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Cmolik, Andreas: Expatriate Performance Appraisal: A theoretical study and comparison of the
literature / Andreas Cmolik - Hamburg: Diplomica GmbH, 2002
Zugl.: Linz, Universität, Diplomarbeit, 2002
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Expatriate Performance Appraisal
Master Thesis
- 2 -
TABLE OF CONTENTS
TABLE OF CONTENTS ... 2
INDEX OF FIGURES ... 4
INDEX OF TABLES ... 5
1. INTRODUCTION... 6
1.1 Economic
Background... 6
1.1.1 International
Economic Trends ... 6
1.1.2 Austrian
Foreign
Trade ... 8
1.2 Trends in Expatriation... 10
1.3 Purpose of the Study ... 10
1.4 Structure of the Thesis... 11
2. THE BUSINESS OF EXPATRIATION ... 12
2.1 Definitions ... 12
2.2 Reasons for Expatriation ... 13
3. INTERNATIONAL
HUMAN
RESOURCE MANAGEMENT... 15
3.1 A Strategic Approach... 15
3.2 International Staffing Issues ... 17
3.2.1 Scope
of
Internationalization... 17
3.2.2 Headquarters
Orientation ... 19
4. THE
EXPATRIATION CYCLE ... 21
4.1 Selection
Process... 22
4.1.1 Selection Criteria... 22
4.1.2 Selection
Process... 24
4.2 Training... 25
4.2.1 Training
Modes ... 25
4.2.2
Cost of Training ... 26
4.3 Host Country Experience ... 27
4.3.1 Expatriate
Adjustment Process... 27
4.3.2 Culture
Shock... 27
4.4 Repatriation ... 29
4.4.1 Adjustment,
Change & Expectations ... 29
5. PERFORMANCE
MANAGEMENT & APPRAISAL ... 32
5.1. Definition of Performance Management... 32
5.2 Definition of Performance Appraisal ... 34
Expatriate Performance Appraisal
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6. SUCCESS
AND
FAILURE... 36
6.1 Definition of Success... 36
6.1.1
Factors Contributing to Success ... 37
6.1.2 Domestic
versus
International Success ... 37
6.2 Definition of Failure ... 38
6.2.1 Factors
Contributing to Failure ... 38
6.3 Cost of Failure ... 39
6.4 Failure
Rates... 40
7. EXPATRIATE
PERFORMANCE APPRAISAL ... 42
7.1 Goal Setting and Expatriate Performance ... 44
7.1.1 Job
Description... 46
7.1.2 Expatriate
Involvement ... 48
7.1.3 Specificity of Goals... 49
7.1.4
Hard and Soft Goals ... 49
7.1.5 Difficulty
and
Duration of Goals... 51
7.1.6 Number
of
Goals ... 53
7.1.7
Goal Setting An Ongoing Process... 53
7.1.8
Performance Goals in the International Context ... 54
7.1 Evaluators of Expatriate Performance... 55
7.2.1 Traditional
Top-Down
Appraisal (Supervisor) ... 56
7.2.2 Self-evaluation ... 57
7.2.3 Upward
Appraisal
(Employee)... 59
7.2.4 Peer
Evaluation ... 60
7.2.5 Other
Evaluators... 61
7.2.6
360 Degree Feedback Process... 61
7.2.7
Location of Appraiser... 63
7.3 Frequency of Performance Appraisal and Feedback... 64
7.4 Conflicts and Challenges ... 65
8. LIMITATIONS AND CONCLUSION... 68
8.1 Cultural
Differences... 68
8.2 People's Republic of China... 70
8.3 Further
Limitations... 72
8.4 Summary of Significant Findings ... 73
8.5 Recommendations
for Further Research ... 75
8.6 Conclusion... 77
REFERENCES... 78
Expatriate Performance Appraisal
Master Thesis
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INDEX OF FIGURES
Figure 1:
World Merchandise Trade in billion...7
Figure 2:
World Merchandise Trade in 2000...7
Figure 3:
Austrian Merchandise Exports in % of GDP...8
Figure 4:
HRM's Strategic Context...16
Figure 5:
Scope of Internationalization...18
Figure 6:
The Expatriation Cycle...21
Figure 7:
ASC Competency Model...24
Figure 8:
Culture Shock Cycle...28
Figure 9:
Internal and External Changes...30
Figure 10:
The Performance Management System...32
Figure 11:
Conflicts in Performance Appraisal...34
Figure 12:
Performance Management Process...43
Figure 13:
Job Description and Goal Setting...47
Figure 14:
Goal Difficulty and Job Performance...52
Figure 15:
Potential Raters of Expatriate Performance...55
Expatriate Performance Appraisal
Master Thesis
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INDEX OF TABLES
Table 1:
Expatriate Training Costs...26
Table 2:
Performance Evaluation versus Performance Management...33
Table 3:
U.S., European, and Japanese MNE's Failure Rates...41
Table 4:
Home versus Host Country Appraisers...63
Table 5:
Frequency of Expatriate Appraisal...64
Table 6:
Top Ten Causes of Insufficient Appraisals...66
Table 7:
Chinese and Western Performance Appraisal Practices...71
Expatriate Performance Appraisal
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1. INTRODUCTION
1.1 Economic
Background
1.1.1 International Economic Trends
The economic world has changed dramatically since World War II and numerous
historical events and developments have re-written the rules of the "business game"
for several times. Trading zones (i.e. MERCOSUR, ASEAN, NAFTA, ANDEAN, etc.)
