The Challenges of Expatriation and Globalization:

A study on US MNEs and Chinese Subsidiaries

International Human Resource Management Re-Exam

BSc International Business
CPR Number: 081195-2427
Pages: 16

Deadline (E-Exam): December 18th, 2015

Copenhagen Business School 2015

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

TABLE OF CONTENTS
ABSTRACT

1. INTRODUCTION

2. METHODOLOGY

I. INTRODUCTION

II. RESEARCH PHILOSOPHY

III. RESEARCH APPROACH

IV. METHODOLOGICAL CHOICE

V. RESEARCH STRATEGY

VI. TIME HORIZON

VII. DATA COLLECTION & ANALYSIS

3. LITERATURE REVIEW

4. THEORY

5. FINDINGS/RESULTS

6. DISCUSSION/ANALYSIS

11

7. CONCLUSIONS

11

8. REFRENCES

12

9. APPENDICIES

13

!1

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

ABSTRACT
This report uses the following research questions as a basis:
1). Which central theories, concepts, or models of international human resource management apply best
to the challenges of international relocation & orientation of a parent country national from the United
States to a foreign subsidiary in China? 2). Will the increasing globalization and standardization of
business and practice ease the international relocation & orientation of expatriates? If so how?
The responsibilities and functions of International Human Resource Management branches are
transforming as multinational enterprises and small and medium-sized enterprises face the pressure of
globalization. As a result the recruitment, training, development, compensation and retention of high
performing competent employees and managers is a significant challenge for modern businesses. Thus,
an understanding of the two components are imperative for successful business practices in multinational
enterprises.The research questions were answered using a range of second hand sourcing, primarily
academic literature, and online sources. The theories used to identify the concepts and solutions of the
challenges faced during expatriation are from the sixth edition of International Human Resource
Management textbook used during this course. Conversely, the principle foundation for the effects of
increasing globalization and standardization of business and practice on expatriation, is derived from
external literature and cases.The study concludes that an expatriate faces a multitude of challenges on
both a personal and professional level and that several measures should be taken to ensure a successful
expatriation. With regards to the increasing globalization and standardization of business and practice,
the study finds that a greater emphasis on hiring highly skilled talent will be required, but as result of
standardization, the expatriation process will become more of a routined process.

1. INTRODUCTION
The international relocation and orientation of parent country national expatriates and the
implications of globalization are significant parameters within International Human Resource
Management. An Expatriate is defined as an individual living in a country other than their
country of citizenship, often temporarily and for work reasons (Investopedia, 2012). In order to
successfully manage subsidiaries, multinational enterprises must deploy staff from their
headquarters to ensure that company standards and synergies are met by their foreign branches.

Globalization is defined as the process of interaction and integration among the people,
companies, and governments of different nations, a process driven by international trade and
investment and aided by information technology. (Globalization101.org, 2015). Despite the
multitude of benefits, globalization pressures the transformation of modern International Human
Resource branches as multinational enterprises and small/medium-sized enterprises face several
convoluted challenges, and seek to exploit new opportunities. Outsourcing has become
increasingly attractive, particularly for cheaper materials, processes, or labor, and as a result

!2

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

decision making and protocol within multinational enterprises have become increasingly intricate
and complex. (Kapoor, 2012)

International relocation and orientation requires immense preparation from both a

personal context such as providing immigration & travel details, housing, medical care, and
schooling, to a corporate professional context such as compensation/financing details such as
delivery of salary overseas, contracts, and taxation treatment (Dowling, Festing and Engle,
2013). This requires a significant amount of time and resources from both the expatriate and the
multinational entity. Despite the amount of capital and effort involved, the process is not always
successful due to factors from the candidates personal side such as culture shock or family
separation, as well as corporate factors such as poor candidate choice, poor interaction/
understanding or management between the subsidiaries (Dowling, Festing and Engle, 2013).
Hence, for a successful expatriation process it is advantageous to understand and employ the
correct recruitment, training, development, compensation and retention methods.

