Dissertation
“The changing expatriate role in the headquarters- subsidiary relationship of multinational corporations”
for the
Dual Award Master of Science in Advanced International Business Management and Marketing
Henning Titze S2365162/B3002687
Supervisors:
Dr. Miriam Wilhelm Dr. Hanna Bahemia
December 9, 2013
Abstract
The master thesis provides a framework for the impact of learning processes in subsidiaries of multinational corporations on the allocation of decision-making authority in the headquarters- subsidiary relationship. The acquisition of knowledge in the subsidiary determines the bargaining power of the subsidiary and increases the decentralization of decision-making authority. The knowledge is transferred to the subsidiary by means of expatriate assignments. The role of the expatriates in the subsidiary is also interrelated with the decentralization of autonomy in the subsidiary. Changes of the expatriate’s role in the evolution process of the subsidiary are incorporated as well. The case study about the relationship of the Japanese headquarters of the Toyota Motor Corporation and its US subsidiary illustrates the theoretical framework and provides further insights. The case study supports the argumentation that expatriate assignments rather function as a de-facto centralization of decision-making authority and do not enable decentralization.
Table of content
1 Introduction ... 1
2 Literature review ... 3
2.1 The headquarters-subsidiary relationship in multinational corporations ... 3
2.1.1 The subsidiary’s role ... 4
2.1.2 Learning in the headquarters-subsidiary relationship ... 6
2.2 The role of Expatriates in MNCs ... 7
2.3 Changes of expatriate functions with the subsidiary evolution ... 13
2.4 Theoretical implications for the case study ... 17
3 The Toyota case study ... 19
3.1 Toyota in the United States ... 20
3.2 The expatriate’s functions over time in Toyota’s US subsidiary ... 23
3.2.1 Start of manufacturing in the 1980s ... 23
3.2.2 Growth phase in the 1990s and 2000s... 25
3.2.3 Recent organizational changes subsequent to the recall crisis ... 27
3.3 The development of the headquarters-subsidiary relationship at Toyota ... 29
4 Discussion ... 33
5 Conclusion and Outlook ... 36
Literature ... 38
1
1 Introduction
Along with globalization, the role multinational corporations (MNCs) are playing in the world economy became increasingly important. In 2010, about one quarter of the worldwide GDP has been produced by MNCs (UNCTD, 2011). This number shows the significance of research conducted about MNCs. Due to the fact that these firms are operating in different countries in often very diverse economic environments, organizational issues which are completely different from those of companies only operating in a single country occur. This results in a huge amount of research that has been conducted in the past in order to provide a better understanding of challenges and opportunities in managing a MNC.
As outlined in the following, the headquarters-subsidiary relationship determines the learning processes with MNCs by means of knowledge transfer. The ability to transfer knowledge within the company is a sustained competitive advantage of MNCs over local businesses (Engelhard & Nägele, 2003). Hence, the effective management of the headquarters-subsidiary relationship has become one of the key challenges for MNCs (Roth & Nigh, 1992). Expatriate managers are assigned by the headquarters to the subsidiary in order to fulfil strategic functions (Edström & Galbraith, 1977; Harzing, 2001a). These functions are not constant, but dependent on the evolution of the subsidiary. In this research paper, I relate the expatriate’s role to the learning processes in the headquarters-subsidiary relationship.
Organizational learning in the subsidiary increases the bargaining power of the subsidiary in the interrelation with the headquarters (Mudambi & Navarra, 2004). The learning processes in the subsidiary are enabled through the transfer of knowledge from the headquarters by means of expatriate manager. To foster these processes the absorptive capacity of the subsidiary is crucial (Gupta & Govindarajan, 2000). The bargaining process is also interrelated with the subsidiary’s role within the MNC. The bargaining power of the subsidiary determines the allocation of decision-making authority in the headquarters-subsidiary relationship to a large extent (Mudambi &
Navarra, 2004). These different impacts within the headquarters-subsidiary relationship are conceptualized in a theoretical framework.
In order to illustrate the theoretical framework and gain further insights, a case study of a MNC is presented below. The Toyota Motor Company serves as an excellent example for the analysis of a headquarters-subsidiary relationship in a MNC, due to the
2 importance of its headquarters for the globalized organization structure. I will focus on the relationship with Toyota’s subsidiary in the United States, which established its manufacturing operations nearly 30 years ago. In addition, Japanese companies were known for using many expatriates in their overseas subsidiaries, although they slightly decrease their dependence on them later (Beamish & Inkpen, 1998). Therefore, the Toyota case study enables an in-depth analysis of the role of expatriates in the relationship between the Japanese headquarters and its operational units in the United States in order to enrich and strengthens my line of reasoning.
3
2 Literature review
My research paper contributes to the body of literature of expatriate assignments in MNCs, in general, and the stream of literature on the headquarters-subsidiary relationship, in particular (e.g. Edström & Galbaith, 1977; Paterson & Brock, 2002; Gates
& Egelhoff, 1986). Below, I will outline the impact of the subsidiary’s learning process by means of knowledge transfers on the subsidiary’s role within the MNC and on the headquarters-subsidiary relationship. Hereby, I focus on the allocation of decision- making authority within the MNC. In addition, the state of research focussing on the function of expatriates in MNCs will be presented, because the transfers of expatriates are strongly influencing the headquarters-subsidiary relationship. The literature review provides the relevant framework for the case study analysis.
2.1 The headquarters-subsidiary relationship in multinational corporations
Research on headquarters-subsidiary relationship has mainly focussed on the allocation of decision-making authority between the headquarters and the subsidiary (Paterson &
Brock, 2002). In a MNC context, centralization can be defined as the division of decision making authority between the headquarters and its various subsidiaries (Garnier, 1982;
Gates & Egelhoff, 1986). Consistently, Gupta and Govindarajan (1991, p. 785) define decentralization as “the extent of decision-making authority that is delegated to the general manager of a subsidiary by corporate superiors”. Bartlett and Ghoshal (1986) argue that a MNCs decision-making design largely depends upon environmental factors of the subsidiary. As an example, a case study with Swedish multinationals by Anderson and Forsgren (1996) indicated that subsidiaries develop their independence by deploying networks in their local markets. Therefore, the decision-making autonomy cannot be set by the headquarters only, but is more of an outcome in a bargaining process between the headquarters and the subsidiary. According to Mudambi and Navarra (2004), decision-making autonomy is partly based on discretion given by the headquarters but stems from bargaining power developed by the subsidiary to some extent as well. Subsidiaries with strong bargaining power are even able to resist the headquarters’ control attempts (Mudambi & Navarra, 2004). Broadly defined in a MNC context, control refers to a headquarters’ ability to enforce its various operating units around the world to act in accordance with its overall policy in a systematic and coherent manner (Paik & Sohn, 2004).