have evolved allover the world and the European Union, with its drive toward
harmonization, has become the largest and most integrated trading zone world-wide
(WTO, 2001). The Fall of the Iron Curtain in 1989 and the opening of the former
communist countries have fueled the drive toward globalization even more. The
International Labour Organization (1999) defines economic globalization as "a
process of rapid economic integration between countries ... (that) ... has been driven
by the increasing liberalization of international trade and foreign direct investment,
and by freer capital flows. The process manifests itself mainly through an
intensification of activities in the following areas:
· international trade in goods and services;
· capital flows (FDI and short-term flows);
· the role of multinational enterprises (MNE);
· the reorganization of production networks on an international scale;
· the adoption of new technology, including information technology"
(http://globalization.about.com).
It is necessary to bear in mind that these various dimensions of globalization are
interrelated and mutually reinforcing, hence, boosting the speed of globalization by
stimulating each other.
Expatriate Performance Appraisal
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Over the last decade, the strong increase in internationalization of production and
demand for capital has induced cross-border capital flows. In 2000, foreign direct
investments (FDI) and foreign portfolio investments (FPI) have reached 2,304
billion (BMWA, 2001a; 2001b).
Figure 1: World Merchandise Trade in billion (source: WTO, 2001)
As the end of the second millennium unfolded, world merchandise trade has reached
13,690 billion in 2000, which is more than a 10,000% increase compared to 1948
(Figure 1).
Figure 2: World Merchandise Trade in 2000 (source: WTO, 2001)
World Merchandise Trade (2000)
0%
10%
20%
30%
40%
Western
Europe
Asia
North
America
Latin
America
CEEE
Middle
East
Africa
Percentage
0
2 0 0 0
4 0 0 0
6 0 0 0
8 0 0 0
1 0 0 0 0
1 2 0 0 0
1 4 0 0 0
1 9 4 8
1 9 5 3
1 9 6 3
1 9 7 3
1 9 8 3
1 9 9 3
2 0 0 0
Expatriate Performance Appraisal
Master Thesis
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The geographical breakdown in Figure 2 displays that the economic triad, Europe,
Asia, and North America, still holds by far the largest share in world merchandise
trade. The annual percentage change in volume provides a certainly different picture,
showing that Asia and the transition economies have had a remarkable record of
both the highest export growth rates and the largest increase in imports (WTO,
2001).
1.1.2 Austrian Foreign Trade
Austria's economy is shaped by its size and location and "like all small economies,
Austria is characterized by intensive foreign trade" (Fischlmayr, 2001, p. 10). In 2000,
real exports of goods and services accounted for 48.9 percent of Austria's GDP,
while imports accounted for 50 percent of total GDP. Total international trade was
worth 144,627 million (OeNB, 2001b).