This paper will address the following research questions:

Which central theories, concepts, or models of international human resource management apply
best to the challenges of international relocation & orientation of a parent country national from
the United States to a foreign subsidiary in China?
Will the increasing globalization and standardization of business and practice ease the
international relocation & orientation of expatriates? If so how?

In order to captivate the complexity of expatriation processes within Human Resource

departments, the following study will focus on the challenges of sending a parent country
national from the United States to host country with a highly contrasting culture, China. Several
US based multinational corporations conduct a series of business practices in China, particularly
in shifting their production aimed at their home market, to cheaper Chinese affiliates (Branstetter
and Foley, 2015). Using these contrasting cultures as a foundation, this report will analyze the

!3

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

theoretical framework and concepts regarding globalization and expatriation within a practical
real-life situation.
2. METHODOLOGY
I. INTRODUCTION
This segment of the report utilizes the research onion methodology developed by
Saunders et al (2009). The illustration (Appendix 1) depicts the methodology in the form of an
onion composed of several layers, namely the research philosophy, approach(es), methodical
choice, strategies, time horizons, and data collection & analysis structure. Starting from the
outermost layer the researcher works their way inwards to determine the research method, using
the circumstances of the research proposal as a determinant. In this case a realism research
philosophy was used with a inductive research approach, alongside a mixed method methodical
choice focusing on both quantitive and qualitative data for collection and analysis (Saunders et
al., 2009).
II. RESEARCH PHILOSOPHY
Research philosophy formulates the first and outermost layer of Saunders research onion,
and is comprised of 4 factors; Positivism, Realism, Interpretivism, and Pragmatism. All of which
interpret the way the knowledge will be observed and developed (Saunders et al., 2009). This
paper utilizes Realism as its research philosophy, in the sense that it relates to positivism and the
belief that social reality and the researcher are independent (Research Onion Diagram, 2015).
However, it differentiates through the belief that theoretical terms do not necessarily always
apply in reality, but that further research and updated methods can aid in understanding the
reality of the situation (Research Onion Diagram, 2015). The Realism approach applies to
expatriation due to the fact that, despite using the theoretical precautions/methods of
International Human Resource Management, the relocation process of a parent country national
to a foreign subsidiary can still fail due to unforeseen circumstances, such as failure to integrate
from the spouse/children of the expatriate (Dowling, Festing and Engle, 2013). However,
developing and using relevant theory and methods can aid in the understanding of a successful
expatriation process.
III. RESEARCH APPROACH
The secondary layer belongs to research approach, which defines the approach the
research paper will take. This layer has is composed of 3 principals Deduction, Abduction, and
!4

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

Induction (Matthews and Ross, 2010). This paper will employ deduction as its research
approach, by developing observations and conclusions based on the analysis of data/theory to
conclude with a specific response, contrary to induction which uses data collection to generate a
theory (Saunders et al., 2009). The elected approach applies to this paper as it allows the quick
collection of data, as well as the usage of relevant pre-existing theory (provided by Dowling et
als International Human Resource Management textbook) to effectively answer the research
questions through an analysis and discussion/conclusion (Research Onion Diagram, 2015). An
alternate approach such as induction would require a significant amount of time and resources, as
well as an advanced skill set.
IV. METHODOLOGICAL CHOICE
The Methodological choice, the tertiary layer of the research onion, must be in unison
with the data collection (Saunders et al., 2009). The Methodological choices consist of mono
method quantitive/mono method qualitative, multi-method quantitive/multi-method qualitative,
and mixed method simple/ mixed method complex. The available data on expatiation
experiences is primarily qualitative and case based, for this reason any quantitive approach
would be unfavorable. However quantitative and statistical data such as the amount of failed
expatriations or the amount of direct investments from the US to china, are useful in assessing
the magnitude and implications of the study and offset imbalances from purely qualitative data
(Matthews and Ross, 2010). Thus, considering the scope and complexity of this study due to the
numerous elements incorporated in expatriation, a mixed method complex methodological
choice would be ideal.
V. RESEARCH STRATEGY
In the fourth layer, the following research strategies are portrayed; experiment, survey,
archival research, case study, ethnography, action research, grounded theory, and narrative
inquiry (Appendix 1). As mentioned in the prior section most of the data for this study is
qualitative and is under a deductive approach, implying most data collected will be second-hand
sourced. Hence, naturally the following research strategies will be used; firstly, case studies
primarily previous expatriation cases. Secondly, grounded theory on expatriation, globalization,
the appropriate techniques/methods of expatriation, preparation, compensation, and retention.
Thirdly, narrative inquiry based on the acquired data, and finally archival research strategies, the
usage of pre-existing sets of data or archive documentation (Research Onion Diagram, 2015).

