Knowledge Transfer Through Expatriation: The U-curve Approach To Overseas Staffing.

While group intellectual capital, manifested in the ability to transfer core competencies from one experience to the next, is critical for sustaining competitive advantage, today's organization faces the difficulty of measuring and managing these intangible assets. Here we examine the unique role of expatriate managers in enhancing group intellectual capital by facilitating the transfer of knowledge across national borders. Thus, while expatriates (or home-country managers sent on overseas assignments) represent costly and sometimes unsuccessful endeavors, expatriation remains a viable staffing strategy among multinational corporations (MNCs) for several reasons. Among these are the potential to (1) facilitate the communication process between the parent location and its subsidiaries, as well as across subsidiaries, (2) aid in establishing country linkages, and (3) increase the firm's understanding of international operations. As such, the practice of employing expatriates may be a strategic move on the part of an MNC to increase the international experience and knowledge base of present and future managers (Boyacigiller, 1991). Thus, expatriation is a tool by which organizations can gather and maintain a resident base of knowledge about the complexities of international operations.

The expatriation literature frequently cites the need to transfer resources abroad as a primary reason for expatriating home-country nationals to foreign affiliates (Dowling et al., 1994). However, the process of expatriation remains void of any deeper theoretical explanation or empirical support. The number of home-country expatriates in subsidiaries is often taken as an index of internationalization (Kobrin, 1988). It is suggested here that the relationship between expatriation and internationalization is grounded in theory, and that the nature of this relationship will change as internationalization takes place.

This article is concerned with the expatriation strategies of firms at different levels of organizational experience abroad, both in specific national markets and in the international marketplace as a whole. It was expected that, at both levels of analysis, firms gradually increase the use of expatriates but at some point begin to pull back on their use in favor of local nationals. This expectation was based on the learning process that firms undergo about operating within certain markets (i.e., national laws, politics, cultures), as well as the applicability in one market of lessons learned in others. The flows of two types of information, referred to as market-specific and general knowledge, are illustrated in Figure I. The cycles represented by Paths 1 and 2 are market-specific. That is, Path 1 represents the flow of organizational knowledge (i.e., corporate philosophy, policies, procedures) to the subsidiary through the expatriate manager. Path 2 represents the flow of market-specific knowledge, as picke d up by the expatriate, and shared with the parent company. Knowledge flows back to the parent company occur during expatriate assignments as well as upon repatriation. With each successive expatriation into the country, the company and the expatriate manager are more informed about how to operate there. As such, Path 1 increasingly reflects more market-specific knowledge brought back to the subsidiary location. As this cycle occurs in more than one national market, firms are able to capture synergies (Path 4) that result from accumulated market-specific knowledge (Path 3). As this overall cycle repeats itself, Path 1 increasingly reflects these synergies and may enable the firm to streamline its expatriate population.

The remainder of this article is divided into four sections. The first section provides the theoretical background on how intellectual capital is developed through the continuous transfer of core competencies, a process known as organizational learning. It also establishes the applicability of organizational learning in the international context and describes the role of expatriates in facilitating the learning process, followed by the hypotheses to be tested. The second section describes the methodology, including data collection and measurement of variables. Results are provided in the third section, and the final section discusses the implications of these findings and offers some suggestions for continuing with this line of inquiry.

THEORETICAL BACKGROUND AND HYPOTHESES

Organizational Learning

The dictionary defines learning as "the acquiring of knowledge or skill." It encompasses both the acquisition of "know-how," which implies the physical ability to produce some action, and the acquisition of "know-why," or the ability to articulate conceptual understanding of an experience (Kim, 1993). At the organizational level, the learning process is fundamentally different (March and Olsen, 1975). While individuals learn by acquiring tacit knowledge through education, experience, or experimentation, this learning need not be shared. Organizational learning, on the other hand, occurs as individual learning is shared and transferred to new individuals, whether across boundaries of space, time, or hierarchy. The literature on learning methods is somewhat fragmented, ranging from behavioral/strategy level learning (Duncan, 1974) to habit-forming/discovery (Hedberg, 1981) to reactive/proactive learning (Miles, 1982). However, the majority of learning theories tend to converge on the distinction between single - and double-loop learning processes, as introduced by Argyris and Schon (1978).

