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. …