!5

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

VI. TIME HORIZON

The penultimate layer is the time horizon, which entails 2 components cross-sectional
and longitudinal time horizons. This serves to select a time frame for the data included in the
study. This research paper will make use of a cross-sectional time horizon due the assessment of
cases during specific single points in time (Research Onion Diagram, 2015).
VII. DATA COLLECTION & ANALYSIS
Data collection is the final layer of the research onion, and an overview of which of the
data collection methods and analysis will best address the research questions (Saunders et al.,
2009). The report will use mixed method data and apply cases, theory, and concepts primarily
found in Dowling et als International human resource management textbook, as well as external
literature and online sources. Alongside this, it will employ data and charts derived from
governmental statistics, to support claims and demonstrate the gravity of the research questions.
Most data collected will come from secondary sources, due to the lack of resources and time to
obtain substantial primary source documentation from expatriate experiences.
3. LITERATURE REVIEW
This section of the report will develop the scope of the study, relate existing works, and
introduce the terms/concepts pertaining to the challenges faced by expatriation. Subsequently, it
will cover the relevant material regarding the increasing globalization and standardization of
business and practice, and its implications to the expatriation process.
Expatriation involves the deployment of an multination enterprise employee from its
headquarters to a foreign subsidiary. The multinational headquarters country is known as the
parent country, whilst the subsidiary is known as the host country. There are three principal
classifications regarding the type of employee; a parent country national, which is the employee
being expatriated to a subsidiary, a host country national, which is an employee who is a citizen
of a in the country of the foreign subsidiary, and lastly a third country national, who is a citizen
of neither the host or parent country. (Dowling, Festing and Engle, 2013)
Given the predicaments underlying the case of a US multinational enterprise and
operating through a Chinese subsidiary, we will focus on defining ethnocentric staffing.
Ethnocentric staffing is when a parent country national is selected to be deployed to a subsidiary,
!6

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

usually in a key executive position. This procedure ensures corporate standards and strategic
decisions are met within the subsidiary, and reduces perceived high risks. However, such a
procedure requires training and the adaptation of the executive is time consuming, and usually
results in poor decision making in the beginning (Dowling, Festing and Engle, 2013). An
expatriation from the US to China would typically be a traditional long term procedure 81-5
years) with a clearly defined role within the operation.
The recruitment and selection process of the expatriate, in this case an international
manager, requires the gathering of information and observations concerning the employee, such
as their technical ability, and cross-cultural suitability (Chew, 2004). Another crucial determinant
is what role the employee will be assuming in the subsidiary. An expatriate can act as an agent
of direct control, ensuring compliance of the subsidiary, or an agent of socialization, aiding in the
transfer of shared values from the headquarters to subsidiary. Additionally, they may act as a
network builder, which develops social capital that can be used for communication or informal
control, or a boundary spanner, by collecting host country information and act as a representative
of the firm in the host country. Lastly they may act as language nodes or the transfer of
competence and knowledge (Dowling, Festing and Engle, 2013).
The training process for an expatriate involves cultural awareness training and training
for the actual international assignment. There are cross cultural training programs which involve
assessments within the headquarters itself such as presentations, role play, questionnaires, group
discussions and case studies (Dowling, Festing and Engle, 2013). Another useful strategy
involves preliminary visits to the host country, which allows the expatriate to assess the
suitability of the host country.
In determining whether a candidate is fit for the international assignment, the
headquarters will not only assess the job factors of the associate but also their relational
dimensions, motivational state, family situation, and language skills (Chew, 2004). Using the sub
categories shown in table 1 categories of attributes of expatriate success (Appendix 2),
headquarter managers are able to get an overview of whether or not the candidate is suitable.

