Should a firm use expatriates, host-country nationals, or third-country nationals to run its overseas operations?

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Whether a firm should use expatriates, host-country nationals, third-country nationals (or a mixture of the three) to run its overseas operations depends on the answers to several other questions. Some of these are as follows.

Are the overseas operations new or established?

In the case of a completely new venture in a foreign country, it will usually be necessary to provide a strong lead from the company headquarters. An expatriate who has a detailed operational knowledge of the firm and is completely familiar with its culture will usually need to be in charge, with one or more lieutenants from the host country who are familiar with the business and legal climate of the new arena.

What is the business of the firm and how does the overseas operation relate to that business?

If the firm is, for instance, a retailer and its overseas operations consist purely of manufacturing, it may be possible and desirable for this to be run largely or entirely by host-country nationals or third-country nationals. However, if the retailer wished to run retail outlets in that country, expatriates from the headquarters would probably have to oversee the branding, consistency, and quality control, at least initially.

How much does the firm’s business vary between countries?

On a related note, how truly international is the business? That is to say, does it rely on international cooperation and coordination, or is it merely replicating the same model in various countries? This is particularly relevant for firms which sell services. Take an international law firm as an example. It will obviously need to appoint an expatriate familiar with the governing law of the firm’s home country as well as a host-country national who knows the law of the new jurisdiction. Who ultimately runs the firm will probably depend on where the majority of the firm’s business is located.

In general terms, expatriates from the firm's central office will generally be necessary in the early stages. Host-country nationals will initially play more of a supporting role, though they may take over in time after they have absorbed the culture of the firm. Some countries, particularly in the Middle East, may require the involvement of host nationals in the firm's administration as a matter of law.

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Before a firm hires people for its overseas operations, the management has to decide whether the move will be short-term or long-term. If the move is short-term, from six months to a year, the company should hire expatriates to manage its overseas operations. Since an expatriate knows the culture and objectives of the organization, they are more suited to help the firm achieve its short-term goals. Furthermore, the organization doesn’t have to train management. As a result, it allows them to save time and resources.

On the other hand, the firm may have chosen an overseas market as a long-term strategy. The management sees potential in the foreign market. In that case, the firm is better off using the host-country locals to run its operations. Despite what people may think about third-world countries, some people are skilled enough to run multinationals. However, the management may have to train the recruits to familiarize them with company values and goals. Hiring host-country nationals helps the company gain the trust of the public. As a result, more locals are likely to purchase from the firm. By hiring locals, the firm gets on good terms with the overseas government. Foreign governments are very protective of their industries and economy. Multinational firms that don’t hire the host-country nationals may face harsh sanctions and regulations from the government.

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The answer to this question will vary wildly depending on who you ask. There are clear benefits to every option, and we'll lay them out briefly, but it all depends on what you need most in your operation.

Expatriates: Expatriates will inherently know your original plan of action best because they worked with the original system. However, if you are implementing in a country with a vastly different culture, changes may actually prove better—and so they may not be the best option.

Host-country nationals: These will know the host-country the best and can work within that culture, thereby better addressing the new employees and customers. However, they may not know the original plan or the style of operations from the original country that well.

Third-party nationals: These individuals will not necessarily be familiar with the original plan of operation, which can be limiting, and they also will not be familiar with the host-country's culture. They may, however, bring an outside influence and perspective that can be useful and refreshing.

Depending on what you're attempting to establish, you can select whichever option is best. There are obvious financial considerations as well, but these are the operational considerations.

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It is probably best for a multinational company to employee a diverse management team for both domestic and overseas operations.

Expatriate leaders can often transmit the company's core values and standards to overseas operations. In some areas, such as finance, this is important, as companies must often conform to a globalized regulatory environment. When OECD-based companies are operating in developing nations, it is necessary to conform to the standards of transparency of the OECD and avoid the types of bribery or other informal practices that may be common in other areas. However, expatriates may be unfamiliar with local practices and, as a result, ineffective.

Host-country nationals are likely to bring familiarity with the local business environment and culture to the table and to provide invaluable advice, but they may not be as familiar with the company's own culture and standards.

Third-country nationals should be judged on a case-by-case basis depending on their specific expertise.

Overall, though, a diverse management team will bring the strengths and avoid the weaknesses of a more uniform team. Thus, this is preferable.

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As the economy becomes more globalized, this becomes a more salient question to many firms.  There are good and bad points of using each.

Expatriates are the most likely to fully understand the needs of the firm.  They will work most easily with the higher levels of the firm because they share a culture with them.  However, they will have little understanding of the country in which they are working.  They may be seen to favor the needs of the firm and their own country over those of the host country.

Host-country nationals will have the opposite situation.  They will get along well with the people in their own country (broadly speaking) but may experience culture gaps and misunderstandings with the home offices.  They may be sucked in to acting in ways that make sense in their home culture but are harmful to the firm.

Third-country nationals have less to be said for them.  They are neither fish nor fowl so it may be that they will understand neither the host country nor the home offices.  However, they might be seen as more neutral parties who are not automatically going to take one side or the other.

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