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

Contemporary approaches to understanding how learning takes place at the organizational level tend to focus on the "learning organization"u "one that uses collective reasoning and the intelligence of the whole organization in making learning rather than intimidation the major tool of management" (Starkey, 1998: 536). This modern paradigm makes learning the job of everyone in the organization, encourages dialogue in order for individual members to understand where their learning fits into the bigger picture, and calls for less commanding and controlling leaders who will have faith in organizational members to solve problems (Bennis, 1993).

Learning Through Internationalization

For the new paradigm, particular emphasis is placed on learning as a distinctive competency that will lead to competitive advantage. In fact, De Geus (1988) argues that the ability to learn faster than competitors may be the only sustainable competitive advantage. In today's competitive landscape, the old ways may not produce results and organizations may need to change, modify the rules, and encourage new behaviors in order to ensure their continued competitiveness and survival. And, modifying the rules requires collective learning. While single-loop learning is about doing the same things, but doing them better and more efficiently, double-loop learning is about coming up with ways to do them differently, or even perhaps doing different things. Both types may be key sources of competitive advantage for the organization. Superior information or know-how, achieved, through efficiency or differentiation, may be used as a way to inhibit imitation by competitors. Although leakage of proprietary information or d istinctive capabilities is usually inevitable, whether through suppliers, customers, or employees, it is much more difficult to duplicate those which are tacit and collectively held by the organization.

In the case where an organization expands overseas, it undergoes the learning process on a worldwide scale. Organizations typically enter foreign markets via exporting and increase their involvement through licensing and joint venture agreements, eventually establishing wholly-owned subsidiaries abroad. This increase in the level of involvement and commitment to foreign markets is known as internationalization (Bilkey and Tesar, 1977; Johanson and Weidersheim-Paul, 1975; Johanson and Vahlne, 1977). According to Chang (1995), firms sequentially approach foreign entry with learning gained from past entry experience. The learning from earlier entry experience enables firms to build organizational capabilities to operate overseas and to launch further entries into areas where they have less strong competitive advantages.

In distinguishing between market-specific and general knowledge (Johanson and Vahlne, 1977), we find that both national and corporate culture are transmitted across subsidiaries, respectively. Market-specific knowledge is characteristic of the national market, its business climate, cultural patterns, structure of the market system, and, most importantly, is characteristic of the individual customers and suppliers. General knowledge, on the other hand, is cumulative in nature. Firms may learn from previous globalization efforts and reduce the barriers that prevent them from freely tapping cheap labor, new technology, and foreign product markets. According to Barkema et al. (1996), the creation of foreign production facilities is predicated on the knowledge that has been accumulated previously. While market-specific knowledge is gained mainly through experience in the market, general knowledge can often be transferred from one country to another.

Expatriation as a Means of Transferring Knowledge

Prahalad and Hamel (1990) suggest that a core competence is based on collective learning in the organization and that firm strategy should be learning-driven. In fact, competitive success will be based less on how strategically physical and financial resources are allocated and more on how strategically intellectual capital is managed--from capturing, coding, and disseminating information to acquiring new competencies (Bontis, 1996). We may conclude, then, that core competencies are developed from organizational learning. Furthermore, for core competencies to be effective, they must be perpetually evolving via continuous organizational learning (Lei et al., 1996).

The internationalized firm must continually develop its intellectual capital, through a variety of functions, businesses, and countries. Initially, international activity lacks the critical mass necessary to operate effectively, and the MNC breeds "ethnocentric" tendencies (Heenan and Perlmutter, 1979) emanating from the parent location. As international activity grows, however, this activity will tend to acquire momentum as firms gain both market-specific and general knowledge through their expatriates. As firms set up facilities overseas, there is an immediate need for an expatriate population for the purpose of resource transfer. Such corporate agendas suggest a deliberate purpose--that of resource transfer--in expatriating key personnel abroad. In essence, this transfer process is cyclical, with the subsidiary location as the recipient of general knowledge during expatriation and the corporate location as the recipient of market-specific knowledge during the assignment as well as upon the manager's return.

Throughout the organization's evolution, it will inevitably learn at the lower level, by virtue of "learning by doing," but conscious effort must be made to learn at the higher level. Johanson and Vahlne (1977) assert that the less structured and defined the activities, the more important this experiential learning will be, and further that it is particularly important in connection with activities that are based on relations to other individuals, such as management and marketing activities. Applied to MNCs, learning is occurring with each successive international endeavor. As the expatriation-repatriation cycle repeats itself, learning is increasingly of the structural, synthetic, and/or institutional types, as knowledge is shared over time and across subsidiaries. So, this study rests on the premise that internationalization inherently breeds a certain degree of learning.

It is expected that as firms internationalize, they will gradually increase their expatriate population in order to expand their international knowledge base, but that the use of expatriation will diminish as international experience is gained. This logic is similar to Franko's (1973) theory of the evolution of the MNC, where expatriates were also viewed as the transferors of knowledge abroad. Findings for both U.S. and European firms indicated that the use of home-country expatriates fades over time in favor of local nationals, but that expatriate populations increase again during high maturity as a multinational. While a slight resurgence of expatriates at various times is entirely possible (even on the decline), it is expected here that the overall pattern from a long-term perspective will be that of a U-curve.

Due to the "learning by doing" and subsequent expansion of both market-specific and general knowledge base, this theory is expected to hold up at two levels--the overseas subsidiary and the overall firm level. In the early stages of the subsidiary establishment, the expatriate acts as a vehicle for facilitating the transfer of SOPs, technical and managerial expertise, corporate philosophy, and overall "best practices" for operating internationally. Over time, as the systems and practices of the parent are imparted on the subsidiary, the role of the expatriate may be diminished, allowing for the recruitment and training of host-country nationals in his/her place. The subsidiary accumulates market-specific knowledge by virtue of continuous exposure to the socio-cultural, political, legal, and economic sectors of the host environment, continuously expanding its knowledge base. Once again, expatriates are an important vehicle in this transfer process while on assignment and once they have been repatriated. Based on this logic, it is hypothesized that:

H1: There will be a negative curvilinear relationship (downward slope) between country experience and the proportion of expatriates in that country's subsidiary.

As both directions of knowledge transfer are iterative and occurring in many markets simultaneously, the general knowledge that is stored at the parent company increases as well. Specific market information from diverse locations is integrated with the organization's existing knowledge base. In time this knowledge translates to infrastructural adaptations, such as superior training and scanning mechanisms. Once generalized to the organization, it flows back to the subsidiaries. The organization processes this information, which then emerges in the form of general knowledge which is more meaningful to the organizational as a whole. Thus, over time, the organization's overall need to engage in expensive expatriation is reduced. Therefore, it is further hypothesized that:

H2: There will be a negative curvilinear relationship (downward slope) between the degree of overall firm internationalization and the proportion of expatriates in the firm as a whole.

METHODS

Data Collection and Sample

The sample of companies for this study was drawn from U.S. Fortune 500 MNCs in two sets of related industries. The first set included firms in the computers/office equipment and electronics industries, and the second set included firms in the petroleum refining and chemicals industries. The sample was restricted to U.S. MNCs in order to maintain parent-country homogeneity. In order to capture the effects of international experience on expatriation, there must be sufficient variance on the internationalization continuum. In order to provide this variance, the study was designed around firms from industries with maximally different international histories. Both the petroleum refining and the chemicals industries have long histories of international operations, whereas the computer industry, and to a lesser extent electronics, are relatively new to the international arena. Industry was then held constant in the subsequent analyses so as not to confound the relationship of interest.

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