!7

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

Alongside this structured interviews, recommendations, and self selection are significant
determinants (Dowling, Festing and Engle, 2013).
Despite the appropriate candidate choice and training procedure expatriations can still
fail, or succeed. The failure of an expatriation is defined as the premature return of an expatriate,
it usually represents a selection error, often compounded by ineffective expatriate management
policies (Dowling, Festing and Engle, 2013). It is important to note however, that an expatriate
can be ineffective and poorly adjusted but unless they are recalled it is not a failure. There are
many factors which affect the success/failure of an expatriation, such as the activities of the
multination enterprise itself or support of the expatriates families. The graph 1 (Appendix 3)
demonstrates the top reasons for failure: family problems (62%), housing (50%), Location
(48%), spouse career (47%), inability to move/adapt abroad (45%), and personal reasons (41%)
(Przytula, 2009).
A substantial measure of avoiding expatriation failure is through addressing key
components of compensation, namely base salary, foreign service inducement/hardship premium,
allowances, and benefits. The base salary serves as a benchmark for other compensation
elements, a salary premium is given as an inducement/hardship premium due to the challenges of
moving and cultural adaptation. Allowances are also given in the form of housing, home leave
allowance, education allowances for the expatriates children, and relocation services. Benefits
may include health care, stock options, or pensions plans, however the extent or validity of each
component varies from corporation to corporation.

The increasing prevalence of globalization is driven by a number of factors, including

shortage of talent in developed countries, availability of low cost labor and growing consumers
in developing countries, and technological progress (Kapoor, 2012). As a result the task of
managing across cultures has become much more prevalent and intricate. The extensive and time
consuming processes mentioned earlier are required, and headquarter to subsidiary synergies
must be met, as an overall sense of control is becoming a challenge (Kapoor, 2012). The
implementation of value systems, global mindsets, and interpersonal skills amongst employees is

!8

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

of more demand alongside increasing work load (Chew, 2004). Due to increasing requirements
there is higher demand for skilled workers and consequently a shortage of supply (Kapoor,
2012). On the other hand, the standardization of business practices through experience with
outsourcing and expatriation has positive effects on the process. Through routined selection and
training procedures adapted through experiences of successful and failed expatriations, effective
methods are deployed, thus requiring less time and resources. The increased amount of
inpatriates could share their know how with co-workers, and encourage a global mindset within
the headquarters itself

(Dowling, Festing and Engle, 2013). Such factors will enhance the

expatriation process despite the increasing demands due to globalization.

4. THEORY
The most relevant theories to the challenges faced by a US multinational enterprise
expatriating an parent country national to a Chinese subsidiary are; Hofstedes 5 dimensions of
culture and Hall & Halls 4 dimensions. Hofstedes 5 dimensions of culture entail power-distance
index, individualism vs collectivism, uncertainty avoidance, masculinity vs. femininity, long
term orientation vs. short term, and indulgence vs. restraint. Alternatively, Hall&Halls 4
dimensions cover high vs. low context communication, spatial orientation, monochrome vs.
polychrome time, sequential processes vs. parallel actions, and Information speed. These 2
theories are critical in the understanding and assimilation of another culture, particularly as
contrasting as the US and China. (Dowling, Festing and Engle, 2013)
5. FINDINGS/RESULTS
The following passage will discuss the findings of this report and supplement them with
quotes and data from the appropriate sources. The amount of direct investments from the US to
china has increased year by year as demonstrated by Graph 3 (Appendix 6), from 2013-2014 it
increased from 59.89 billion USD to 65.77 Billion. On a similar note the amount of US
expatriates have increased by approximately 30 million from 2010-2013 (Mobbs, 2013). China
has become increasingly attractive to foreign multinational enterprises due to its cheaper
production costs and outsourcing opportunities, however this comes challenges and limitations
(Branstetter and Foley, 2015).

