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GREG HARGREAVES
23885-PR/Expats (final) 6/26/01 9:18 AM Page 71

G L O B A L I Z A T I O N 71

?
Are you taking
your expatriate
talent seriously?

? Tsun-yan Hsieh, Johanne Lavoie,

and Robert A. P. Samek

To exploit overseas opportunities, multinational corporations must usually

transfer executives into them | Yet these expatriates—a scarce and very
dear resource—often fail, and many leave their employers even after they
succeed overseas | What can multinationals do to protect their investment?

A shortage of leadership talent is the greatest obstacle Fortune 500

companies face as they seek to operate on a global scale. McKinsey
research shows that most companies have identified rich opportunities
created by the globalization of markets, the opening of formerly closed
economies, the ability to arbitrage differences in skill and productivity from
one region to another, and ready access to a vast pool of capital. But com-
panies also recognize that so long as they do not have enough talent, their
reach will continue to exceed their grasp of these opportunities (Exhibit 1,
on the next page). In a world of intensifying competition for human capital,
a strong global talent pool has become a strategic asset and one of the few
sources of sustainable competitive advantage. As John S. Reed, Citicorp’s
chairman, once commented, “Our global human capital may be as important
a resource as, if not more important than, our financial capital.”

Tsun-yan Hsieh is a director and Johanne Lavoie and Robert Samek are consultants in McKinsey’s
Toronto office. Copyright © 1999 McKinsey & Company. All rights reserved.
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72 T H E M c K I N S E Y Q U A R T E R LY 1 9 9 9 N U M B E R 3

For most companies, expatriate managers are the cornerstone on which

international ventures are built. Once the deals have been signed, the last
toast has been drunk, and the corporate jet has left for the return flight
to North America
EXHIBIT 1
or Europe, it is the
Too few leaders for too many opportunities expatriate managers
Percent of respondents who stay behind to
“I do not have enough leaders to
“We have more global opportunities manage and develop my global get the new business
than we can deal with” businesses” up and running.
45 45
40 Sample size = 144 40 Sample size = 152

35 35 These expatriates are

30 30 among the scarcest
25 25 and most expensive
20 20
resources of multina-
15 15
10 10
tional companies;
5 5 salaries and benefits
0 0 can easily run to more
1 2 3 4 5 6 7 1 2 3 4 5 6 7
Strongly disagree Strongly agree Strongly disagree Strongly agree
than $500,000 a
Source: McKinsey Global Opportunities initiative, December 1996
year. They also play
the critical role in
the process of trans-
forming opportunities into thriving businesses by transferring (typically
from the company’s home base) the required institutional resources,
technologies, and know-how; by building country-specific knowledge
and relationships; and by developing the local talent that is the key to
long-term success and profitability.

Clearly, however, companies have not given enough thought to the prob-
lem of helping this critical resource to succeed. Failure rates for overseas
postings can run as high as 70 percent and typically range between 15 and
25 percent; furthermore, companies often see their successful expatriate
managers leave for other opportunities. As a result, costs rise and interna-
tional growth slows.

In this article, we focus on approaches to establishing a first-class cadre of

expatriates and on the problems that arise when companies attempt to do so.

Building local operations and transferring skills

Although most companies agree on the need to develop local talent for
running international operations, expatriate managers will long be with
us. Even leading global companies that have substantial local management
resources use expatriates extensively. Shell, a truly global company, has as
many as 5,600 of them, in more than 120 countries.
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Expatriates are important for sustaining international growth because

the development of new businesses requires companies to transfer their
skills, and expatriates continue to be the most effective means to that end.
In emerging markets, where establishing relationships, adapting to local
cultures, and transferring skills and technologies all take a lot longer than
they do in developed ones, the need for expatriates is particularly pressing,
even when a joint venture is the chosen entry vehicle. As a survey of
ten Chinese joint ventures demonstrates, the number of expatriates
required to run such
EXHIBIT 2
operations does not
necessarily go down Staff composition of joint ventures in China
even after three years, Average number of management and technical employees
the period in which 700
many companies expect
to have established 600

freestanding operations 500

(Exhibit 2).
400 Local staff

Given the duration 300

and breadth of the
200
challenge, it is not
enough to focus, as so 100 Expatriate
staff
many companies do,
0
on securing technically At market entry Three years later Six years later 1
skilled expatriates for
1
Includes estimates for recent joint ventures.
short-term assign- Source: Survey of ten joint ventures in China, McKinsey Shanghai office
ments. The most suc-
cessful multinationals
instead select and dispatch people who know how to build foreign busi-
nesses —bringing in technical experts when necessary and weaving
together their contributions.

