Expatriates and Corporate Level
The current issue and full text archive of this journal is available at www.emeraldinsight.com/0025-1747.htm
MD 45,3
Expatriates and corporate-level international strategy: governing with the knowledge contract
Brian Connelly and Michael A. Hitt
Texas A&M University, College Station, Texas, USA
564
Angelo S. DeNisi
Freeman School of Business, Tulane University, New Orleans, Louisiana, USA, and
R. Duane Ireland
Texas A&M University, College Station, Texas, USA
Abstract
Purpose – This paper proposes a methodology for governing expatriate assignments in the context of corporate-level objectives. Design/methodology/approach – The approach taken is to envisage expatriate managerial assignments within the theoretical framework of agency theory and the knowledge-based view of the firm. The paper begins with the view that knowledge acquisition and integration is a primary goal for most expatriate assignments. The relationship between expatriate managers and multinational corporation (MNC) headquarters from an agency perspective are considered and the notion of a “knowledge contract” as a means of governing that relationship is discussed. Four corporate-level international strategies available to MNCs (global, international, transnational, and multidomestic) are then examined and the extent of agency problems under each strategy is discussed. Findings – The paper makes specific predictions about the type of knowledge contract that is most likely to address agency problems for each corporate strategy. Originality/value – This research extends agency theory by introducing the knowledge contract as a means of managing agency concerns. This offers a broader range of contract alternatives, moving researchers beyond traditional agency theoretic prescriptions. The research also contributes to the literature on expatriate management by integrating assignment success with research on corporate-level international strategy. Few authors have recognized
MD 45,3
Expatriates and corporate-level international strategy: governing with the knowledge contract
Brian Connelly and Michael A. Hitt
Texas A&M University, College Station, Texas, USA
564
Angelo S. DeNisi
Freeman School of Business, Tulane University, New Orleans, Louisiana, USA, and
R. Duane Ireland
Texas A&M University, College Station, Texas, USA
Abstract
Purpose – This paper proposes a methodology for governing expatriate assignments in the context of corporate-level objectives. Design/methodology/approach – The approach taken is to envisage expatriate managerial assignments within the theoretical framework of agency theory and the knowledge-based view of the firm. The paper begins with the view that knowledge acquisition and integration is a primary goal for most expatriate assignments. The relationship between expatriate managers and multinational corporation (MNC) headquarters from an agency perspective are considered and the notion of a “knowledge contract” as a means of governing that relationship is discussed. Four corporate-level international strategies available to MNCs (global, international, transnational, and multidomestic) are then examined and the extent of agency problems under each strategy is discussed. Findings – The paper makes specific predictions about the type of knowledge contract that is most likely to address agency problems for each corporate strategy. Originality/value – This research extends agency theory by introducing the knowledge contract as a means of managing agency concerns. This offers a broader range of contract alternatives, moving researchers beyond traditional agency theoretic prescriptions. The research also contributes to the literature on expatriate management by integrating assignment success with research on corporate-level international strategy. Few authors have recognized
References: Barkema, H.G., Bell, J.H. and Pennings, J.M. (1996), “Foreign entry, cultural barriers, and learning”, Strategic Management Journal, Vol. 17 No. 2, pp. 151-66. Bartlett, C.A. and Ghoshal, S. (1991), “Global strategic management: impact on the new frontiers of strategy research”, Strategic Management Journal, Vol. 12 No. 4, pp. 5-17. Bartlett, C.A. and Ghoshal, S. (1998), Managing across Borders: The Transnational Solution, 2nd ed., Harvard Business School Press, Boston, MA. Baruch, Y. and Altman, Y. (2002), “Expatriation and repatriation in MNCs: a taxonomy”, Human Resource Management, Vol. 41 No. 2, pp. 239-60. Bender, S. and Fish, A. (2000), “The transfer of knowledge and the retention of expertise: the continuing need for global assignments”, Journal of Knowledge Management, Vol. 4 No. 2, pp. 