!9

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

Some of the challenges of US expatriates in China include, language, cultural differences,

and environmental hazards such as pollution and food safety (Roberts, 2012). Using Hofstedes 5
dimensions of culture of compare the differences between the parent country and host country
nationals, Graph 2 (Appendix 5) depicts significant differences in power distance, individualism,
pragmatism, and indulgence. Specifically, in the eyes of the US citizen the Chinese have a clear
established hierarchy of power, a strong sense of collectivism and integrated relationships, highly
pragmatic, and a low level of indulgence (Future HR Trends, 2015). Adopting Hall&Halls 4
dimensions as a basis of measurement, a 2012 study concluded that US culture is perceived as
low context whist Chinese culture is perceived as high context (Sapienza, 2012). The principal
reasons behind the failure of an expatriation, as seen in Graph 1 (Appendix 3), is the usually due
to family problems (62%), housing (50%), Location (48%), spouse career (47%), inability to
move/adapt abroad (45%), and personal reasons (41%). Considering that most of the issues
linked to the failed of expatriation are either a direct/indirect cause of the failure to culturally
integrate, it could be that headquarters do not emphasize enough on the importance of relational
dimension, as seen in Table (Appendix 2), during their recruitment process. Table 1 (Appendix 4)
show the different qualification or managerial positions in international companies, with
previous work experience abroad at 2%, command of foreign languages at 1%, and knowledge of
the country of the future assignment at 0% (Przytula, 2009).

The increasing Globalization is pushing more corporations to open foreign subsidiaries as

mentioned previously, this implies that more multinational corporations are pushing towards
China (Branstetter and Foley, 2015). As a result, highly skilled employees are required are falling
short of speculated future demand, this will require the outsourcing of skilled human capital and
increases in executive workloads. In 2011 and 2012 China was the top location that presented the
greatest challenges for program managers, and given the implications of Globalization the trend
is expected to continue (Reiche, 2012). Standardization, as discussed in the literature section is
expected to ease the expatriation process through the swift implementation of standard protocol,
for instance adopting set compensation practices such as the full international approach- a
!10

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

development strategy based on the balance sheet approach, and generous renumeration (bonus,
benefits car, cost of living, education, club memberships, home leave) (Dowling, Festing and
Engle, 2013).
6. DISCUSSION/ANALYSIS
The findings of this report suggest that there are a plethora of challenges associated with the
international relocation & orientation of a parent country national from the United States to a
foreign subsidiary in China. Furthermore, that the responsibilities and functions of International
Human Resource Management branches are transforming as multinational enterprises and small
and medium-sized enterprises face the pressure of globalization. As a result the recruitment,
training, development, compensation and retention of high performing competent employees and
managers is becoming a significant challenge, and necessity, for modern multinational
enterprises. Additionally, that standardization of business and practice in part ease international
relocation & orientation of expatriates through the utilization of efficient standardized
expatriation techniques acquired from a combination of inpatriation experiences, boundary
spanning, and transfer of competence
7. CONCLUSIONS
The study concludes that a parent country national from the United States being
expatriated to a foreign subsidiary in China faces a multitude of challenges on both a personal
and professional level, and that several measures should be taken to ensure a successful
expatriation. For instance, the appropriate selection, training, and compensation techniques
discussed throughout this report should be employed to ensure a successful expatriation. In terms
of theory Hofstedes 5 dimensions of culture and Hall & Halls 4 dimensions apply best to assess
the cultural orientation of a Chinese subsidiary, and provide the foundation of adaptation for the
parent country national. With regards to the increasing globalization and standardization of
business and practice, the study finds that a greater emphasis on selecting human capital and
talent will be required, but as result of standardization, the expatriation process will become
more of a routined process. Only multinational corporations that successfully adapt their human
resource practices to the changing global labor market conditions will be able manage and retain
high performing employees.