4 In contrast to the findings of Bartlett and Ghoshal, Gates and Egelhoff (1986) argue in their study of 50 large MNCs with headquarters in the US and Europe that the influence of company-wide conditions, like the size of the MNC or product characteristics, on the degree of centralization is much more apparent than the influence of subsidiary conditions. For instance, the influence of the subsidiary’s size is not straightforward, as some scholars found a positive relationship whereas other studies have shown a negative one (Young & Tavares, 2004). However, several scholars found a positive association of decision-making autonomy and the subsidiary’s age in general (e.g.
Harzing, 1999; Taggart & Hood, 1999). Nevertheless, in the study of Taggart and Hood, no positive correlation was found for Japanese subsidiaries. Cultural reasons were assumed as an explanation here. Thus, it can be argued that the MNC’s home country is influencing the decision-making autonomy as well. Furthermore, other scholars argued that the degree of centralization is influenced by the characteristics of the industry sector. MNCs from globalized industries like the automotive industry tend to have higher degrees of centralization (Kobrin, 1991; Roth & Morrison, 1992) due to the higher need for coordination of their inter-dependent operational units.
2.1.1 The subsidiary’s role
The role of the subsidiary within the MNC can be seen as the outcome of bargaining in the headquarters-subsidiary relationship (Mudambi & Navarra, 2004). Thus, the subsidiary’s role in the MNC influences the headquarters’ ability to control the subsidiary. Within an MNC, subsidiaries can incorporate different roles. In principle, the subsidiary’s evolution is determined by three factors, the headquarters assignment, the subsidiary’s choice and the local environment (Birkinshaw & Hood, 1998). Bartlett and Ghoshal (1986) assigned four roles to subsidiaries. A “strategic leader” is a highly competent subsidiary in an important market whereas a “contributor” has distinctive capabilities but operates in a strategically less important market. A strategic leader can be seen as an equal partner of the headquarters in developing and implementing the global strategy by identifying threats and opportunities for the MNC. A subsidiary with limited competence in a rather unimportant market is termed as an “implementer” and the situation of a subsidiary with low capabilities in an important market is characterised as a “black hole”. Jarillo and Martinez (1990) determined the strategic role of a subsidiary with the help of several variables. They include factors like the integration of the subsidiary’s manufacturing procure and marketing activities in the MNC, the rate of products that were developed for or substantially adapted to the local market, sales
5 volume of local products in comparison to MNC figures and the contribution to corporate R&D.
Within a MNC, different organizational configurations of the company’s R&D activities can be pursued, as conceptualized by Gassmann and Von Zedtwitz (1999). In centralized R&D organisation, all R&D activities are concentrated in the headquarters, with some influence from foreign markets due to listening activities in a geocentric and none in an ethnocentric approach. More decentralization is given, when the headquarters act as a leading R&D hub within the MNC and the subsidiary’s role is limited to the adaption of products and strategies for local market requirements, whereas in a polycentric approach the foreign local R&D unit acts quite independent without central control and coordination. In the integrated network, the R&D units in the headquarters as well as in the subsidiaries are specialized and therefore responsible for a certain field of research or a product category within the MNC. The more R&D is conducted in a subsidiary, the higher is the bargaining power of the subsidiary in the headquarters-subsidiary relationship, due to the control of these intangible assets (Mudambi & Navarra, 2004).
Furthermore, the MNCs global strategy determines the role of the subsidiary. According to Bartlett and Ghoshal (1998), MNCs have to pursue three different complementary objectives in the international environment: Local responsiveness, global integration and the development of innovations and a learning organization. The objectives of local responsiveness and global integration can be conflicting to some extent. If the MNC strives for a differentiation and localization product strategy, the need of local knowledge and information is much higher. Therefore, decision-making processes have to be more decentralized and decision making authority needs to be allocated where the necessary knowledge is available. The requirements of local markets in respect of tastes, culture or legislation issues have to be met (Young & Tavares, 2004). However, even with high local responsiveness there remains the need for coordination and control to some extent. Coordination refers to the task of aligning each unit and creating synergies. For companies pursuing a product strategy based on standardization and globalization and therefore relying on economies of scale, the need of responsiveness is very low, which results in a higher degree of centralization (Doz, 1986). The more the subsidiary’s operations are integrated in the MNC, e.g. assembling an intermediate product for the headquarters operations, the greater the need for coordination. In general, increasing coordination leads to more centralization of decision-making authority (Doz & Prahalad, 1984).
6 In case of global subsidiary mandate, the subsidiary is worldwide responsible for a product or product line (Roth & Morrison, 1992). The strategic control for one product or product line is concentrated in one subsidiary instead of in the headquarters and therefore, when applying this strategy for some other subsidiaries as well, the decision- making processes of the MNC become more decentralized. However, the need for coordination with the headquarters and other subsidiaries remains constant in order to align the product strategy to the overall MNC strategy.
2.1.2 Learning in the headquarters-subsidiary relationship
Organizational learning in an international context can be defined as a combination of improving existing processes within the company and acquiring new knowledge of strategic importance for the MNC (Helmhout, 2010). In this context, knowledge can be seen as a recipe describing the way activities should be carried out (Kogut & Zander, 1993). According to Levitt and March organizational learning can be characterized as
“routine-based, history-dependent and target-oriented” (1988, p. 319). These learning processes include the generation of new knowledge as well as the integration into existing knowledge (Pawlowsky, 2001). Minbaeva et al. (2003, p. 587) define knowledge transfer between organizational units in a MNC as “a process that covers several stages starting from identifying the knowledge over the actual process of transferring the knowledge to its final utilization by the receiving unit.” Therefore, in order to become a
“learning organization”, it is a crucial objective in the headquarters-subsidiary relationship of a MNC to foster learning processes. The ability to transfer knowledge within the MNC can be seen as an important asset for a MNC upon which a competitive advantage can be built (Engelhard & Nägele, 2003).