Figure 3: Austrian Merchandise Exports in % of GDP (source: Wirtschaftskammer, 2002)
A geographical breakdown provides a clear picture of Austria's major trading
partners. The EU ranking number one, with Germany being the most important
2 5 ,4
2 4 ,3
2 3 ,3
2 1 ,6
2 2 ,5
2 4 ,5
2 5 ,0
2 8 ,4
2 9 ,6
3 0 ,6
3 3 ,8
3 5 ,4
3 6 ,9
2 0
2 5
3 0
3 5
4 0
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
Expatriate Performance Appraisal
Master Thesis
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trading partner
1
, followed by Italy and France. The transition economies of Eastern
Europe are of increasing importance, as they face extended demand in Austrian
goods and services. Eastern Europe has received 13.6 percent of Austria's exports,
Hungary being among the most important trading partners with five percent. Imports
from Eastern Europe accounted for ten percent, whereby Hungary holding a
3.5 percent share in 2000 (OeNB, 2001b).
Active FDI of Austrian companies grew by an average of 58 percent per annum in the
80s, facing a sharp decline in the 90s down to just 15 percent, and ending up at the
low level of 12.3 percent in 1999. Passive FDI has gone more or less the other way
round, facing a 19 percent (average) growth rate in the 80s, while going up to
45 percent in the 90s. Outward FDI assets accounted for 18.9 billion and inward
FDI assets for 23.2 billion in 2000 (OeNB, 2001a).
Eastern Europe has become the most important target region for Austrian outward
FDI, holding a 47 percent share of total capital flows. The Czech Republic
2
and
Hungary
3
received the largest shares within the CEEEs (Central and Eastern
European Economies) (OeNB, 2001a). Total outward FDI was worth 3.5 billion
(Wirtschaftskammer, 2001c).
While the CEEEs have become substantial targets for active FDI, Germany remained
the most important source for passive FDI, with capital flows of 1.4 billion in 1999
and 8.2 billion in 2000 (OeNB, 2001a), holding a 80 percent share of total inward
direct investments
4
(Wirtschaftskammer, 2001d).
1
33.2% of total exports
40.6% of total imports
2
39% of Austrian FDI in Eastern Europe
3
18% of Austrian FDI in Eastern Europe
4
10.24 billion
Expatriate Performance Appraisal
Master Thesis
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1.2 Trends in Expatriation
U.S., European, and Asian firms are further expanding their primary markets
internationally, supported by the dismantled Iron Curtain, the ongoing
democratization and capitalization of Central and Eastern Europe, the further
unification of the European Union, and the opening of the Chinese market through its
participation in the World Trade Organization (WTO). Owing to the trend of
globalization, there is a growing need for companies to send some of their
employees overseas in order to set up and run international operations.
Black et al. (1995) have conducted a study among 69 of Europe's most prominent
multinational enterprises and 35 of their Japanese counterparts. In terms of future
trends in expatriation, 46 percent of the Japanese managers expected expatriation to
increase in their companies. This number was slightly outpaced by European
managers, whose expectations were as high as 49 percent that expatriation will
further increase in the future.
1.3 Purpose of the Study
The topic of expatriation has become of ever growing importance within the last
decades and managers seem to expect a further rise in the number of internationally
employed people. Researchers and practitioners alike have put much effort in
investigating the expatriation process, nevertheless, little is known about
performance evaluation of expatriate managers. Though expatriates are among a
company's most expensive assets, most research on performance evaluation has
been conducted in the national rather than international context.
The focus of this study is on employee performance evaluation in the international
context. A basic understanding of performance evaluation in the national context was
necessary to better understand expatriate performance appraisal. Therefore, home
country performance evaluation provides a starting point and acts as a supplement
where relevant research on expatriate appraisal is missing.
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As expatriate performance is affected throughout the expatriation cycle, it is essential
to point out the most influencing variables during this process. The center of this
master thesis is dedicated to the two most important features in expatriate
performance management - goal setting and performance evaluation.
The aim of this theoretical study is to provide a comprehensive understanding
of expatriate performance appraisal, based on existing literature, to show its
limitations, and to provide a solid basis for further research.
1.4 Structure of the Thesis
This master thesis consists of eight chapters. Chapter 1 explains the main causes for
the existence of internationally employed managers and states the purpose of this
thesis. Chapter 2 focuses on the definition of expatriates and on the utilization of
international managers. Chapter 3 links the expatriation issue to international human
resource management and investigates its role during the expatriation cycle and in
the process of expatriate performance evaluation. Chapter 4 presents the most
important stages of the expatriation cycle and their influence on expatriate
performance. Chapter 5 concentrates on the salient differences of performance
management and performance appraisal. Chapter 6 aims to provide definitions for
success and failure, and deals with expatriate failure rates. Chapter 7 is the center of
this thesis and comprehensively explains the heart of every performance
management process goal setting and performance evaluation. The last chapter
summarizes the findings of the master thesis, and is concerned with the limitations of
these findings and their role in future research.
