The Changing Expatriate System: Why Local Employees in Germany are Key to Japanese Companies’ Localisation
Until a decade ago, the local offices of Japanese multinational companies were generally managed by Japanese expatriates from headquarters in Japan.
As the times change, so do the trends in international Human Resources (HR), and many multinational companies (MNCs) are seeking to establish new HR systems to replace the expatriate system in order to reduce costs and localize their offices more. This is because the cost of having expats in different countries can be a big burden for Japanese MNCs.
This article will describe the transformation of the expat system in Japanese MNCs, and the advantages of a new system to replace the traditional one, namely the hiring of host-country nationals (HCN).
How and why did the expatriate system in Japanese companies change?
The expat system and its purpose in Japanese companies today is not the same as that of 30 to 40 years ago. The changes of eras and the evolution of technology have brought about major changes in the way local offices operate. In the past, the HR policies of Japanese companies in overseas offices were known for their ethnocentric nature of management. In other words, Japanese employees were sent from the headquarters in Japan to the overseas offices, and the Japanese employees controlled the overseas offices.
This approach was criticized by experts in many countries during the golden age of the bubble economy in Japan. As Yoshihara & Bartlett forewarns (1988), this would eventually lead to the end of Japanese companies’ overseas expansion.
As time has progressed, the development of internet technologies has made it possible for companies to control their operations through video calls and e-mails from the head office, and the need for large-scale dispatch of head office personnel to control local operations has decreased. Also, with the development and improvement of transportation networks such as airplane networks, it has gradually become more and more cost-effective to visit the local offices from the headquarters several times a year, as opposed to Japanese employees staying overseas for a long time.
As HR has become borderless on a global scale, new options have emerged in addition to the dispatching of expats, such as hiring HCN, transferring personnel from other countries, or hiring personnel who are integrated into the local community while still retaining the nationality of the headquarters.
Along with these global trends, the expatriate system, which used to be a company-wide system with large budgets and departments, has become leaner and has more options to operate for localization purposes. (Dunning, 2009) At the same time, Japanese MNCs began to shift from the Japanese expatriate approach of controlling their overseas offices to a localization approach.
How the objectives of expatriates in Japanese companies have changed
With the aforementioned changes in the environment surrounding multinational companies, the role of the expats itself has also changed.
The basic concept of the expat system can be roughly divided into the following 3 categories.
- Control role
- To fill positions
- Management development
- (Groysberg et al, 2011)
In the 1980s, a large part of the role of these expats in Japanese companies was to manage local offices. In other words, it was the role of expatriates sent from the head office to control local bases that had not matured or were culturally different from the head office. In particular, when a Japanese company was in control of a culturally distant base such as one in Europe, the control method would naturally be cultural governance. That means that the method used was to facilitate local management by fully emphasizing the Japanese business culture.
However, once a multinational company established a scheme for local management and the management system started to take off, the significance of local control under the direct control of the headquarters gradually diminished.
In this way, the role of the expatriate has been gradually changing by the provision of know-how, in order to help the local company stand on its own as it is moving beyond the realm of being merely a destination of the head office.
In addition, as the local office becomes more independent and self-reliant, it begins to be used as a place for the expatriates themselves to practice international management and gain cross-cultural business experience.
At the same time, these changes in roles have had a significant impact on the expatriate selection process in Japanese companies.
In the past, when the expat system was based on control of the local office, the majority of expatriates sent from the headquarters to the local office were older, married, and male.
In such cases, the company would send the employee to the overseas offices with their spouse and children and pay for their stay.
However, as more women have been entering the workforce, and local offices are used as places for young people to gain experience, the profile of the traditional expatriate has changed, and is becoming less uniform and more diverse.
A New Form of International HR Management: Recruiting HCN
The previously noted changes in the movement of HR (easier international mobility, changes in demand, changing role of the expatriate) have merged to create something new: the development of local HR. To begin with, a problem that has always plagued companies involved in international HR is the balance between local control and localization.
In other words, many MNCs have been troubled by the dichotomy of too much localization, which makes it difficult to convey the intentions of the headquarters, and too much control by the headquarters, which delays localization.
This dichotomy has been a problem for many MNCs. The balance between localization and smooth communication of the headquarters’ intentions is made possible by both the headquarters’ knowledge of the local structure and culture, and the local side’s accurate understanding of the headquarters’ intentions. This is particularly difficult to achieve in contexts where cultural differences are especially apparent (e.g., a Japanese company established in Germany, an American company established in China, etc.), and this has been one of the reasons why MNCs have continued to send expatriates from their headquarters for so long.
On the other hand, since the term of office for expats is 3 to 4 years, it is difficult for expatriate executives to manage the local offices on a permanent basis, and the reality is that they have no choice but to leave the expat system and gain independence at some point.
In order to strike a balance between localization and the head office’s intentions, Japanese companies are focusing on hiring and training Japanese who are familiar with German culture and Germans who are familiar with Japanese culture.
Of course, it is not easy for Japanese companies to find Germans (in Germany) who are familiar with Japanese culture. Therefore, instead of searching for them from scratch, they have started to send their hired Germans on business trips to the head office in Japan, for a year at a time, in order to learn the culture of the head office.
As mentioned above, the ease of inter-country travel (simplification of visa requirements, widespread use of working holiday visas) has given many Germans the opportunity to move to Japan or study in Japan.
Riding on the trends of the times, the number of people who can be key to bridging the cultural gap between the head office in Japan and the local offices in Europe has begun to increase in Germany. These include Germans who have graduated from Japanese universities and graduate schools, new graduates who have gone to Japan and gained work experience, and Germans and Chinese who have studied Japanese studies at German universities.
The following are requirements of these local (German) personnel who already are familiar with the local culture, and many companies see them as key to the new HR strategy:
- Fluent in English
- Fluent in the local language (German, French, etc.)
- Understanding and tolerant of Japanese culture
- Speaking or willing to study Japanese
- Able to keep costs down (no need for expatriation compensation, etc.)
- Long term (permanent) local employment is possible (expats will return to Japan)
In light of the advantages of locally hired employees in this new era, there are more and more cases where locally hired employees (who may have been used to only undertaking the assistant role) are being trained as future candidates for local management positions.
While the functions of the traditional expat system (local management, sharing of know-how, and skill development of expatriates themselves) are retained, some functions are increasingly being filled by a new style of human resource, i.e. local Japanese personnel. The HR management system in Germany is getting more diverse.
- Barlett and Yoshihara (1988) „New challenges for Japanese multinationals is organization adaptation their Achilles heel“.
- Caligiuri, Paula, and Jaime Bonache. (2016) “Evolving and enduring challenges in global mobility.” Journal of World Business 51.1: 127-141.
- Dunning, John H. “Location and the multinational enterprise: John Dunning’s thoughts on receiving the Journal of International Business Studies 2008 Decade Award.” Journal of International Business Studies 40.1 (2009): 20-34.
- Groysberg, B., Nohria, N., & Herman, K. (2011). Solvay Group: International Mobility and Managing expatriates
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