As said earlier, the decision-making autonomy of the subsidiary is, to some extent, an outcome of a bargaining process with the headquarters. Inkpen and Beamish (1997) proposed a framework regarding shifts in bargaining power between partners in International Joint Ventures (IJV). Parts of this framework can be transferred to the headquarters-subsidiary relationship, keeping in mind that an MNC can be seen as an interorganizational network rather than one unitary organization (Ghoshal & Bartlett, 1990). However, contrary to the headquarters-subsidiary relationship, knowledge spillovers are not intended in an IJV. It is argued that three factors determine shifts in the bargaining power: The value of one partner’s knowledge for the other partner, the partner’s knowledge contributions and the ability to acquire the partner’s knowledge.
7 Mudambi and Navarra argued that the subsidiary’s bargaining power has to be based on intangible assets over which a headquarters’ can hardly define and enforce property rights. These assets are mostly based on knowledge. They argued further that
“knowledge and knowledge creating potential are therefore the key source of subsidiary bargaining power” (Mudambi & Navarra, 2004, p. 399). According to Gupta and Govindarajan (2000), the subsidiary’s absorptive capacity is the most significant determinant of knowledge transfers in the headquarters-subsidiary relationship. The absorptive capacity is a unit’s ability to absorb the knowledge that to which it has access. In addition, the higher the importance of the knowledge in the subsidiary for the MNC, the higher is the generated bargaining power of the subsidiary (Mudambi &
Navarra, 2004). Thus, learning processes are playing a mayor role for the evolution of the subsidiary. When applying the subsidiary classification by Bartlett & Ghoshal (1986), a subsidiary can evolve by means of knowledge transfer from the headquarters in order to become a contributor to the firm’s global success or, in case of operating in a strategically important market, the subsidiary can even become a strategic leader within the MNC.
2.2 The role of Expatriates in MNCs
Expatriate assignments are an important strategic tool for the headquarters to manage its subsidiaries. The transfer of managers is positively correlated with the effectiveness of headquarters-subsidiary relationships (Roth & Nigh, 1992). Expatriates are strongly influencing learning processes through the relationship. They are often seen as transferors of knowledge in MNCs (Downes & Thomas, 2000). Furthermore, expatriate transfers are used to exert control over the subsidiary. “The nature of the strategic control over subsidiaries has a major impact on the realization of intended knowledge flows”(Gupta & Govindarajan, 1991, p. 773). Thus, expatriate staffing determines the knowledge flows in the MNC and therefore influences the development of the subsidiary’s role. Furthermore, the role of expatriates and the decentralisation of decision-making authority are interrelated, as outlined below. In the last decades, the role of expatriates in MNCs has been studied extensively. In this section, I will give an overview of the expatriate functions in MNCs and present the current state of research about what determines their staffing in MNCs. In this research paper, the term expatriate is used to indicate the employment of a manager in a foreign country. This includes MNC’s home country nationals as well as third-country nationals.
8 Edström and Galbraith (1977) identified three general functions of expatriate staffing in MNCs: position filling, management development and organization development. The function of position filling refers to the transfer of technical knowledge to subsidiaries, where local nationals with the required skills are missing (Harzing, 2001a). Expatriate sending can be seen as a basic mechanism to transfer tacit knowledge to the subsidiary (Bonache, et al., 2001). In the HR management of MNCs, sending personnel abroad to work in a subsidiary is an important management development measure. The manager should be trained by doing such assignments. A successful stint abroad is often seen as a required step for future top managers (Dessler et al., 1998). Additionally, the local staff should improve their skills through trainings and support by the expatriates.
For the purpose of organization development, the transfer of expatriates to subsidiaries is used as an informal control and coordination strategy. This strategy allows for the socialization of local subsidiary managers into a corporate culture. Thus, the expatriate manager should actively support the diffusion of the corporate culture within the MNC.
Furthermore, the expatriate sending leads to the creation of a verbal information network that provides links between the company’s headquarters and its subsidiaries (Harzing, 2001b). See Table 1 for an overview of the identified expatriate functions in the headquarters-subsidiary relationship. Therefore, a higher proportion of expatriates assigned might ease and increase the communication between the headquarters and a subsidiary due to the establishment of additional information networks. In general, it is an important objective for expatriates to foster organizational learning processes within the MNC by providing available local knowledge of the subsidiary for the headquarters and other subsidiaries and applying it for global operations of the MNC (Hocking et al., 2007).
However, the effectiveness of the control function of expatriates in subsidiaries is questioned by some scholars. According to Paik and Sohn (2004), the effectiveness of expatriate staffing with respect of the headquarters ability to control a subsidiary is highly dependent on the cultural knowledge of the expatriate manager. Interpersonal relations between expatriates and local personnel might be impeded by differences in cultural norms and behavioural patterns. This would cause communication issues. It is argued, that local cultural knowledge of expatriates is essential to exert the control function and the absence of the required knowledge even harms the headquarters ability to control the subsidiary through the expatriate. Moore (2006) stated that the expatriates should not only be seen as implementer of the headquarters strategic
9 directives. They employ their position strategically in their own interest. The expatriate managers should rather be seen as negotiators between groups with different strategic directions, like the headquarters management and local subsidiary personnel. Hence, the control ability of headquarters through expatriates would be limited, according to the conceptualization of expatriates by Moore.
The MNC’s approach for the seemingly conflicting objectives of global integration and local responsiveness is connected to the expatriate’s role. In general, the assignment of expatriates to a subsidiary might ease the communication within the MNC through the establishment of informal global networks. However, a negative correlation between global business integration and expatriate presence in the subsidiary was found in Puciks study of Japanese owned subsidiaries in the United States (1994). Japanese MNCs are known for using few or almost no third country nationals for expatriate assignments (Peterson et al., 1996). The Japanese nationals might overemphasize the relationship with the headquarters. The expatriates, of course, have the closest personal network, in comparison with links to other subsidiaries. Therefore, it can be argued that the expatriates fulfil the coordination function with the headquarters but struggle in coordinating other subsidiaries. For this purpose, the recruitment of more third country nationals might be preferable in order to create global management teams. According to Toyne and Kuhne (1983), the employment of third country nationals is positively correlated to the degree of internationalization of the MNC.
