1

KEYS TO EXPATRIATE SUCCESS: A TOOLKIT FOR DIVERSITY MANAGEMENT

Programme for the Practice of Diversity Management

Department of Immigration and Multicultural Affairs in Cooperation with the

Australian Centre for International Business

i

KEYS TO EXPATRIATE SUCCESS: A

TOOLKIT FOR DIVERSITY MANAGEMENT 2001 Karen Lau Research Officer, Australian Centre for International Business Janine O’Flynn Research Fellow, Australian Centre for International Business André Sammartino Research Fellow, Australian Centre for International Business Aurora Ricciotti Research Officer, Australian Centre for International Business Professor Stephen Nicholas Co-Director, Australian Centre for International Business

Foreword The Programme for the Practice of Diversity Management has produced a series of Business Models and accompanying Toolkits. This Toolkit explains how firms can make the most of their diversity capabilities to create successful expatriates.

Other Resources for Diversity Management:

The Business Case: HRM Case Knowledge Firm Case International Business Case Marketing Case Theory of Diversity and Group performance

Business Models: Diversity Management: the Big Picture Managing Diverse Human Resources Effectively Expatriate Management Capturing the Diversity Dividend Going Global Adding Value through HRM

Toolkits: Attract, retain and motivate Keys to Expatriate Success Adding Value through HRM Using Diversity Climate Surveys

Diversity Management in Australia – the State of Play Capturing the Diversity Dividend Report to Business on Aboriginal Employment

PROGRAMME FOR THE PRACTICE OF DIVERSITY MANAGEMENT

The Programme for the Practice of Diversity Management is a collaborative arrangement between the Department of Immigration and Multicultural Affairs (DIMA) and the Australian Centre for International Business (ACIB) funded through DIMA’s Productive Diversity Partnership Programme. The mission of the Programme for the Practice of Diversity Management is to meet the practical needs of business by developing a business case for productive diversity, providing Business Models for diversity management, and creating Toolkits and checklists for assessing diversity. The Programme invites your firm to become a member of the electronic diversity network, which brings Australian business together to promote good diversity practices. Join the diversity network on-line at www.ecom.unimelb.edu.au/acib/diverse/

1

Introduction to the toolkit The Programme for the Practice of Diversity Management’s Keys to Expatriate Management: A Business Model for Diversity Management outlined the business imperative of diversity management for developing top performing expatriates. It demonstrated that nurturing expatriates’ cross cultural capabilities plays a crucial role in the success of international business operations in host environments that are often vastly different to those of the home country. The Business Model outlined five key steps to expatriate success. They comprise:

1. Conduct an expatriate audit; 2. Conduct a cultural diversity audit; 3. Refine expatriate selection procedures; 4. Provide cross-cultural training; and 5. Provide repatriation assistance

This Toolkit provides strategies for implementing these key steps. This Toolkit also includes a series of briefing notes, which comprise supplementary reading material related to the key steps.

2

Briefing notes

Defining Diversity Diversity is all the ways in which individuals differ, both on a personal basis and in terms of organisation-related characteristics. These characteristics are broadly categorised into observable and unobservable characteristics. Observable and unobservable characteristics include race, ethnicity, gender, age, tenure, functional background, sexual orientation, socio-economic status, education, physical and mental ability, values, and attitudes (see figure below). The recognition of the complexities of ‘diversity’ as a multivariate concept forms part of the agenda for better understanding the complexity of productively managing diversity at work.

Components of workplace diversity

Personal Characteristics Primary (e.g.) Race Language Secondary (e.g.) Values

Organisation- Related Characteristics (e.g.) Tenure Position Technical skills

Workplace Diversity

3

Briefing notes Defining productive diversity Productive diversity refers to the business advantages that emerge from the employment of many different people. Such advantages are labelled the diversity dividend, which comprises:

• Expanded global opportunities; • Improved B2B relations; • Enhances creativity and innovation; • Advanced communication; • Superior teamwork skills; • Quality customer service; • Reduced workplace conflict; and • Lower absenteeism and turnover.

