Expatriates are a costly investment for multinational corporations (MNCs). They are meant to bring valuable skills and knowledge to subsidiaries to improve performance, but studies have shown mixed results. So much seems to ride on the “expat” and their technical or functional capabilities, but what about their ability to transfer their knowledge to others? And what about the subsidiary’s capability to absorb this knowledge?
These questions are at the heart of research by Yi-ying Chang, Yaping Gong and Mike W. Peng, who argue that there is a need to examine not only the expatriate, but the context and interplay of different players, to fully understand the impact of expatriates on firm performance.
“Knowledge transfer has rarely been examined directly as the link between expatriation and subsidiary performance. Some MNCs select expatriates on the basis of technical skills but who may not have the ‘soft skills’ required to transfer knowledge effectively,” they said.
“Moreover, there is the matter of subsidiary absorptive capacity – the ability at subsidiary level to recognize the value of external knowledge, assimilate it and apply it to its operations.”
The authors address these issues by identifying three dimensions that are important for expatriate competency in knowledge transfer – ability, motivation and opportunity seeking – and the reasons why subsidiary absorptive capacity is important.
“It is possible that expatriates have the competencies to transfer knowledge, but subsidiary employees do not have the prior related knowledge needed to recognize, understand and process the new knowledge,” they said.
“Other research has also suggested cultural differences between source and recipient hamper knowledge acquisition. It is possible subsidiary employees will perceive the knowledge from expatriates to be foreign and less valuable in their local context.
“There is also the need for the knowledge received from expatriates to become an integral part of the subsidiary’s routines if knowledge transfer is to have a strong and lasting effect on performance. But if there are potential conflicts with existing routines, this may not happen. Expatriates are often on short-term assignments and may return to headquarters before the changes take hold.”
To test these ideas, the authors asked expatriates and local managers of 162 British subsidiaries of Taiwanese MNCs to rate the knowledge transfer competencies of expatriates in their subsidiaries, the absorptive capacity of local subsidiary employees, and the knowledge received from expatriates. The responses were then compared with data on firm performance, and the results showed that knowledge transfer and subsidiary absorptive capacity did indeed have a big role to play in the benefits of having an expatriate around.
“First, knowledge received by the subsidiary led to better subsidiary performance, and second, expatriate competencies in knowledge transfer led to more knowledge received by the subsidiary when the subsidiary absorptive capacity was greater. It is also possible that expatriates may engage in more knowledge transfer behaviors when they see a subsidiary has a better absorptive capacity,” they said.
Interestingly, the number of expatriates at a subsidiary did not enhance knowledge received by the subsidiary or subsidiary performance, but subsidiary absorptive capacity did – underscoring the chief argument that the presence of expatriates was not a sufficient driver on its own to improve performance.
“Assigning expatriates without competencies in transferring knowledge may even hurt subsidiary performance because expatriates are often more expensive than other sources of staffing,” they said.
Overall, the authors recommended that MNCs select expatriates who were capable of overcoming difficulties in the knowledge transfer process. “The expatriate must, for example, be willing to face a loss of prestige and power when the locals master the new knowledge and skills. They must also be willing to cope with cultural difficulties in the transfer process. In addition, opportunity seeking through social ties is critical,” they said.
Equally, MNCs needed to develop their subsidiaries’ absorptive capacity by providing a clear vision and adopting suitable management practices, such as job rotation, language and functional skill training for subsidiary employees, and the provision of a socially-connected environment for employees to develop trust and cooperation in knowledge transfer.