Bonache et al. (2001) stated that an analysis of the linkage between international business strategy and expatriate policy is missing in most of the expatriate literature.
However, pragmatic rather than strategic considerations are often more important for expatriate staffing decisions (Torbiörn, 1994). Despite its advantages, the strategic choice of the MNC to increase the local responsiveness of the subsidiary makes the subsidiary’s operations more vulnerable for local market volatilities (Luo, 2005). For the headquarters, these higher risks lead to an increasing need for control and information processing. In order to achieve local responsiveness, the mere replacement of expatriate managers by local personnel does not provide a solution in regards to the tensions between global integration and local responsiveness. The most local executives are involved in the marketing department anyway (Pucik, 1994), so a lack of local market knowledge does not to seem likely. Instead, a better managerial development of local executives is necessary to ensure a sufficient linkage of operational decisions in the subsidiary with the strategic direction of the MNC (Pucik, 1994).
10 Various studies identified that the country-of-origin of MNCs largely influences the number of expatriates that are sent out to foreign subsidiaries (Rosenzweig & Nohria, 1994; Peterson et al., 2000; Björkman et al., 2007). Especially Japanese MNCs tend to send more expatriates abroad in comparison with their competitors from the United States and Europe (Oki, 2013), although, according to Beamish and Inkpen (1998) they have already decreased the number they were sending overseas in the 1990s. An important issue for the decisions to employ expatriates is the substantial higher cost for an expatriate assignment in comparison with a local employee. According to a study of Boyacigiller (1990), the costs are on average 2.5 times higher. However, the variance of cost figures across countries was quite large. Several studies suggested that the number of expatriates used in manufacturing subsidiaries is on average smaller than in non- manufacturing ones (Matsuo, 2000; Beamish & Inkpen, 1998). According to Hammill (1989), the employment of expatriates is lower in subsidiaries that have been acquired than in greenfield sites. Thus, expatriates are particularly needed to transfer managerial knowledge and practices to configure the management structure of the subsidiary. In general, higher integration of the operations within the MNC leads to more expatriate staffing in the subsidiary (Bonache et al., 2001).
In the expatriate literature, scholars propose different views regarding the question how the importance of the traditional expatriate roles has developed in MNCs. Macharzina and Wolf (1996) claim that the coordination function of expatriates has become more important, whereas Torbiörn (1994) argues that the control and coordination function can increasingly be handled through nonpersonal systems. According to Harzing (2001a), the importance of the three functions of expatriates differs by the country-of-origin of the MNCs. The position filling option is the key function for US and British MNCs in Latin America and the Far East. Management development is of capital importance for MNCs from continental Europe, relatively more when operating in Anglo-Saxon countries than in Far Eastern ones. Sending expatriates abroad for coordination and control is most important for German and Japanese MNCs when operating in countries with a high cultural distance to the headquarters’ country.
Some scholars have analysed the impact of the staffing of expatriate managers on the decision-making autonomy in the subsidiary. According to Harzing (2001a), expatriate managers are assigned to the subsidiary in order to change or maintain the decision- making processes. Thus, the decision-making autonomy of the subsidiary is dependent on the expatriate policy of the MNC. When an expatriate manager is appointed for an
11 executive post in the subsidiary, this allows for greater decentralization of decision- making authority (Edström & Galbraith, 1977), because the strategy provides an alternative to centralization and formal bureaucratic control by creating an indirect control mechanism based on socialisation and informal communication (Legewie, 2002).
Thus, the implementation of the headquarters’ interests in the subsidiary gets improved. Then, more decisions are made in the subsidiary, but still in accordance with the headquarters’ interests, because the expatriate is seen as associated with the headquarters. For these reasons, Scullion and Starkey (2000) argued that the use of trusted expatriates to implement corporate policies and processes is a de-facto centralizing control mechanism instead of a decentralization of decision-making. Several factors should be taken into account to determine which of these contradicting perspectives are providing the better explanation for the effects that occur by transferring an expatriate manager to a subsidiary.
To which extent the expatriate is acting in place of the headquarters is crucial in order to determine whether an expatriate assignment is truly having a decentralizing effect.
According to Moore (2006), expatriates pursue primarily their own personal strategy instead of the headquarters strategy and act more as negotiators between local and headquarters interests. Expatriates have a higher allegiance to the MNC’s headquarters than to the local operations (Mudambi, 1999). However, Banai and Reisel (1993) found that expatriate manager and local personnel do not differ in respect to their loyalty towards the MNC. Nevertheless, keeping in mind that expatriates are in most cases only assigned to the subsidiary for a limited period of time in order to develop for higher management posts in the headquarters afterwards, the expatriate manager are likely to support the headquarters strategic interests to enhance their own career prospects.
Thus, it can be argued that expatriates, despite of pursuing own goals and being influenced by local interests of the subsidiary, act to some extent as implementer of the headquarters strategic direction.
The better knowledge of the local market and the business environment is often the critical advantage of allocating decision-making authority to the foreign subsidiary (O’Donnell, 2000). However, this does not necessarily mean that the local knowledge is accessible for expatriate managers in charge. This depends on the expatriate’s own local knowledge as well as on his cultural knowledge of the foreign country. For the interpersonal relations with the local manager, the cultural knowledge of norms and behavioural patterns is crucial to benefit from the advance in local knowledge of the
12 host-country nationals embedded in the subsidiary. Hence, the accessibility of the local knowledge when decentralizing the decision-making authority by means of expatriate assignments determines whether the desired effect of this mechanism occurs.
For these reasons, assigning expatriates to executive posts abroad does not necessarily enable a true decentralization of decision-making authority in the MNC. Choosing this human resource strategy can be rather described as steering a middle course regarding the allocation of decision-making processes within the MNC. In some cases, the decision-making can be described as de-facto centralized when expatriates fully act in the headquarters interests without utilizing the organizational knowledge of the local subsidiary. However, the decentralization by means of expatriate managers, if executed properly, can create trust in the headquarters-subsidiary relationship and therefore, leads to a more effective subsidiary management.