Single-loop learning, also referred to as learning at the procedural (Miller, 1996) or lower level, focuses on influencing behavioral outcomes such as the steps necessary to complete a particular task. This know-how is captured in routines, such as filling out forms, operating a piece of machinery, or handling a switchboard. These standard operating procedures (SOPs) accumulate and, in turn, change routines. Double-loop learning, which may be thought of as conceptual (Kim, 1993) or higher-level learning, aims to create new insight, heuristics, and a collective consciousness within the organization (Fiol and Lyles, 1985). Conceptual learning has to do with thinking about why things are done in the first place, challenging the nature or existence of prevailing SOPs (Kim, 1993), and it often produces specialization and highly differentiated organizational designs that in turn promote nonroutine behavior (Levitt and March, 1988).

Although many typologies are available for understanding how learning occurs, Miller's (1996) integrative framework allows for the distinction between lower and higher orders of learning as well as between learning at the individual and organizational levels, and is therefore helpful in laying the foundation for the current study. Miller (1996) identified and categorized six modes of learning, as described below, on the basis of two dimensions--methodological and emergent.

Methodological inquiry is analytical and deals with objective facts. It is systematic and often tests notions deductively. Facts are gathered and evaluated in an orderly way and with explicit purpose (Ansoff, 1965). In contrast, emergent rationality is spontaneous and intuitive, and it centers on instincts and impressions. Intuitive managers learn tacitly and inductively, and choices might be made quite unconsciously (Miller, 1990; Mintzberg, 1989). Each of these is described in more detail as follows.

Methodological

Analytic: Intensive analysis due to careful environmental scanning.

Experimental: Similar to analytic learning, except that action sometimes precedes analysis in the learning cycle (Weick, 1979), implying "learning by doing."

Structural: Codification of prior learning by specifying how to carry Out tasks and roles efficiently. This is learning via routines or SOPs.

Emergent

Synthetic: Combines pieces of knowledge so that the whole is greater than the sum of the parts and is characterized by harmony, consistency, and fit (Mintzberg, 1989).

Interactive: Learning by doing, but the learning is less systematic (than with experimental learning). It is impulsive and implicit, achieved, for example, by bargaining with each other and with external stakeholders (Cohen et al., 1972).

Institutional: Learning by a very large group, so that knowledge is widely diffused, by establishing organizational myths and legends, harmonizing the values of the leader or some other organizational constituent.

As we can see, some of these methods can be experienced by individuals, such as analytic, experimental, and interactive. Structural, synthetic, and institutional learning, on the other hand, must be experienced at the group level by definition. Furthermore, it is easy to see that the methodological modes resemble those of procedural learning and that the emergent modes are our higherorder, conceptual experiences. The relevance of various learning methods to the expatriate experience is established in a later section.

Organizational Learning Theory: Traditional and Contemporary Approaches

Organizational learning theory, in the traditional sense, has focused on systematic processes that firms undergo as they grow older. Aldrich and Pfeffer (1976) suggest that organizations are evolving towards bureaucratic structures over time. Starbuck (1965) found from his review of relevant research that organizations become formalized with age; that is, they develop characteristic roles into which individuals settle, patterns of behavior stabilize, and standard operating procedures are established. He concluded that the formalization process is fundamentally an adaptive process. As an organization gets older, it learns more and more about coping with its environment and with its internal problems of communication and coordination. Similarly, according to Chandler (1977), once managerial hierarchies have been formed, these hierarchies themselves became sources of permanence, power, and continued growth. The learning process is officially enforced when processes which emerge are sanctioned and fixed in job d escriptions, organizational handbooks, or planning systems (Cangelosi and Dill, 1965).

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