Expatriates represent a significant investment. Their annual salaries and

benefits differ markedly from one company to another, but the cost of a
senior manager— such as a general manager, a chief financial officer, a
national sales and marketing executive, or a national human-resources
director— can run well over $500,000 a year (Exhibit 3, on the next page).
Colgate-Palmolive estimates that expatriate managers cost 50 percent more
than their US counterparts even in relatively cheap areas, such as Latin
America, and as much as 300 percent more elsewhere.

In view of the increasing demand for these managers and the substantial
cost of supporting them, it is important to get expatriates right. But it is
also very difficult. Perhaps 15 to 25 percent of all international assignments
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74 T H E M c K I N S E Y Q U A R T E R LY 1 9 9 9 N U M B E R 3

end prematurely.1 Failure rates among US expatriates are particularly

high, while those of Europeans are much lower. (The better failure rate
among Europeans might be explained by several factors— for example, the
more extensive cross-
EXHIBIT 3
cultural training of
Expatriate business builders — an expensive resource expatriates undertaken
by European compa-
Annual compensation 1 Total average package
$ thousands, percent $ nies and their longer
60
Successful companies Compensation
1
$246,000 history of doing busi-
54
Additional cost to company ness abroad.) These
Less successful Housing 2 84,000
companies Schooling 3
22,500 rates rise significantly
Rest-and-relaxation trips 4 22,500
25
Allowances 5 98,400 in developing coun-
23 21
$473,400 tries, where they can
Other benefits 6
7 10 Three-week vacation reach 70 percent.2
0 Medical
Tax evaluation
< 100 200–300 300–400 > 400 Car and driver The impact of such
1
Salary and 25–50% bonus, sometimes not offered until the joint venture is profitable. fiascoes on a com-
2
Rent ranges from $4,000–$10,000 a month.
3
$15,000/child; assumes 1.5 children/family. pany’s reputation and
4
Three rest-and-relaxation trips at $7,500/trip/family.
5
20% cost-of-living allowance; 20% hardship allowance.
momentum can be
6
Expatriate benefits are declining or even nonexistent for middle managers. significant: relations
Source: Survey of 59 senior Western multinational managers in China, McKinsey Shanghai office, 1997;
Korn/Ferry International
with stakeholders may
be damaged and cus-
tomers lost, and many
candidates for international postings may reject them for fear of failing.
Moreover, the direct cost of each failure can easily reach $1 million—
including time and money wasted in selection, visits to the location before
the executive takes up an assignment, training, and relocation. Furthermore,
unsuccessful expatriate managers can suffer major career setbacks and
therefore a loss of self-esteem and self-confidence.

Leading multinationals take this investment seriously and strongly

emphasize finding, developing, and retaining expatriate business builders.
Such companies apply a combination of conventional and innovative
approaches: unlocking their internal supplies of best talent and breaking
limiting mindsets to cast a wider net. They also try to increase the odds
of success by carefully choosing qualified candidates (and families) and
keeping those candidates well connected while maintaining a healthy
pressure to perform. Finally, they maximize their return on investment
by keeping attrition rates under control and by using returning expatriates
to best advantage.

1
A. Bross and J. S. Matte, Selecting International Employees—a Corporate Investment, Toronto: Family
Guidance International, 1997.
2
“Selection and training of personnel for overseas assignments,” Columbia Journal of World Business,
Spring 1981, p. 77.
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A R E Y O U T A K I N G Y O U R E X P A T R I A T E T A L E N T S E R I O U S LY ? 75

Unlock the best talent

No one likes to lose valued team members, so business leaders often
hang on to their best candidates and refuse to send such people abroad.
Rigorous performance evaluation and incentive systems created for
domestic operations are the root of the problem: companies evaluate the
heads of domestic business units mainly by assessing their performance,
so those executives resist serving up (and will even attempt to hide) high-
performing candidates.