The ways in which diversity management promotes business returns is the subject of this Programme’s publication, Diversity Management: The Big Picture. This toolkit is particularly concerned with applying Australia’s cultural diversity capabilities to achieve international business success in the field of expatriate assignments.

4

Briefing notes

A Snapshot of the Australian Population The Australian population is becoming increasingly diverse. This increasing diversity not only forces firms to recruit groups of people who have been traditionally underrepresented in areas of Australian working life, but it also provides distinct advantages for conducting business with diverse groups internationally. • 25% of the population born overseas • 27% of Australian-born citizens have at least one parent born overseas • Over 200 languages are spoken in Australia • 2.5 million people speak a language other than English at home • The largest growth in religious affiliation have been in Hinduism, Buddhism,

Islam and Judaism • 15% of working age people and 19% of the population live with some form

of disability • 33% of people living with a severe or profound form of disability participate

in the labour market • Female labour market participation rates are increasing at the same time

as male rates decline • Partnering and family patterns have changed enormously over the past 30

years with increasing numbers of same sex partnerships and lone parent households

• 54% of wage and salary earners hold a post-school qualification • The proportion of the population aged 65-plus has tripled in the last 100

years • More than 2 million Australians provide support and assistance as carers

for people living with a disability or for the aged; almost 900,000 of these carers provide support for children, partners or ageing parents

• There are now more women than men in the Australian population • The Aboriginal and Torres Straight Islander population is approaching

400,000 and grows at a rate higher than non-indigenous population

Source: ABS, 1995-2000 (various sources)

5

Briefing notes

The importance of expatriate success and the role of diversity management

Expatriate managers operate international joint ventures, alliances (including franchises and licensing) and wholly-owned subsidiaries. The ability of expatriate managers to navigate culturally complex environments has a significant effect on the success or failure of offshore business operations. Expatriate technicians are posted overseas to fill technical gaps and share technical knowledge with host nationals. They may also be sent overseas to bring back home valuable technical skills developed in the host country. Such expatriates play an important role in the spread of technical knowledge throughout the firm’s international operations.

Expatriate failure is a serious problem, which stems from the inability of expatriates and their accompanying families to understand and adapt to foreign cultures. With the yearly costs ranging up to hundreds of thousands of dollars to maintain an expatriate, such failures impose considerable financial burdens on organisations. Added to the direct costs of maintaining a failed expatriate, are the potential indirect costs of damaged relations with foreign partners, customers, suppliers, government officials and employees, as well as the emotional costs borne by the failed expatriate and family. Effective workforce diversity management reduces the costs of appointing inappropriate expatriate managers and technicians, ensuring that they are carefully selected for their cross-cultural capabilities. Firms can make the most of the skills that reside within their human resources. Expatriates with good diversity capabilities usually adjust quickly and perform effectively in their assignments. Sound diversity management in the business area of expatriation assists firms to achieve international business success.

6

Step one: conduct an expatriate audit The purpose • An expatriate audit allows firms to review their current expatriate

practices. • Firms can identify their expatriate success/failure rates. • Firms can identify the sources of their expatriates’ success/failure. • Firms can use audit information to improve expatriate success rates. The process • First, firms determine their current levels of expatriate success.

Firms must choose how they wish to measure expatriate performance

• Second, firms seek feedback from repatriates and repatriated families about their experiences.

Measuring expatriate performance

1. Do expatriates return home prematurely?

• Poor performers often return home early. Compare expected assignment length at pre-departure stage with the actual length of time spent overseas.

• NOTE: Measure 1, premature return, is the easiest, but not necessarily the most telling, measure to use. Premature recall can indicate many things other than failure (E.g. early completion of set tasks, deterioration in the health of an expatriate, and other external factors).

