local population understand a certain skill set in more detail, while also allowing the organization more insight into the local customs and needs of the market in which they are trying to conduct business. This happens when expatriates, acting as transferor, not only disseminate knowledge from headquarters to the subsidiary, but also when information is disseminated from the subsidiary back to headquarters.3
The way in which firms will be able to develop their expatriate staff is to provide them assignments that stretch the boundaries of their current knowledge, skills and abilities. These stretch assignments are meant for managers with long-term potential at a firm that competes globally.4, 5 Moving beyond their current limitations is important for a global leader. To understand the dynamics facing a global business, high potential employees have to have exposure to various challenges facing the company, both home and abroad.6
High potential managers are not alone in their development needs. The organization, as whole, needs to develop as it expands globally. The organization will find new ways of thinking, new products or services to be created allowing the organization to evolve beyond its current capabilities. Without this evolution, organizations often become complacent and outdated as new, creative and ambitious competitors enter the market.
It is clear that moving to a global market has many variables and we have provided the basics to start the thinking process. Next in Part 2 of this series, we will discuss what to consider during pre-deployment, deployment and repatriation to ensure a successful transition of an international assignment. Finally in Part 3, we will discuss lessons learned from international assignments: what can go well and areas to guard against. Put together, the series will allow you to understand how to expand oversees while maintaining your competitive edge.
- Schaefer, J., Hannibal, E., & O'Neill, J. (2003). How strategy, culture, and improved service delivery reshaped Monsanto's international assignment program. Journal of Organizational Excellence, 22(3), 35-42. Retrieved March 16, 2011, from ABI/INFORM Global. (Document ID: 423069331).
- Petison, P., & Johri, L. (2008). Managing local employees: expatriate roles in a subsidiary. Management Decision, 46(5), 743-760. Retrieved March 1, 2011, from ABI/INFORM Global. (Document ID: 1484419791).
- Black, J.S., Gregersen, H.B., Mendenhall, M.E., Stroh, L.K. (1999a). Globalizing People Through International Assignments. New York: Addison Wesley Longman, Inc.
- Harzing, A.W. (2001). Of Bears, Bumble-Bees, and Spiders: The Role of Expatriates in Controlling Foreign Subsidiaries. Journal of World Business, 36(4), 366. Retrieved March 26, 2011, from EBSCOhost.
- Kok-Yee, N., Van Dyne, L., & Soon, A. (2009). From Experience to Experiential Learning: Cultural Intelligence as a Learning Capability for Global Leader Development. Academy of Management Learning & Education, 8(4), 511-526. doi:10.5465/AMLE.2009.47785470
- Edström, A., & Gaibraith, J. R. (1977). Transfer of Managers as a Coordination and Control Strategy in Multinational Organizations. Administrative Science Quarterly, 22(2), 248-263. Retrieved March 1, 2011, from EBSCOhost.
- Employers Are Missing Out on ROI When Sending Employees On International Assignments. (2001). PR Newswire,1. Retrieved February 16, 2011, from ABI/INFORM Dateline. (Document ID: 70009194).
- Hendry, C. (1994). Human Resource Strategies for International Growth. New York: Routledge.
- McNulty, Y. (2008). How a major multinational is working to overcome the barriers to improved expatriate ROI. Global Business & Organizational Excellence, 27(3), 38-47. Retrieved February 13, 2011, from EBSCOhost. doi:10.1002/joe.20202
- Wheelen, T.L & Hunger, J.D. (2010). Concepts in Strategic Management and Business Policy. New York: Prentice Hall.