Such behavior impedes international expansion and limits development

opportunities for top candidates. Multinationals must bring forward, not
just sufficiently good people, but the very best: high-potential men and
women who are committed to coaching local talent and have developed the
credibility and organizational networks needed to access the right resources
and get things done.

To unlock these people, the essential requirements are strong incentives

encouraging managers to identify them, well-tuned HR processes, and
attention from senior managers. Indeed, some multinational corporations
have instituted formal mechanisms to
ferret out promising candidates for
postings abroad. Procter & Gamble, Family issues rank among
aided by an on-line database, identi- the leading problems impeding
fies the competencies a given overseas international mobility
assignment demands and seeks the
best internal person for it, instead of
merely accepting someone who wants to go. Other multinational companies
use quid pro quo arrangements: they ask the heads of home-based business
units to present their top ten performers and to let one or two go for interna-
tional postings. The vacated positions are “backfilled” by drawing on the
company’s strong management bench.

Other multinationals go the extra mile by dealing with family issues that
impede mobility, for these rank among the main problems making it hard
for leading-edge corporations to staff their fast-growing international
operations with top talent. According to a 1994 National Foreign Trade
Council survey, 80 percent of employees who refused international assign-
ments did so for family reasons. In a survey of more than 11,000 expatriates
and their spouses, Shell found that the two main factors blocking interna-
tional mobility were the reluctance of spouses to move and concerns about
the education of children. The problem will become even more acute as
the demand for global talent intensifies and the number of dual-career
couples increases.
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76 T H E M c K I N S E Y Q U A R T E R LY 1 9 9 9 N U M B E R 3

EXHIBIT 4

Partner-family policies for expatriates

Before expatriation During expatriation After expatriation

Frame tailor-made solutions (location,
timing, duration)
• professional preferences
• personal circumstances (e.g., tune
timing to education of children)
Approach employer of partner and jointly
prepare expatriation proposal for couple
Offer multiyear leave of absence to follow
partner with option to rejoin afterward
Set up virtual “spouse community”
Have entire family participate in culture
and language courses
Facilitate paid or unpaid employment
(job database)
Subsidize education
Stimulate own business start-ups
Reward language ability and social
integration of entire family
Support “spouse houses”—national clubs
for spouses in foreign countries
Cooperate with other multinational or
multilateral institutions
Gather feedback and act on it
Organize (social) reintegration courses
Subsidize reemployment advice to spouse
Support easy access to housing and
schooling
Cover additional risks (medical and
economic)

Source: McKinsey survey of five multinationals (banking, energy, retail energy, packaged consumer goods, and packaging) based in the Netherlands

To break down these barriers, leading multinationals are implementing

a range of policies to help spouses before, during, and after expatriation
(Exhibit 4). Shell and Colgate-Palmolive have set up comprehensive spousal-
assistance programs, including in-house counseling and job-searching services
and significant financial assistance for spouses wanting to go back to school
or start a business.

Source creatively
Very few multinationals have the luxury of a large corps of mobile and
experienced expatriate managers developed through many years of operating
in foreign markets. Even leading companies with big talent pools must
continually refresh and broaden the supply to sustain their advantage by
going beyond the talent pools at hand and sourcing creatively.

Experienced multinationals, recognizing that softer skills and certain

personal characteristics are particularly important in emerging markets,
develop the technical skills of those candidates who have high intrinsic
potential. These skills —which are in short supply at many companies
with global aspirations —include the ability to handle foreign govern-
ments, to build deep networks of relationships, to negotiate and manage
across cultures, to develop and coach local managers, and to find
creative ways of circumventing underdeveloped market infrastructures.
Furthermore, global market pioneers must have a particular mindset.
A McKinsey study of 59 senior multinational managers in China identified
a number of attributes that characterized successful expatriates: optimism,
drive, adaptability, foresight, experience, resilience, sensitivity, and
organization (Exhibit 5).
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A R E Y O U T A K I N G Y O U R E X P A T R I A T E T A L E N T S E R I O U S LY ? 77

Samsung, for example, sends employees who have high potential and the
right intrinsic qualities to university to develop the required expertise
in international patent law, finance, and other specialized fields. To less
experienced multinationals, this policy may seem counterintuitive, but
the lesson is clear: don’t select candidates on the basis of functional
expertise alone.