125-37. Bjorkman, I., Barner-Rasmussen, W. and Li, L. (2004), “Managing knowledge transfer in MNCs: the impact of headquarters control mechanisms”, Journal of International Business Studies, Vol. 35 No. 5, pp. 443-55. Black, J.S., Gregersen, H.B. and Mendenhall, M.E. (1992), “Toward a theoretical framework of repatriation adjustment”, Journal of International Business Studies, Vol. 23 No. 4, pp. 737-60. Bonache, J. and Fernandez, Z. (1997), “Expatriate compensation and its link to the subsidiary strategic role: a theoretical analysis”, International Journal of Human Resource Management, Vol. 8 No. 4, pp. 457-75. Caligiuri, P., Phillips, J., Lazarova, M., Tarique, I. and Burgi, P. (2001), “The theory of met expectations applied to expatriate adjustment: the role of cross-cultural training”, International Journal of Human Resource Management, Vol. 12 No. 3, pp. 357-72. Cantwell, J. and Mudambi, R. (2005), “MNE competence-creating subsidiary mandates”, Strategic Management Journal, Vol. 26 No. 12, pp. 1109-28. Chiesa, V. and Manzini, R. (1996), “Managing knowledge transfer within multinational firms”, International Journal of Technology Management, Vol. 12 No. 3, pp. 462-77. Coff, R. (2003), “Bidding wars over R&D-intensive firms: knowledge, opportunism, and the market for corporate control”, Academy of Management Journal, Vol. 46 No. 1, pp. 74-85. Conner, K.R. and Prahalad, C.K. (1996), “A resource-based theory of the firm: knowledge versus opportunism”, Organization Science, Vol. 7 No. 5, pp. 477-501. Downes, M. and Thomas, A.S. (2000), “Knowledge transfer through expatriation: the U-curve approach to overseas staffing”, Journal of Managerial Issues, Vol. 12 No. 2, pp. 131-49. Edmond, S. (2002), “Exploring the success of expatriates of US multinational firms in Mexico”, International Trade Journal, Vol. 16 No. 3, pp. 233-56. Eisenhardt, K.M. (1989), “Agency theory: an assessment and review”, Academy of Management Review, Vol. 14 No. 1, pp. 57-75. Fama, E.F. (1980), “Agency problems and the theory of the firm”, Journal of Political Economy, Vol. 88 No. 2, pp. 288-308. Feldman, D.C. and Thomas, D.C. (1992), “Career issues facing expatriate managers”, Journal of International Business Studies, Vol. 23 No. 2, pp. 271-94. Feldman, D.C. and Thompson, H.B. (1993), “Expatriation, repatriation, and domestic geographical relocation: an empirical investigation of adjustment to new job assignments”, Journal of International Business Studies, Vol. 24 No. 3, pp. 507-29. Fey, C.F. and Bjorkman, I. (2001), “The effect of human resource management practices on MNC subsidiary performance in Russia”, Journal of International Business Studies, Vol. 32 No. 1, pp. 59-76. Foss, N.J. and Pedersen, T. (2002), “Transferring knowledge in MNCs: the role of sources of subsidiary knowledge and organizational context”, Journal of International Management, Vol. 8 No. 1, pp. 49-67. Ghoshal, S. (1987), “Global strategy: an organizing framework”, Strategic Management Journal, Vol. 8 No. 5, pp. 425-40. Governing with the knowledge contract 579 MD 45,3 580 Grant, R.M. (1996), “Toward a knowledge-based theory of the firm”, Strategic Management Journal, Vol. 17 No. 2, pp. 109-22. Gupta, A.K. and Govindarajan, V. (1991), “Knowledge flows and the structure of control within multinational corporations”, Academy of Management Review, Vol. 16 No. 4, pp. 768-93. Gupta, A.K. and Govindarajan, V. (2000), “Knowledge flows within multinational corporations”, Strategic Management Journal, Vol. 21 No. 4, pp. 473-96. Hambrick, D.C. and Finkelstein, S. (1987), “Managerial discretion: a bridge between polar views of organizational outcomes”, in Staw, B. and Cummings, L.L. (Eds), Research in Organizational Behavior, JAI Press, Greenwich, CT. Harzing, A.W. (2000), “An empirical analysis and extension of the Bartlett and Ghoshal typology of multinational companies”, Journal of International Business Studies, Vol. 31 No. 1, pp. 101-21. Hennart, J.F. (1988), “A transaction costs theory of equity joint ventures”, Strategic Management Journal, Vol. 9 No. 4, pp. 361-74. Hill, C.W.L. and Jones, G.R. (2004), Strategic Management: An Integrated Approach, 6th ed., Houghton Mifflin, Boston, MA. Hitt, M.A., Hoskisson, R.E. and Ireland, R.D. (1994), “A mid-range theory of the interactive effects of international and product diversification on innovation and performance”, Journal of Management, Vol. 20 No. 2, pp. 297-326. Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2007), Strategic Management: Competitiveness and Globalization, 7th ed., South-Western, Cincinnati, OH. Hogan, G.W. and Goodson, J.R. (1990), “The key to expatriate success”, Training and Development Journal, Vol. 44 No. 1, pp. 50-3. Hout, T., Porter, M.E. and Rudden, E. (1982), “How global companies win out”, Harvard Business Review, Vol. 60 No. 3, pp. 98-108. Jackson, S.E., Hitt, M.A. and DeNisi, A.S. (2003), Managing Knowledge for Sustained Competitive Advantage: Designing Strategies for Effective Human Resource Management, Jossey-Bass, Piscataway, NJ. Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-60. Jones, G.R. (2001), “Towards a positive interpretation of transaction cost theory: the central roles of entrepreneurship and trust”, in Hitt, M.A., Freeman, R.E. and Harrison, J.S. (Eds), Handbook of Strategic Management, Blackwell Publishers, Malden, MA. Kogut, B. and Zander, U. (1993), “Knowledge of the firm and the evolutionary theory of the multinational corporation”, Journal of International Business Studies, Vol. 24 No. 4, pp. 625-46. Lubatkin, M.H., Lane, P.J. and Schulze, W.S. (2001), “A strategic management model of agency relationships in firm governance”, in Hitt, M.A., Freeman, R.E. and Harrison, J.S. (Eds), Handbook of Strategic Management, Blackwell Publishers, Malden, MA. McNulty, Y.M. and Tharenou, P. (2004), “Expatriate return on investment”, paper presented at the Annual Meeting of the Academy of Management 2004, New Orleans, LA, August 6-11. Malhotra, N. (2003), “The nature of knowledge and the entry mode decision”, Organization Studies, Vol. 24 No. 6, pp. 935-60. Mankin, D.A. and Cohen, S.G. (2004), Business without Boundaries: An Action Framework for Collaborating across Time, 1st ed., Jossey-Bass, Piscataway, NJ. Morrison, E.W. and Robinson, S.L. (1997), “When employees feel betrayed: a model of how psychological contract violation develops”, Academy of Management Review, Vol. 22 No. 1, pp. 226-56. Mudambi, R. and Navarra, P. (2004), “Is knowledge power? Knowledge flows, subsidiary power and rent-seeking within MNCs”, Journal of International Business Studies, Vol. 35 No. 5, pp. 385-406. Nohria, N. and Ghoshal, S. (1994), “Differentiated fit and shared values: alternatives for managing headquarters-subsidiary relations”, Strategic Management Journal, Vol. 15 No. 6, pp. 491-503. Rajagopalan, N. and Finkelstein, S. (1992), “Effects of strategic orientation and environmental change on senior management reward systems”, Strategic Management Journal, Vol. 13 No. 2, pp. 127-41. Reynolds, C. (1997), “Expatriate compensation in historical perspective”, Journal of World Business, Vol. 32 No. 2, pp. 118-32. Roth, K. and O’Donnell, S. (1996), “Foreign subsidiary compensation strategy: an agency theory perspective”, Academy of Management Journal, Vol. 39 No. 3, pp. 678-703. Rousseau, D.M. (1989), “Psychological and implied contracts in organizations”, Employee Responsibility and Rights Journal, Vol. 2 No. 2, pp. 121-39. Rugman, A.M. and Verbeke, A. (2001), “Subsidiary-specific advantages in multinational enterprises”, Strategic Management Journal, Vol. 22 No. 3, pp. 237-50. Selmer, J. (2001), “Expatriate selection: back to basics?”, International Journal of Human Resource Management, Vol. 12 No. 8, pp. 1219-33. Teece, D.J. (1977), “Technology transfer by multinational firms: the resource cost of transferring technological know-how”, The Economic Journal, Vol. 87 No. 6, pp. 242-61. Toh, S.M. and DeNisi, A. (2003), “Host country national reactions to expatriate pay policies: a model and implications”, Academy of Management Review, Vol. 28 No. 4, pp. 606-21. Tung, R.L. (1987), “Expatriate assignments: enhancing success and minimizing failure”, Academy of Management Executive, Vol. 1 No. 2, pp. 117-27. Very, P., Hebert, L. and Beamish, P. (2004), “Exploring the limitations of the knowledge projection model in MNCs: the impact of expatriate managers on subsidiary survival”, in Hitt, M. and Cheng, J. (Eds), Theories of the Multinational Enterprise: Diversity, Complexity, and Relevance, Vol. 16, JAI Press, Greenwich, CT. Wright, P., Mukherji, A. and Kroll, M.J. (2001), “A reexamination of agency theory assumptions: extensions and extrapolations”, Journal of Socio-Economics, Vol. 30 No. 5, pp. 413-29. Yan, A., Zhu, G. and Hall, D.T. (2002), “International assignments for career building: a model of agency relationships and psychological contracts”, Academy of Management Review, Vol. 27 No. 3, pp. 373-91. Zahra, S.A., Ireland, R.D. and Hitt, M.A. (2000), “International expansion by new venture firms: international diversity, mode of market entry, technological learning, and performance”, Academy of Management Journal, Vol. 43 No. 5, pp. 925-50. Corresponding author Brian Connelly can be contacted at: bconnelly@mays.tamu.edu Governing with the knowledge contract 581 To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.