Access denied – When informal networks limit expatriate effectiveness

The inability to integrate into informal networks when doing business abroad can become a risk for the organization //

Owing to increased business activities by multinational corporations (MNCs) as well as to the further opening of new and large overseas markets (e.g., China, India, Brazil), the use of the expatriate manager has steadily increased within recent decades. International assignments represent a significant cost factor for a firm. Considering an assignees fringe benefits and the potential cost attached to the relocation of the expatriate’s family, expatriates are significantly more expensive for a firm than local employees are. Moreover, the success and failure of the expatriate has a direct impact on the performance of the MNC’s investment abroad. Hence, the effectiveness of an expatriate in the respective host country is important and a key concern for MNCs.

“Becoming a part of local informal networks is essential for an expatriate manager to do business abroad”

Research has so far rarely taken into account the influence of informal networks that local managers maintain and cultivate on expatriate effectiveness, i.e. on expatriate performance and adjustment. We have explored this knowledge gap recently by choosing East Asia as an environment to explore, a region where large numbers of expatriate mangers are sent to these days and this trend is increasing. By interviewing foreign top managers in South Korea, the study discovered seven antecedents critical to expatriate effectiveness. Most antecedents hinder expatriate effectiveness due to the expatriates’ inability to become a part of local informal networks, as they are to a great extent ascribed or difficult to penetrate as a foreigner on a time-wise limited stay. Often the managers have difficulties to identify and understand the workings of informal networks, which can expose the organization to risks.

“None of the mangers we talked to regard themselves as fully accepted and integrated members of the local informal networks”

Whereas some of the managers we talked to, especially the ones with ca. 10–20 years of experience in Korea, mention having good or close relationships even friendships with local stakeholders, none of them regard themselves as fully accepted and integrated members of the distinct local informal networks. This has a negative influence on the task fulfillment of the manager. Before being expatriated, most managers we talked to thought their managerial influence and scope of actions would have had a higher impact on the local organization. After one or two years, they realized that what they can achieve compared to what the position actually requires is very limited. Some expatriates appeared to be frustrated that their job role overly developed towards firm inward-oriented tasks such as trying to make their headquarters’ policies and guidelines work locally. Furthermore, firm-external tasks such as conducting contract negotiations are difficult to perform for most expatriates, as they require informal preparation before and after the actual negotiation date so that on that date no ‘surprises’ appear. As informal preparation is done via informal networks that the expatriate hardly possesses, their influence is limited.

Insights gained from the field work points towards the need for a better understanding and control of informal networks in global management. So far, however, many international firms have not made this a central task in preparing their managers for assignments abroad. The lack of local networking competence can get managers into inconvenient situations as a managing director report: “Personally speaking, I can confess that I am unable to establish with company x and company y [names anonymized] these informal relationships. I always have to have a Korean partner who has these relationships or who at least knows how to establish these informal ties. That makes me dependent, but that’s the only way to go”.

We believe that due to the importance of establishing informal network ties locally, more knowledge needs to be generated about their antecedents and distinctive nature. Informal networks are known in Korea under the term yongo or inmaek, guanxi in China, blat and svyazi in Russia or wasta in the Middle East. This knowledge would help expatriates to manage successfully and it would help firms to stay competitive and become an integrated player in the respective local market.

More here:
Horak, S. & Yang, I. 2016. Affective networks, informal ties, and the limits of expatriate effectiveness. International Business Review, 25(5), 1030-1042.

* Photo credit: “King Penguins” by D-Stanley is licensed with CC BY 2.0.

Published by Sven Horak