Another conventional approach involves reaching out to external sources

of talented people with closely related industry experience. Often, they are
expatriates poached from competitors that failed to use them effectively.
Even multinationals, such as Gillette, that have strong internal-recruiting
cultures are prepared to parachute high-priced external executives on a
just-in-time basis into global operations. If these candidates are not suffi-
ciently familiar with the business of the company posting them, they must
be put through an accelerated development program before they go off to
head local operations. In the mid-1990s, when Sara Lee Corporation was
having problems integrating its international acquisitions, it went outside,
hiring experienced managers as global marketing consultants to operating
groups. These newly created senior positions were designed to give new
hires a rapid 18- to 24-month orientation before they were sent out to
lead international subsidiaries.3

EXHIBIT 5
In addition to these
techniques, multina- Important characteristics of a “China pioneer”
tionals must often
Number of times mentioned as “the
try more innovative most important characteristic”
approaches. One Optimistic: Believes future challenges can be overcome 14
option is to build Driven: Has burning passion to succeed 12
the required bundle Adaptable: Handles ambiguity well 10
of skills by using a Farsighted: Imagines the future 8
number of people. Experienced: Has seen and done a great deal 7
Nortel typically sends Resilient: Recovers quickly from failure 6
three expatriates to Sensitive: Adapts management style to cultural differences 4

start operations in Organized: Plans ahead, follows through 2

emerging markets: an Source: Survey of 59 senior Western multinational managers in China, McKinsey Shanghai office, 1997
expert in international
finance, an entrepre-
neurial sales manager, and a line manager with the softer skills required to
handle relationships. France’s Carrefour develops stores in new emerging
markets by sending in a team that stays on site until the operation is on its
feet and then moves on to another new site. And when Procter & Gamble
was building its Chinese operations, it dispatched a team of high-potential

3
Interview with a former Sara Lee international marketing manager, January 1997.
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78 T H E M c K I N S E Y Q U A R T E R LY 1 9 9 9 N U M B E R 3

people (from market research, logistics, and marketing) who spent three
years in that country.

Other multinationals, moving away from the assumption that their expatriate
managers must come from their home countries, are looking at sources like
nationals of developing countries, including employees of their joint ventures.
At Gillette, only 15 percent of the company’s expatriates are natives of
the United States; 85 percent come from the other 27 countries where the
company operates.4

Finally, some multinationals, such as ABB, cleverly insist on the right to

transfer top talent from one joint venture to others. Trained managers who
have demonstrated their ability in difficult situations—building distribution
systems in markets with poor infrastructure, for example, or starting up
operations in tough emerging markets—may well replicate their successes
in other emerging markets. At one major global bank, the leading expert
on getting office automation systems up and running in new countries
originally came from one of its joint ventures in the Middle East.

Early-assessment programs
About 70 percent of failed assignments result directly from personal
and family difficulties rather than incompetence on the job,5 so most experi-
enced multinationals have early-assessment programs that solicit the feel-
ings of spouses and weigh family-related issues. Nortel’s selection program,
which starts by assessing employees and their families, screens candidates
against a list of known personal and family risk factors and encourages
inappropriate candidates to decline international assignments. PepsiCo
gives its employees a special test to assess their adaptability to life and
work in foreign cultures.

But such programs can be effective only if employees found to be unsuit-

able for foreign assignments don’t suffer professionally. Although moving
abroad may be difficult for some high-potential people, they may nonethe-
less be able to derive international experience from creative job design and
exposure. A company could, for example, pair a high-potential manager
from headquarters with an executive located in a foreign market. As John
Fulkerson, vice president of organization and development at Pepsi-Cola
International, puts it, “We don’t have a penalty box. There are lots of
ways to have a great career.”6

4
“Building a global management team,” Personnel Journal, August 1993, p. 75.
5
Selecting International Employees, Toronto: Family Guidance International, 1997.
6
“The care and breeding of global managers,” Training, July 1992.
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A R E Y O U T A K I N G Y O U R E X P A T R I A T E T A L E N T S E R I O U S LY ? 79

Most multinationals also recognize the importance of investing in

education— cross-cultural and language training— to prepare expatriates
and their families for the move. Developed and developing countries can
have vastly different cultural and business expectations. Anyone who
relies solely on English as the worldwide business language will be
unable to tap into valuable local sources of business information and
influential business networks and can have only a limited ability to
conduct negotiations.

