Expatriation Strategies for the Adaptation of Employment Modes to Different Market Economies

Expatriation is an increasingly important strategic instrument for multinational companies (MNC). Professionals, sent by their employer to work in a foreign subsidiary (Hocking et al., 2007; Hippler, 2009; Chang et al., 2012), help to overcome managerial and technical shortages or facilitate the integration of the global operations of an MNC (Harzing, 2001; Meyerhofer et al., 2004). Overall, with the growth of emerging markets and the rapid internationalization of small- and medium-sized firms, the demand for expatriates has substantially increased. This growth calls for a better understanding of the costs and benefits involved in using expatriates for managing overseas subsidiaries (Bonache Pérez and Pla-Barber, 2005; Collings et al., 2007).

This study examines the association of expatriation strategies with the adaptation of employment modes from one type of market economy to another. The international business literature and the expatriation literature provide conflicting ideas as to how expatriation strategies may affect the adaptation of employment modes to market economies. Whereas Rosenzweig and Nohria (1994) argue that expatriates facilitate "internal consistency" between the parent and the foreign subsidiaries  others contend that expatriates impede "local isomorphism," that is, the adaptation of a foreign subsidiary to its host economy. Moreover, business practices are often treated as one category of coordination and control mechanisms, leading scholars to call for more fine-grained distinctions of managerial practices, as patterns and degrees of control may vary between functional areas (Kostova and Roth, 2002; Ferner et al., 2011). Finally, the literature has often overlooked the importance of the institutional distances between the host and the home country of MNCs.

In this study we combine these three bodies of literature: the varieties of capitalism (VoC) approach (Hall and Soskice, 2001), the international business literature on the cross-border adaptation of business practices (Kostova and Roth, 2002), and the literature on expatriation (Harzing, 2001; Hippler, 2009). To develop first theoretical insights into the expatriation strategies for the adaptation of employment modes to different market economies, we empirically explore the employment modes of 76 subsidiaries of U.S. MNCs (hereafter U.S. subsidiaries) in Germany, Switzerland, and the United Kingdom (UK).

We define employment modes as bundles (MacDuffie, 1995) of human resource management (HRM) and industrial relations (IR) practices implemented at the firm level. IR practices are characteristic for a market economy either by formalization in national regulations or by embeddedness as good practices among many firms. Although firms can choose which IR practices to adopt, the institutional pressures limiting this choice differ substantially among different market economies (Thelen, 2001). In contrast, HRM practices are less regulated, thereby giving firms more leeway in adapting HRM practices according to their strategic needs (Lepak and Snell, 1999).

To analyze employment modes, we use a set-theoretic method, fuzzy set Qualitative Comparative Analysis (fsQCA), that has recently gained popularity in the management literature . fsQCA systematically compares entire configurations of multiple elements but does not require ex ante specification of measures or directions of relationships. Thereby fsQCA identifies "bundles of practices," that is employment modes that are uniquely adapted to one of the three market economies. fsQCA is thus highly suitable for our analysis and theory-developing purposes .

We identify four expatriation strategies for the adaptation of employment modes to different market economies: "ambiguous expatriation," "substantive expatriation," "substantive non-expatriation," and "balanced non-expatriation." Each strategy shows idiosyncratic associations with the adaptation of employment modes that largely depend, first, on the differences between the home institutional environment of the parent firm and that of the subsidiary's host environment and, second, on the international focus of the MNC. We thus argue that expatriation is not always advantageous for MNCs and propose conditions under which expatriation may be useful for adapting employment modes to the particular conditions of the subsidiary's host country.

 

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