In summary, the functions of expatriate assignments are clearly identified in the literature (Edström & Galbraith, 1977, Harzing, 2001a). The basic function of position filling includes meeting the needs for experts as well as the transfer of knowledge to the subsidiary. The management development objective contains the development of expatriate managers as well as those of local personnel through expatriate assignments.
The organisation development function, as identified by Edström and Galbraith, includes the control and the coordination of the subsidiaries operations by the creation of informal networks, the diffusion of corporate culture in the subsidiary and the support of organizational learning processes through transmission of subsidiary knowledge within the MNC. However, the importance of the various functions differs and the causes and potential changes of the functions needs to be further analysed. In addition, most literature does not take the relationship between expatriation and the international corporate strategy into account (Bonache et al., 2001). By transferring knowledge to the subsidiary, expatriate managers increase the subsidiary’s bargaining power and therefore influence the role of the subsidiary. The transfer of expatriates may enable further decentralisation of decision-making autonomy, but can in some cases de-facto retain the centralisation of authority.
13 Table 1
The functions of expatriate managers in the headquarters-subsidiary relationship Fill position Develop managers Develop organisation Compensate lack of
locals
Expatriate development Control
Transfer of knowledge Subsidiary development (Training of local personnel)
Coordination (Through informal information channels)
Diffusion of corporate culture
Based on Edström & Galbraith (1977) and Harzing (2001a)
2.3 Changes of expatriate functions with the subsidiary evolution
In the expatriate literature, the discussion of potential changes in the role of expatriates in MNCs is mostly missing. As presented above, differences in the use of expatriates are mostly observed in respect of the MNC home country, the host country of the subsidiary and the industry sector. However, these influencing factors are static and not subject to change. Nevertheless, some studies suggest that the role of expatriates changes after the set-up of the subsidiary (Pucik, 1994; Whitley et al. 2003). The evolution of the subsidiary leads to new and different tasks and function of expatriates in the headquarters-subsidiary relationship. In this chapter, changes of the expatriate’s role and its causes are analysed by means of a theoretical approach. Furthermore, the influence of the changes on the headquarters-subsidiary relationship is evaluated.
As presented above, expatriate staffing in subsidiaries is used to fulfil strategic functions for the MNC. In order to analyse why and how the expatriate’s role change, the functions of expatriates when setting up a subsidiary are evaluated first. In the beginning, it is especially important to provide the required knowledge for the subsidiary to compete successfully in the foreign market. The experience of the international parent company builds or enhances the competitive advantage of the subsidiary in the local market (Torbiörn, 1994). Therefore, the position filling function is crucial. The expatriates that are sent abroad have the expert knowledge needed for key positions and should transfer tacit knowledge to the subsidiary. For the diffusion of the knowledge within the subsidiary the expatriates often act as a kind of teacher for the local personnel (Whitley et al., 2003). As an example, an active role of expatriates is
14 strongly associated with the implementation of the production methods of the company (Rodgers & Wong, 1996).
In case of an IJV as a foreign market entry mode, the functions of expatriates in the headquarters-subsidiary relationship are similar to the ones in case of wholly owned subsidiaries (Torbiörn, 1994). However, it can be argued that some differences in the importance of the functions are quite likely. Keeping in mind that a Joint Venture can be conceptualized as a learning race (Khanna et al., 1998), the acquisition of knowledge is the main reason to enter the partnership. Thus, it is the central objective for assigned expatriates to enable the organizational learning opportunities for the MNC in an IJV and moreover, protect the MNC’s knowledge. In case of an IJV, the importance of the control function highly depends on the transaction-specificity of the investments as well as on trust between the partners (Chalos & O’ Connor, 2004; Fryxell et al., 2002).
In the growth phase of a subsidiary, the circumstances within the subsidiary have changed. The operations have been fully established, the local personnel have gained experience and the subsidiary is less dependent on additional transfer of knowledge from the headquarters. In this phase, the expatriates are rather seen as advisers than teachers in the subsidiary (Whitley et al., 2003). As the need for training tasks by the expatriates has declined, visits or short-time assignments for training purposes arise as substitutes for sending expatriates abroad. The higher cost of expatriate assignments in comparison with local personnel may lead to decreasing numbers as well, when expatriate staffing is not seen as important for the subsidiary development as before.
However, the number of expatriates assigned does not necessarily have to decline. An increasing complexity of governance functions that comes along with the growth of operations in the subsidiary may lead to an additional need for experts in this field (Matsuo, 2000). Besides, older subsidiaries are more integrated within the MNC than newer ones. Thus, it is argued that the expatriate’s role is shifting towards ensuring an effective coordination with the headquarters activities (Pucik, 1994).
Changing patterns in the expatriate staffing are by no means limited to the set-up and growth phase. Several factors are still influencing the role of expatriates in the headquarters-subsidiary relationship when the operations in the subsidiary have reached the maturity phase. For instance, changes in the strategic importance of the subsidiary within the MNC influence the expatriate’s role. According to the study of Pucik (1994), an increasing strategic value of the subsidiary leads to a growing importance of the control function carried out by expatriates. An increasing level of trust
15 by the headquarters over the years can work as a substitute for the informal control exercised through expatriate managers and therefore decrease the importance of the control function. In such a case, the role of the expatriates becomes more supportive than directive (Whitley et al., 2003).
Additionally, by changing the configuration of its R&D organisation, the MNC has an impact on the role of the expatriates. Along with the growth and increasing globalization of the MNC, the R&D configuration is likely to change as well in order to fully exploit the firm’s capabilities (Kuemmerle, 1999). The argumentation is based on the conceptualization of R&D configurations in MNCs by Gassmann and von Zedtwitz (1999), as presented above. In case of a centralised approach, the expatriate’s role is focussed on gaining market information in order to provide the R&D unit in the headquarters with relevant knowledge of global market demands. The more geocentric the R&D configuration, the more important is the transmission of local market knowledge through the expatriate manager. When the headquarters’ R&D unit is acting as a hub, the control of the foreign R&D outposts and its coordination with the headquarters becomes very important and therefore the expatriates are used to that effect. In a polycentric approach, the role of expatriates is less concerned with control or transfer of information to the headquarters but with the support of an efficient configuration of the local R&D unit with his expertise. For the exploitation of the local knowledge network with other R&D institutions (Cantwell & Mudambi, 2005), local personnel become increasingly important. This may decrease the expatriate’s influence in the subsidiary and weaken their control and coordination function even more. When an integrated R&D network approach is pursued, instead of exerting control, the coordination function of expatriates is crucial. However, despite the good coordination abilities in the headquarters-subsidiary relationship, the coordination with R&D units in other subsidiaries may struggle for the reasons discussed earlier.