!11

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

8. REFRENCES
Branstetter, L. and Foley, F. (2015). Facts and fallacies about US FDI in China | VOX, CEPRs
Policy Portal. [online] Voxeu.org. Available at: http://www.voxeu.org/article/facts-and-fallaciesabout-us-fdi-china [Accessed 17 Dec. 2015].
Chew, J. (2004). Managing MNC Expatriates through Crises: A Challenge for International Human
Resource Management, Research and Practice in Human Resource Management, 12(2), 1-30
[Accessed 12 Oct. 2015].
Dowling, P., Festing, M. and Engle, A. (2013). International human resource management. Andover:
Cengage Learning.
Future HR Trends, (2015). Cultural differences: inevitability in a global economy - Future HR Trends.
[online] Available at: http://futurehrtrends.eiu.com/report-2015/cultural-differences-inevitability-ina-global-economy/ [Accessed 16 Dec. 2015].
Globalization101.org, (2015). What Is Globalization? | Globalization101. [online] Available at: http://
www.globalization101.org/what-is-globalization/ [Accessed 16 Dec. 2015].
Guedes, Ana Lucia. Globalization And International Management: In Search Of An Interdisciplinary
Approach. 1st ed. Rio De Janeiro: Brazilian Administration Review, 2007. Web. 25 Nov. 2015.
Investopedia, (2012). Expatriate Definition | Investopedia. [online] Available at: http://
www.investopedia.com/terms/e/expatriate.asp [Accessed 15 Dec. 2015].
Kapoor, B. (2012). Impact of Globalization on Human Resource Management. 1st ed. [ebook] Fullerton:
Cal State University, pp.1-8. Available at: http://www.jimsjournal.org/6%20Bhushan%20Kapoor.pdf
[Accessed 14 Dec. 2015].
Matthews, B. and Ross, L. (2010). Research methods. New York, NY: Pearson Longman.
Mobbs, C. (2013). World expat population - the numbers - Expat Child. [online] Expat Child. Available
at: http://expatchild.com/world-expat-population-numbers/ [Accessed 15 Dec. 2015].
Przytula, S. (2009). The reasons for managers expatriates failure and their problems at work.
1st ed. [ebook] Wrocawiu: Uniwersytet Ekonomiczny we Wrocawiu, pp.122-134. Available at:
http://jml2012.indexcopernicus.com/fulltxt.php?ICID=917924 [Accessed 16 Dec. 2015].
Reiche, S. (2012). Latest expatriate stats: The List Topping countries | Expatriatus. [online]
Blog.iese.edu. Available at: http://blog.iese.edu/expatriatus/2012/06/14/latest-expatriate-stats-thelist-topping-countries/ [Accessed 17 Dec. 2015].
Research Onion Diagram. (2015). 1st ed. [ebook] Derby: University of Derby, pp.1-13. Available at:
https://onion.derby.ac.uk/onion.pdf [Accessed 15 Dec. 2015].
Roberts, D. (2012). China: For Many Expats, It's Not Worth It. [online] Businessweek.com. Available at:
http://www.bloomberg.com/bw/articles/2012-09-20/china-for-many-expats-its-not-worth-it
[Accessed 13 Dec. 2015].
Sapienza, F. (2012). Cultural Dimensions of Chinese and Chinese-American Websites. [online]
Filippsapienza.com. Available at: http://www.filippsapienza.com/china-hofstede.html [Accessed 17
Dec. 2015].
Saunders, M., Lewis, P. and Thornhill, A. (2009). Research methods for business students. New York:
Prentice Hall.

!12

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

Statista, (2015). U.S. direct investments in China 2000-2014 | Statistic. [online] Available at: http://
www.statista.com/statistics/188629/united-states-direct-investments-in-china-since-2000/ [Accessed
17 Dec. 2015].

9. APPENDICIES
1. Source: (Saunders et al., 2009)

2. Source: (Chew, 2004)

!13

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

3. Source: (Przytula, 2009)

4. Source: (Przytula, 2009)

!14

The Challenges of Expatriation and Globalization: A study on US MNEs and Chinese Subsidiaries

5. (Future HR Trends, 2015)

6. (Statista, 2015)

!15