7

2. Do expatriates fulfil the main goals (financial or otherwise) of their assignments?

• Set clear pre-departure goals in writing. For

example: o To obtain host government permits for relevant

business activities; o To establish relations with a foreign business

partner; o To implement the use of a new technology; o To expand host county sales by a given value; o To expand the business into a designated new

market; o To develop expatriate second/other language

skills; and o To improve expatriate cross-cultural skills

• Goals should be set by the individual expatriate and

her/his senior manager/s. • Goals can be business oriented or expatriate

oriented personal and professional goals. • The goals set will depend on the nature of the

business assignment. • Success/failure is determined via a comparison

between pre-departure goals and actual achievements.

3. Do repatriates consider themselves to have been successful expatriates?

• Ask repatriates to assess their performance both

overall and in specific areas specified in pre- departure goals.

• Collect this information in writing and collate with the responses of other repatriates to determine any common experiences.

8

Step one briefing notes Performance assessment Expatriate failure imposes significant costs on business. Consequently firms need to determine how many of their expatriates fail and why they fail. Failure rates are usually measured as a percentage of expatriates prematurely recalled from their overseas assignments. This measure is based on the assumption that parent companies recall poorly performing expatriates, yet it is not without its problems. Premature recall does not necessarily indicate expatriate failure, but may reflect early completion of set tasks, failure of an international venture owing to external political circumstances, a deterioration in the health of an expatriate, or other failures external to the individual performance of the expatriate. In addition, distance complicates performance assessment, and good or bad performance may not be evident until the expatriate has completed her/his assignment. Poor performers may remain in the host country for the full duration of their assignment. As an alternative to premature recall, expatriate success and failure has been measured according to the self- assessment of individual expatriates A recent US study revealed that the vast majority of expatriates perceive themselves to be successful in attaining corporate goals. Yet, self-assessment is only as reliable as the ability of individuals to make accurate and objective observations about their own performance.

• Ensure that repatriates are comfortable assessing

their performance honestly. Firms may use external consultants to procure self-assessments confidentially. Alternatively, repatriates may be assured that a positive or negative self-assessment will have no bearing on the individual’s career prospects.

4. Do host country colleagues consider expatriates to be successful?

• Record feedback from host country colleagues to

ameliorate any biases in the self-assessment. • Identifying host national perceptions of sources of

expatriate strengths and weaknesses with facilitate improvements in expatriate selection and training.

9

Step one briefing notes

Seeking feedback Research indicates that the inability of expatriates and their accompanying families to understand and adapt to foreign cultures is a major cause of international venture failure. Consequently, the firm needs to understand how it can assist expatriate families to overcome culture shock. Feedback from repatriate families will provide firms with the necessary information to better equip future expatriates for international success.

Seeking feedback from repatriates and repatriated families

• Ask repatriates and their partners for general feedback about their experiences.

• Determine both positive and negative aspects of experience so that adjustments can be made for future assignments.

• Ask repatriates and their partners what could have made the assignment easier.

• Feedback can be categorised into different areas. For example: o pre-departure preparation o housing o schooling for children o on-arrival orientation o language training o in-country support o social life o work life

• Collect this information in writing and collate with the responses of other repatriates and partners to determine any common experiences.

10

Case study: expatriate reflections at Telstra

Telstra’s Alan Humrich spent two and a half years in Indonesia as Director of Operations of an international joint venture. The venture, called Mitra Global Telecommunications Indonesia (MGTI), brought together Australian, Japanese and Indonesian investors to establish world class telecommunications in Central Java. It employed about 4000 people, around 50 of whom were Australian expatriates.

Prior to relocation, Humrich spent three weeks in Indonesia learning about the local language and culture. During the three weeks, he met local people, visited their homes and gained an appreciation for the region, its customs and the national religion, Islam. Alan stresses the importance of such a visit, to gain some familiarity with the host environment and its people.