For instance, if the close relation with the local supplier network the subsidiary is embedded in becomes the subsidiary’s competitive advantage, the knowledge of managing this network lies in the subsidiary. As discussed above, this may hinder the control objective of the expatriates assigned by the headquarters. The R&D configuration serves as another example. The higher the specialization of the local R&D unit in comparison with the headquarters’ one, the more complicated is the control for the headquarters. The global subsidiary mandate is the subsidiary’s role the headquarters struggles most in order to ensure control. The subsidiary is solely
16 responsible for a product or product line and therefore, much more experienced in respect to R&D, supply, production and marketing in their field of responsibility (O’Donnell, 2000). As the headquarters is lacking the specialized knowledge, the evaluation of the subsidiary’s performance and therefore an effective control is very difficult and costly.
It can be argued that the difficulties of monitoring the actions of the subsidiary due to an increasing specialization of the subsidiary increase the need for control mechanisms by the headquarters. Thus, the role of expatriate managers might shift towards ensuring control. In addition, expatriate assignments may increasingly be used to enable the transfer of knowledge from the subsidiary to the headquarters and therefore decrease the subsidiary’s advance in specialized knowledge. Hence, informal control through expatriate managers might be the preferred option of control mechanisms by the headquarters as it increases the communication with the headquarters and therefore enable headquarters’ learning.
Furthermore, several external environmental factors of the subsidiary can cause changes in the expatriate staffing in a subsidiary of a MNC. In the study describing the role of expatriates by Boyacigiller (1990), local risks and competition were taken into account as country factors. Below, the influence of the local supply network will be taken into consideration. Political and market risks are threats for the MNC’s investments in the foreign subsidiary. As Boyacigiller (1990) argued, additional political risk is likely to increase the information flows between the subsidiary and the headquarters. For market risks the same can be assumed. To secure investments, a focus of the expatriate’s role on the information processing and control function can be expected.
Changes in the competitive environment may increase pressure to achieve more local responsiveness if competitors better meet the local customer needs. Thus, the role of expatriates has to be adapted, as described above. Furthermore, increasing competition on the labour market may cause adjustments in the HR strategy in the subsidiary. Pucik (1994) argued that without the prospect of substantial participation in the corporate decision-making, local management talents are likely to leave the company. In order to retain these local managers and to attract additional high potential managers, promotion opportunities with appropriate decision-making authorities have to be available for local personnel. Thus, fewer expatriate managers are used to staff
17 executive posts. Therefore, expatriates may not be able to exert control and coordinate operations as before.
2.4 Theoretical implications for the case study
Figure 1
Impacts on decision-making authority in the headquarters-subsidiary relationship
The literature review provides a helpful framework for the case study analysis in the next section (see Figure 1). As said earlier, the subsidiary’s learning processes affects the headquarters-subsidiary relationship. The transfer of knowledge from the headquarters through expatriate managers determines learning in the subsidiary. The successful transfer to the subsidiary is influenced by its absorptive capacity. Subsidiary’s learning leads to increasing bargaining power of the subsidiary and increases the subsidiary’s decision-making autonomy. Furthermore, the bargaining power determines the subsidiary’s role within the MNC, to some extent. In addition, when the subsidiary gains a larger stake in the corporate R&D function, this can further increase the bargaining
18 power of the subsidiary and lead to more local autonomy. Moreover, the role of expatriates is changing as the subsidiary develops. On the one hand, sending expatriates can enable decentralization of decision-making authority, but on the other hand it can work as a de-facto centralization measure.
Additionally, several factors that influence the decision making autonomy in general, like the subsidiary’s environment, the MNCs global strategy, the industry and other company-wide conditions (e.g. size of the MNC), have been identified. Especially, the transfer of expatriate managers to the subsidiary impacts the headquarters-subsidiary relationship. Expatriates are assigned to fulfil several functions in the relationship. These functions include organisation development, management development and position filling (see Table 1). Strategic changes of the MNC, as well as changes of the subsidiary’s role and its environment induce changing functions of expatriate managers as the subsidiary is developing.
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3 The Toyota case study
According to Yin (2009), a case study approach has a distinctive advantage when “a
‘how’ or ‘why’ question is being asked about a contemporary set of events over which the investigator has little or no control.” (p. 13) This condition is fully met, as the underlying research question is: “How does the expatriate function influence the dynamics of HQ-subsidiary relationships in MNCs”. Therefore, this is applied to the case of the development of Toyota’s US subsidiary in the past years. The study is based on a press and literature review of the last 30 years beginning with the establishment of Toyota’s operations in the United States. I have used the LexisNexis Academic database that provides access to articles of industry magazines like Automotive News, business magazines (e.g. The Nikkei Weekly), and major newspapers (e.g. New York Times). The Toyota Motor Company has been analysed thoroughly in management research in the last decades. In addition, the public attention for the company has been quite high, which resulted in extensive and intensive press coverage. Therefore, the relevant information to analyse the issue elaborated in the theoretical part of the research project were accessible from outside the company. This was an essential circumstance for a case study relying entirely on secondary data.
The Toyota Motor Corporation, founded in 1937 by Kiichiro Toyoda in Aichi/Japan, is currently the largest automaker in the world. The company sold 8,717,000 cars worldwide in 2012 and employs more than 333,000 people, as of March 2013. According to its website, Toyota is manufacturing in 28 countries around the globe and is selling its vehicles in more than 160 countries. The Toyota production system, known as the Toyota Way, set standards across industries and was copied by many competitors in order to duplicate the outcome that brought Toyota a reputation for quality all over the world.