Training must go beyond a few days spent in classrooms discussing the

host country’s history, politics, economy, and culture. The duration of
the overseas assignment and the difficulty of making the adaptation to
the host country should determine the length of the training period and
the level of immersion, from classes at home to foreign travel. Although
it may be hard to quantify the benefits of these educational investments,
the benefits are real. S. C. Johnson & Son attributes its low expatriate
failure rate (less than 2 percent) to the cross-cultural training received
by the company’s international workforce. Experience also shows that
Japanese and European expatriates, more of whom receive more cross-
cultural training than do their US counterparts (57 and 69 percent,
respectively, as opposed to 32 percent), had lower failure rates in interna-
tional assignments (an average of 1 in 15 for the Europeans versus 1 in 3
for the Americans).7

A less conventional approach to preparation involves identifying

potential candidates early and either giving them short-term foreign
assignments or getting them involved in negotiations with foreign
business partners and government
officials before making the decision
to post them abroad. That approach Anyone who relies solely on
may require an extra investment English will not be able to tap
up front, but the return is worth- into valuable resources of
while; seeing candidates in action information and influential
is one of the best ways for senior business networks
executives to evaluate their fit and
potential. Furthermore, early par-
ticipation offers candidates a unique development experience: they
can familiarize themselves with local living conditions and business
environments, start developing critical relationships, and influence key
strategic and operating decisions. All of this promotes a greater sense
of “ownership.”

7
“Selection and training of personnel for overseas assignments,” Columbia Journal of World Business,
Spring 1981, p. 77.
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80 T H E M c K I N S E Y Q U A R T E R LY 1 9 9 9 N U M B E R 3

Keep expatriates well connected

Top-performing multinationals not only demand superb performance
from expatriate managers but also accept some responsibility for
ensuring that their families are happy in the host country and that the
expatriates themselves remain well connected to the organization and
enthusiastic about their career development. All three are prerequisites
for success.

To minimize the risk of failure, experienced multinationals start by pro-

viding basic personal support for expatriates and their families. Nortel, for
instance, works with external suppliers to provide ongoing remote and local
counseling services to employees abroad. Some multinationals even invest in
specialized in-house resource operations: Honeywell has a Global Leadership
Center that provides workshops, mobility assistance in the form of an infor-
mation hotline, language training, welcome packages, and global forums.

Multinationals must also institute connectivity mechanisms to make

expatriates feel well anchored in the broader organization; otherwise, they
can easily feel “out of the action,”
lose motivation, and start looking
Efforts to keep expatriates for more involved employers. To
well connected play a very prevent this kind of professional
important role in facilitating isolation, Samsung assigns each
the two-way transfer expatriate a senior home office
of knowledge mentor who periodically touches
base to provide news about events
in the home country and the head
office, as well as career advice. Coca-Cola’s expatriates move from one
international assignment to the next but maintain strong connections to
their mentors at the Atlanta headquarters.

These efforts to keep expatriates well connected also play a very important
role in facilitating the two-way transfer of knowledge. Once expatriates
have gone abroad, they must be able to locate expertise, best practices,
and resources throughout the company and to transfer those assets to
operations in the host country. Back home, the company must be able to
assimilate the knowledge expatriates have picked up overseas. To open up
these channels, such leading multinationals as ABB consciously promote
formal and informal networks across markets through global conferences,
special projects, and cross-country task forces. Eli Lilly uses its corporate
intranet to stimulate communication among expatriates in different mar-
kets, with the ultimate goal of enhancing the company’s problem-solving
abilities and building a culture of trust and support.
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Support and encouragement, while essential, are not enough: leading

multinationals are careful to maintain a high (but not unhealthy) level
of pressure on expatriates to keep them motivated. Setting clear targets
for managers and monitoring their performance are no less important in
emerging markets than in domestic ones. But someone who is trying to
build a business from scratch abroad should not be judged by the same
criteria as a colleague who is extending and optimizing a core business
at home.

Metrics must be in the “line of sight” of expatriates — that is, under their
control—and simple enough to let them understand the effects of their
actions on the evaluation. Such simple performance metrics as the growth
of sales or volume, the number of new accounts, or specific milestones
in developing local businesses, for example, are often more appropriate
than metrics based on profits or option-pricing schemes that sound
good but are often overly complex. If companies expect their expatriate
employees to originate new businesses, they can add such measures as
the number of deals that actually end up doing so or the number of deals
that are in progress.