When asked what makes a good expatriate , Humrich emphasises a “basic openness and understanding of other peoples”. He stresses that expatriates should not embark on foreign assignments with false assumptions of glamour, but should be prepared for the “highs and lows” of working overseas.

11

Step two: conduct a cultural diversity audit

The purpose • To determine the capabilities that reside within the firm’s workforce. • To effectively match individuals’ capabilities with business needs. The process • Collect data on staff cross-cultural and international business

experience. • Include cultural diversity skills assessment within standard

performance appraisal procedures.

Collecting cross-cultural experience data

• Ask staff about their cross-cultural skills. Questions asked will depend on the needs of the firm. They may include: o Do you speak any languages other than English?

– Which languages? – Rate your level of fluency

§ Listening and speaking: a. beginner, b. intermediate, c. fluent § Literacy:

a. beginner, b. intermediate c. fluent o Have you ever lived outside Australia?

– In which country/s? – When and for how long? – Did you work overseas and what did you do? – Did you study overseas and what did you study?

o Do you belong to or have experience with any organised religion? – Which religion?

12

– What level of involvement? o Do you identify with any particular national or ethnic

groups? – Which groups?

• NOTE 1: Asking employees about their ethnicity and religion is a delicate issue that must be treated sensitively: o Employees should be given the right not to answer any

question with which they may feel uncomfortable. o Employees should be made aware of how the firm will

use the information. o Information on language may be useful not only for

selecting expatriates, but also for any translation services that may be required for interaction with non-English speaking business partners and customers.

o Information on religion may be useful not only for selecting expatriates, but also for providing the firm with cultural information on business partners and customers, and ensuring that firms can accommodate any needs for employees’ religious holidays and festivals.

• NOTE 2: The cultural diversity audit can be conducted within a broader staff skills audit.

• Decide whether audit is to be conducted throughout the entire firm or only for more senior employees who are potential expatriation candidates.

• Collate data collected so that when particular cultural skills are required, appropriate staff can be easily identified.

• Audit the cultural skills of all new employees as part of their induction.

• Ensure that staff who have left the firm are removed from the database.

13

Case study: Selecting suitable expatriates at Holden

An engineer, who was keen to work overseas, initially agreed to accept an expat assignment. Human resources had concerns about the adaptability of his wife and sent the couple to an adaptability assessment with a consultancy company. The consultants reported that the engineer’s wife was reluctant to relocate overseas and would not readily adapt. They raised concerns about the couple’s chances of success overseas. Further discussions with the engineer confirmed that while he was keen to gain some international experience, such a move would be an excessive strain on his marriage. Keen to balance the engineer’s career goals with his family life, Holden sought an alternative solution. The engineer was not sent on a long term assignment. He declined the expatriation offer and instead Holden sent him on a series of short overseas assignments of 1-2 week’s duration. The engineer was multilingual and was sent to an overseas destination where he could communicate with host nationals in their native language. The solution was a win-win situation for the engineer, his wife, and the company. The engineers wife did not have to reluctantly move overseas; the engineer still had the opportunity to gain international work experience; and the company both avoided a potential expat failure and gained the benefits of the engineer’s technical, managerial and linguistic skills.

14

Step three: refine expatriate selection procedures

The purpose • To improve expatriate selection by using the data collected in the

expatriate and cultural diversity audits. • To enhance expatriate success by selecting the best candidates for

expatriation. The process • Combine data from expatriate and cultural diversity audits to

identify key success factors. • Select expatriates accordingly.

Using audit data to select expatriates

• Consider the capabilities required for each overseas assignment. For example: o What second/other language skills would be an asset? o What cultural norms should the candidate understand? o How important are informal personal relations in the host

country? o How important is religious practice in the host country? o What technical and managerial capabilities are

required? o What capabilities do repatriates from the host country

emphasise as important? • Match the host country requirements as revealed in the

expatriate audit with the workforce capabilities revealed by the diversity audit. Determine which candidates best match the required skill set.