It is the purpose of the case study to determine how the role of expatriates in the relationship of Toyota’s Japanese headquarters with its subsidiary in the United States has changed over time. Toyota, like other Japanese MNCs, has traditionally used many expatriates for staffing of management posts overseas. In the case study, potential causes of the changing expatriate functions have to be taken into account as well.
Therefore, the changing strategic role of the US operations within the company in the last decades and the changes in the economic environment Toyota USA is operating in, will be considered as well. In addition, it will be analysed how the ascertained
20 development has influenced the extent to which expatriates were recruited in Toyota’s US subsidiary. Despite the fact that the Toyota’s plants in the United States are legally independent, I will refer Toyota’s US operations as one subsidiary, as all operations are closely interrelated.
3.1 Toyota in the United States
Without doing market research first, Toyota entered the US market in 1957, by exporting the Toyopet, a car that proved to be not ready for the US market at all. The company consequently backed out of the market just four years later as the car was dismissed by American customers (Horovitz, 1983). In 1965 Toyota started exporting the Corona, a low-prized compact car, and regained some confidence in the American market increasing its market shares in the following years. In order to foster its development in the United States, Toyota announced to start manufacturing in the United States by means of a Joint Venture with General Motors (NUMMI) in Fremont, California, in February 1983.
First of all, to establish manufacturing in the United States was a way to alleviate the effects of the import limit of Japanese cars that has been agreed between Japan and the USA in 1981 (The Japan Economic Journal, 1985a). Second, it helped Toyota to gain acceptance in the market. As Honda and Nissan started manufacturing in the United States in the previous years, Toyota was under competitive pressure to act as well. The Joint Venture with GM was seen as the most riskless way to do so (The Japan Economic Journal, 1985b; Inkpen, 2008). However, the learning opportunity the Joint Venture offered was certainly the most important reason for Toyota to choose this entry mode (Weiss, 1997). For GM the Joint Ventures provided an opportunity to learn about Toyota’s production management techniques (Shirouzu, 1990). However, the company was not able to transfer much of the gained knowledge from NUMMI to its own production facilities, at least in the first few years of the partnership (Inkpen, 2008; The Nihon Keizai Shimbun, 1990). Thus, the expatriates seemed to be at least partly successful in preventing too much knowledge spillover in the IJV.
With the help of the experience gained at NUMMI, the subsidiary started production in its first wholly owned greenfield plant, in Georgetown, Kentucky, in 1988. The experiences gained before, helped Toyota’s US subsidiary making the plant flourish and
21 foster further investments in manufacturing capabilities in America (Inoue, 1991).
Typically for a greenfield plant, the Kentucky plant had a higher number of expatriates assigned, in comparison with NUMMI, what can be seen as crucial to fully implement Toyota’s management and production practices. The new plant was more integrated in the local business environment as it had a higher local purchase ratio than the NUMMI plant (The Japan Economic Journal, 1985d; Inoue, 1991). In the subsequent years Toyota also established car manufacturing facilities in Indiana, Texas and just recently Mississippi as well as some other supportive manufacturing plants. In addition, Toyota is operating R&D centres in Michigan and California. These operations have been substantially increased in the 2000’s, in order to develop especially for the US market and to benefit from cooperation with local research institutions (The Nikkei Weekly, 2005; The Nikkei Weekly, 2008). As argued in the literature review, it is advantageous having local managers instead of expatriates working at the interface between the subsidiary and universities, in order to develop the network with research organizations.
As an executive of the Toyota’s US subsidiary put it, Toyota has seen itself, after being in the export and the immigration era, in the citizenship phase of its operations in the USA by the beginning of the mid-1990s (The Nikkei Weekly, 1996). The US subsidiary began to adapt car models like the Camry for the American market and later started to build competitive pickup for the US market (Allen, 2007). Toyota USA increased its local purchasing rate and became therefore more integrated in the American business environment and engaged heavily in corporate philanthropy (Smith, 1993; Mortimer, 2007). This development, beginning in the 1990s, led to a rising image of Toyota in the American car market as well as in the business environment.
However, it was suggested that Toyota was growing too fast worldwide to manage the implementation of its culture in the foreign market (Fackler, 2007). The Toyota Way can be seen as the core of Toyota’s success. Toyota realized that it has to put the core values of its production system, which have been taught tacitly before, on paper in order to implement it successfully overseas (Treece, 2004). Toyota’s former president Watanabe emphasized how important it is to infiltrate the same common Toyota Way to all of the company’s worldwide employees, despite of different inherent local characteristics (Maynard, 2008a). Nevertheless, as some overseas executives complain, some factories have not even adhered to basic creeds of Toyota’s production system (Fackler, 2007).
Thus, preventing the dilution of the Toyota way is one of the company’s most crucial issues, while globalizing Toyota’s operations (Fackler, 2007).
22 Due to some quality problems of its cars (e.g. with accelerator pedals), Toyota was forced to recall more than 5.3 million cars in the USA from 2009-2010. This heavily hampered Toyota’s quality image in the US market which the company established over the past decades. The problems were widely discussed in the media, what enhanced the image problems Toyota was facing and is still coping with. Toyota did not react fast enough on the crisis, as a Toyota US executive admits later (Kageyama, 2013). Recalls in the United States were often made too late and customers have not been informed properly (Kanter et al., 2010). Executives of Toyota’s US subsidiary did not even have the authority to make decisions concerning recalls in the US, as Toyota’s US CEO Jim Lentz admitted under questioning in Congress (Chappell, 2010). For Toyota’s desired image of an American car manufacturer, it was a huge setback having to admit this fact. The dealing with the crisis has revealed some of Toyota’s biggest issues in overseas markets and especially in the United States. As a reaction on the crisis, Toyota made several internal organizational changes that will be shown and thoroughly analysed in the next chapter.
When Toyota started manufacturing in the United States in 1984, the company held a market share of just about 6%, severely restricted by the import limit of Japanese cars.
They were able to increase their market share to almost 8% until 1990, held it relatively constant in the 1990s and surpassed the 10% market share in 2002. In the following years, Toyota’s market share rose up to more than 16% in 2009. In 2012, Toyota increased their market share to 14.4 % of the US automobile market, after experiencing a setback in car sales subsequently to the recall crisis. This makes Toyota the number three on the American automobile market, being ahead of Chrysler and lagging only close behind GM and Ford. Thus, Toyota was able to close up to the Big Three in the USA which have dominated the market for decades. In the fierce competition with the other Japanese carmaker, Toyota now has the edge over Honda and Nissan in the US car market, after trailing Honda for some time during the 1980s and 1990s. For Toyota, the USA is the most important single market with more than two million car sales in 2012.