How well expatriates score will depend to some extent on the duration of
an assignment. Managers need clear deadlines to spur their performance,
but not such tight deadlines that they have no time to achieve significant
results. Balancing these two considerations isn’t easy. Coca-Cola does not
repatriate managers
EXHIBIT 6
until they have had a
chance to show that The importance of visible senior management attention
they have made an
Frequency of CEO visits Percent of respondents
impact — three to five Number of times a year thinking visits are useful
years, depending on Ten most successful 2.2 78
the country and the companies
Successful
assignment. This companies
1.8 83

kind of performance Less successful 1.7 71

companies
monitoring serves
as a great motivator, Source: McKinsey survey of 59 senior Western multinational managers in China, 1997
but to be inspired,
managers require
something more. McKinsey’s study of 59 senior managers of multinationals
in China clearly demonstrated the benefit of frequent visits by chief execu-
tive officers. On average, the CEOs of the ten most successful companies
(reckoned by market share, revenue growth, corporate position, employee
morale, and profitability) made 2.2 trips a year, while those of the less suc-
cessful ones made only 1.7. More than 70 percent of respondents found
these visits to be a very powerful motivator (Exhibit 6).
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82 T H E M c K I N S E Y Q U A R T E R LY 1 9 9 9 N U M B E R 3

Prevent the leakage of talent

Leading multinationals never forget that expatriates represent a significant
investment and strive to keep them and to capitalize on their experience.
To ensure that valued employees are not lost, companies should make careful
planning for repatriation a priority. Too many of them now fail in this task.
Upon returning to domestic operations, expatriates often discover that
during their absences their counterparts have passed them by. Others return
to jobs that do not use their new skills and find themselves with reduced
autonomy and compensation.

A survey by the US Bureau of National Affairs, a government organization,

found that 68 percent of managers were unsure of their next positions before
returning, 77 percent believed that
they had been demoted upon repa-
One survey found that 91 triation, and a stunning 91 percent
percent of respondents felt felt that their companies didn’t value
that their companies did not their international experience. As a
value their international expertise result, repatriated managers in the
United States leave their companies
at twice the rate of managers with
purely domestic experience; about 25 percent of them leave within one
year of returning. This wastes valuable resources.

Systematic repatriation planning that rewards and exploits the returning

expatriate’s skills and experience is the key to preventing this talent drain.
Komatsu has a “return ticket policy”: an assurance that the company
views international postings as a broadening experience, not as a trial, and
that returning expatriates will have positions waiting for them in Japan.
At some multinationals, such as ABB, sponsoring managers are responsible
for finding them new positions—a process that starts about six months
before the conclusion of an international assignment.

Often, “reverse culture shock” provokes an expatriate’s decision to leave

a company upon returning to the home country; the Bureau of National
Affairs found that 69 percent suffered from this syndrome. To control it,
Monsanto offers repatriation-training programs for expatriates and their
families. In what amounts to a warm corporate hug, the program addresses
the expectations of returning expatriates for reentry and gives them an
opportunity to showcase their new knowledge in a debriefing session.

Multinationals must not only preserve the expatriates’ loyalty but also
engage them in the process of preparing their replacements, so that their
know-how, experience, and networks are not dissipated when they leave
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their foreign operations. Samsung, for instance, has learned that returning
expatriates can give candidates preparing to go overseas a dose of reality
and make their preparation and training more credible. Moreover, leading
multinationals take advantage of the knowledge of returning executives and
cultivate their networks of contacts by arranging to keep them involved
with their former foreign operations, even when they have been promoted
to new areas of responsibility.

Organizations hoping to extract value from the gaps in skills between

emerging and developed markets will need to rely on expatriates for some
time. But these people are a scarce and very expensive resource and, unfortu-
nately, they often fail. To maximize the return from international expansion,
multinationals must take their investment in expatriates more seriously.
They must free up their best talent by reducing barriers to mobility within
their organizations and across geographical boundaries. They must raise
the odds of success through better screening, preparation, and connectivity.
Finally, these companies must improve the internal transfer of knowledge
by encouraging communication and retaining expatriates after their foreign
tours of duty have ended.