• Firms wanting to extract the diversity dividend should ensure that all candidates considered are open to difference and

15

value diversity. Such values are reflected in the quality of the individual’s human relations skills.

• Where international expansion into a particular overseas region is a long term priority, plan ahead. Cross-cultural skills are more difficult to acquire than managerial and technical skills. Nurture the talents of staff who hold these valuable capabilities: o For example, for firms with long term ambitions in China,

develop the technical and managerial capabilities of employees who speak Chinese or have lived or worked in China.

• Inform expatriation candidates of the cross-cultural complexities they are likely to face so that they know what to expect before deciding to relocate overseas. Share feedback from repatriates from the host country. Better that candidates deem themselves unsuitable before departure than after arrival.

16

Step three briefing notes Enhancing expatriate success through the selection function The selection of expatriates with cross-cultural capabilities is crucial fo r international business success. Such capabilities help expatriates to manage cross-cultural complexity. A culturally-complex environment is one in which individuals have difficulty deciphering the cultural cues according to which members of a given culture operate. Cultural complexity can be overwhelming for expatriates without host country experience. It can impede business performance by imposing costs on international business transactions. The selection of expatriates who share the national cultu ral background of the country to which they are assigned, means that they have significantly less difficulty adjusting to the norms of the host country’s culture than a non-national. While expatriates from the host country culture still must adjust to the organisational culture of their new assignment, this process will be easier than for expatriates who are unfamiliar with local languages, customs and ways of operating. Selecting expatriates with a host country background translates into increased productivity, reduced time adjusting to host country culture and the ability to more quickly focus on business tasks. Mental models provide a new framework for understanding culture that captures complexity and points towards the business advantages of utilising diversity capabilities. Mental models are deeply imbedded cognitive structures that determine the type of information that individuals receive and the ways in which they process that information. Such models are socially learned, educationally reinfo rced and experientially altered. Individuals who have been exposed to similar experiences often form shared mental models. For example, individuals from particular cultural groups may share models of common languages, rituals, stories, morals, habits, customs, and worldviews. These models underpin an intimate and often tacit understanding of how group members interpret the world, determining the ways in which they behave. Expatriates with a cultural background in the host country will hold valuable mental models of the formal and informal institutions that regulate business and the social environment. The critical know-how of well informed expatriates, which may range from lobbying capabilities and knowledge of routinised processes for applying political pressure, to highly nuanced knowledge of when a ‘word in the right ear’ is appropriate, can be effectively exploited by the firm. Compared with expatriates who have little experience of the host national culture, such expatriates have a more coherent understanding of the ‘rules of the game’, allowing them to develop sound strategic ‘game plans’.

17

Expatriates with clear mental models of host country languages have a distinct advantage over expatriates who lack local language capabilities. Language diversity is a highly valuable skill for internationalising businesses. Although English has become the lingua franca of international trade, it should not be assumed that English language proficiency is sufficient for top performance in the international business environment. Much of a nation’s culture is contained within its language; it contains subtleties and nuances that are lost in translation, causing a reduction in the quality of communication. Expatriate fluency in host country languages provides business with distinct capabilities including:

1. An ability to read relevant trade journals; 2. Access to overseas social networks; 3. Understanding of foreign negotiating styles; 4. Knowledge of how to conduct local market research; and 5. An ability to quickly contact suppliers, distributors and

buyers by telephone/e-mail/fax in their preferred language.

Firms that manage their linguistic diversity are well positioned to foster expatriate candidates who are competent in multiple languages. Such firms can select expatriates with the necessary mental models to succeed in their international assignments, giving them an edge over those who lack multi- linguistic diversity capabilities. Cultural and linguistic diversity capabilities are especially important for building interpersonal relationships. Expatriates with a background in the host country will share convergent mental models with host nationals. Similarity/attraction theory sugg