Expatriate Performance Appraisal
Master Thesis
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2. THE BUSINESS OF EXPATRIATION
2.1 Definitions
Literature states numerous definitions of expatriation, varying in characteristics,
purpose, length of the assignment, and so on. Expatriates are referred to as
employees who are subjects from one country, being moved to another for a
working-purpose (Black & Gregersen, 1999; Adler 1997). Tahvanainen (1998)
explicitly states that the "employee is moved within a company" (p. 8), while Downes
et al. (2000) refer to expatriation as "the practice by multinational corporations of
sending home-country nationals to overseas locations" (p. 122).
Adler (1997) covers the moves an employee can make within a multinational
enterprise. Expatriates are moved from the company's home country to a foreign
unit, while so called inpatriates are transferred vice versa (local nationals from
subsidiaries sent to headquarters). Transpatriate managers are moved between
different foreign units. Therefore, human resource managers can choose among
three different sources of international management personnel: (1) home country
nationals, (2) host country nationals, and (3) third country nationals (Forrester, 2001).
In this study, the focus is mainly on performance evaluation of expatriates, as most
MNEs still employ this form of international management (Tahvanainen, 1998).
The definition of expatriation is further modified by the length of the assignment.
Fischlmayr (2001) gives an example of an Austrian company which groups its
expatriates into four categories, according to the length of the assignment:
(1) business travel for a period of up to six months, (2) short-term stay assignment for
up to twelve months, (3) long-term assignment lasting from one to five years, and
(4) permanent transfer going beyond a duration of five years. Fischlmayr (ibid.)
further states the missing of any most favorable duration as either long-term and
short-term assignments have their very distinctive advantages and disadvantages.
Expatriate Performance Appraisal
Master Thesis
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For the purpose of this study, an expatriate is defined as an employee of the
headquarters' home country, being transferred to an overseas location within the
company for a duration exceeding six months.
2.2 Reasons for Expatriation
Expatriates are used as a critical resource by MNEs to achieve different tasks on a
variety of international assignments. The type of assignment varies according to the
underlying purpose and main goals which seek to be achieved. A major European
banking conglomerate, investigated by Beaverstock (2000), has come up with six
different types of international assignments:
· Expatriates. Provide specific skills for a defined period of time with the intention to
return to their home country.
· Management development programs. These programs are part of an integral
human resource strategy and used for the individual development of professional
staff.
· Volunteer expatriates. They request an international assignment for personal
and/or professional causes.
· Globally mobile staff. Staff provides the same skills as expatriates, but does not
specify the length of the assignment in advance and may include transpatriates.
· International staff exchange. This is a special human resource training program,
offered to young high potentials in order to broaden their skills and experience.
The assignment is set for a duration of one year.
· Short term assignments. Staff is working abroad, but employment remains in the
home country.
Expatriate Performance Appraisal
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Hays (1974) grouped international assignments according to their underlying duty:
· Structure reproducer. Establishing a structure in the foreign unit comparable to
that in other divisions of the firm.
· Trouble-shooter. Investigating and solving specific operational problems.
· Operational element. Performing operational work.
· Chief executive officer (CEO). Running the entire foreign operation.
Brewster and Suutari (1999) came up with five clearly beneficial outcomes for MNEs
using expatriates in international operations, including:
· "Control of foreign operations;
· Integration and co-ordination of subsidiary practices into company policies;
· Transfer of organizational capabilities between units;
· Effective communication between the foreign operation and the home country;
· Development of internationally competent managers" (in: Brewster & Harris 1999,
p. 183).
A study of hundred forty-three human resource executives from MNEs, located in
both the U.S. and U.K., was examined by three internationally operating
organizations
5
. The top ranking reasons for employers choosing expatriates support
the ideas given in literature. 86 percent of human resource executives send staff
abroad for foreign operations management, 84 percent to transfer knowledge, and
78 percent for management development (Relojournal, 2001).
Regardless of the type of assignment, one basic and highly beneficial achievement
can be gained with each and every (successfully managed) international employment
strategy the one of organizational learning through the expatriate's experience
abroad (Downes et al., 2000).
5
CIEB, NFTC, World at Work
Expatriate Performance Appraisal
Master Thesis
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3. INTERNATIONAL HUMAN RESOURCE MANAGEMENT
3.1 A Strategic Approach
"Human resource management is the set of activities directed at attracting,
developing, and maintaining the effective work force necessary to achieve a firm's
objectives. HRM includes recruiting and selecting non-managers and managers,
providing training and development, appraising performance, and providing
compensation and benefits" (Adler, 1997, p. 731). The basic elements of HRM are
shown in Figure 4.
Globalization means a whole new set of challenges to employees as well as human
resource professionals. Traditional human resource management functions are
enhanced to match with global business needs and to support effective expatriate
management from efficient selection to successful repatriation. Hence, international
human resource managers face new challenges beyond the domestic environment in
an increasingly complex business world (Adler, 1997). With the growing influence of
internationalization on organizations, globally operating corporations and
internationally employed staff are increasing in size and number, therefore
international human resource management (IHRM) is becoming more critical to
MNEs overall success (Brewster & Harris, 1999).
The assignment of IHRM is the worldwide management of human resources (Tung,
1984; Brewster & Harris, 1999). Schuler et al. (1996) see the main purpose of
international human resource management in supporting and enhancing a firm's
ability to global success. The literature studies of Brewster and Harris (1999) provide
a poor picture of managers, reducing the task of international human resource
management to the very limited approach of managing expatriates. However, the
authors argue that IHRM "covers a far broader spectrum than the management of
expatriates. It involves the worldwide management of people" (p. 2).
Expatriate Performance Appraisal
Master Thesis
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Recruitment & Selection
Training & Development
Performance Appraisal
Compensation & Benefits
Labor Relations
Contribution to Organizational Effectiveness
Figure 4: HRM's Strategic Context (source: Adler, 1997)
Referring to Figure 4, the assessment of expatriate performance is one of the key
tasks in IHRM. Successfully employed appraisal systems contribute to overall
organizational performance. The process of expatriate performance appraisal will be
discussed in more detail later on in the thesis.
Expatriate Performance Appraisal
Master Thesis
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3.2 International Staffing Issues
As mentioned earlier, IHRM has to cover various tasks to support the overall MNE in
becoming a successful entity on a global scale, and expatriation is the crux for
solving myriad tasks. Yurkiewicz and Rosen (1995) argue that "because expatriate
assignments represent the most effective method of acquiring global awareness, the
ability to staff overseas positions with the best talent available will become one of the
key objectives of international human resource management" (in: Selmer, 1995,
p. 37). To examine the performance level of those "talents", while being on the
international assignment, is a central task of IHRM management and has to be
conducted with care.
3.2.1 Scope of Internationalization
The scope of internationalization affects a corporation's decision making process in
terms of international employment. Corporations are not "born", but grown
internationally in an evolutionary pattern (Adler, 1997; Lynch, 1997; Bartlett &
Ghoshal, 2000) which is shown in Figure 5.
The role and importance of IHRM is steadily increasing with the deepening of a
corporation's commitment to internationalization, starting with relatively
inexperienced managers in the home-country's export department. A firm's
international division, operating a number of international subsidiaries, is still located
at corporate headquarters, but coordination and communication with foreign markets
is increasing. As already discussed before, IHRM faces myriad challenges of
international staffing with the advanced complexity of a global organization, and can
choose among expatriates, inpatriates, and transpatriates to successfully fulfill this
task.
Expatriate Performance Appraisal
Master Thesis
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In terms of performance appraisal, Black et al. (1992) argued that "the more a
company's stage of globalization moves away from export and toward more
integrative stages (MNE and global), the more comprehensive and complex the
performance appraisal system needs to be" (p. 181). Therefore, increased
commitment toward internationalization of operations demands a highly complex
expatriate performance appraisal system in order to efficiently evaluate expatriate
achievements.
Exporting
first step of internationalization
Overseas Office
provide permanent presence
Overseas Manufacturing
increased international commitment
Multinational Operations
provide major multinational activity
Global Operations
highest degree of international commitment; source
from the most favorable locations in the world
Figure 5: Scope of Internationalization (source: Lynch, 1997)
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