However, due to the emergence of the automobile markets in Asia, Toyota is less dependent on success in the United States than it has been ten years ago. In general, Toyota’s oversea markets have been the source of the company’s growth in the last decades and have therefore reduced the relative importance of Toyota’s Japanese home market.
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3.2 The expatriate’s functions over time in Toyota’s US subsidiary
In this chapter, the functions which expatriates fulfil in the relationship between Toyota’s headquarters in Japan and its operations in the USA will be analysed thoroughly. At first, the analysis will focus on the role of expatriates when manufacturing started in America in the 1980s. This includes the joint venture plant NUMMI as well as the set-up of the wholly owned plant in Kentucky. Second, it will be evaluated how the expatriate’s role changes in growth phase of the US operations from the beginning of the 1990s to the end of the 2000s. In this phase, additional facilities were opened; R&D was increasingly conducted in the US market and Toyota got more integrated in the business environment. Lastly, the organizational changes regarding the expatriate functions Toyota made in response to the recall crisis after 2010 will be analysed.
3.2.1 Start of manufacturing in the 1980s
As said earlier, the opportunity to learn was crucial for Toyota’s when starting to manufacture in the USA by establishing a joint venture. It was seen as a learning exercise with GM as a teacher (Horovitz, 1983). Toyota was seeking to make some experience in operating in the United States before establishing a wholly owned greenfield plant (The Japan Economic Journal, 1984). As NUMMI’s first president Tatsuro Toyoda put it, they wanted to learn what “the U.S. labor force can and cannot do” (Inoue, 1991). Besides the crucial learnings in labour management and the chance to test the effectiveness of its production techniques in the USA (Shirouzu, 1990), Toyota gained experience in handling regulations in the United States as well as dealing with logistics in a country with such a huge area in comparison with Japan (Chappell, 2007a). According to senior executives of Toyota, the company also benefited of GM’s knowledge in American financing and learned about integrating itself in the local community it is operating in (Automotive News, 2009). Especially, the ladder was an important lesson for the set-up of wholly owned plants in rural areas in the USA in later years. Furthermore, Toyota was able to establish friendly ties with the UAW, the powerful American union in the automobile industry (The Japan Economic Journal, 1985a). Nevertheless, the production of cars in the USA is costlier for Toyota than exporting them from Japan (The Japan Economic Journal, 1985c). For these purposes, having expatriates assigned in the management as well as for key technical positions of NUMMI was crucial. By learning
24 American rules and practices from local personnel, the goal of organizational learning was pursued by expatriate managers after the set-up of the plant in Kentucky as well (Treece, 2004). For instance, the executive posts responsible for purchasing in the Kentucky plant was staffed with a Japanese expatriate manager (PR Newswire, 1986).
Learning to deal with local suppliers in the United States was critical for Toyota, as their close relationship with their suppliers was a competitive advantage over their American competitors. The experience gained in the joint venture and the Kentucky plant through expatriate managers provided a fundamental benefit for the whole MNC during further expansions in the US market as well as in other overseas markets.
By giving the CEO post at NUMMI to the expatriate Tatsuro Toyoda as well as naming Kaneyoshi Kusunoki the president of the Kentucky plant and for instance, staffing its quality control department with an expatriate (Horovitz, 1983; PR Newswire, 1986), Toyota’s Japanese headquarters had the opportunity to maintain closer control of the US operations. The diffusion of Toyota’s corporate culture is conducted through the training by expatriate managers, but it does not seem to be the highest priority directly after the establishment of the manufacturing facilities. In addition, the visits of group leaders of the NUMMI plant in the company’s headquarters may have fostered the diffusion of the corporate culture in the United States (The Associated Press, 1984).
A successful implementation of Toyota’s production system was the origin of cost- effective car production in the company’s US manufacturing operations. Therefore, an appropriate training of the local workforce was essential. Due to the fact that 80% of the employees in the joint venture plant have been on GM’s payroll previously, the implementation of the different production methods and management styles of Toyota was even more complicated (The Japan Economic Journal, 1989). For this purpose, Toyota increased the number of Japanese trainers which it sent to NUMMI when operations started in 1984 (The Japan Economic Journal, 1984). As an alternative to the expatriate assignments for the purpose of training, some American employees were sent to Japan and short-time visits of Japanese trainers were arranged (The Associated Press, 1984). The implementation turned out to be easier in the wholly owned plant in Kentucky than at NUMMI (Inoue, 1991). In the joint venture plant, supervisors were blamed to try to maintain the production methods they were used to from GM (Shirouzu, 1990). As argued above, for a successful implementation of production methods in the subsidiary, an active role of expatriate managers can be seen as indispensable (Rodgers & Wong, 1996). According to a Toyota official, the 30 Japanese
25 expatriates who have been permanently assigned to the NUMMI plant, were just not enough to firmly implement Toyota’s management and production methods (Inoue, 1991). The restriction of assigned personnel from the headquarters at NUMMI in order to balance the power within the Joint Venture between the parent companies made it more complicated to implement Toyota’s production system. However, it was not mentioned in the data that the expatriate assignments were perceived as skill improving for the expatriates themselves or as an advantage for the expatriate’s career within Toyota. Nevertheless, Toyota’s management in the headquarters realized that it needed some international experience in Japan (Koyama, 1984), but seemingly did not perceive repatriated Japanese manager as a possible source.
In addition, the expatriate managers were simply assigned to the subsidiary to fill key position with the best staff available. By assigning experienced expatriate managers to the US plants the headquarters reduced the risk of the US investments (Chappell, 2007b). For the successful implementation of the production system, it is fundamental to have highly skilled manager in the key roles of a newly established plant. Managers with the required knowledge of Toyota management and production method were naturally not available in the US labour market. Thus, the transfer of tacit knowledge was required. The managerial knowledge that has been transferred through expatriates was seen as invaluable for the joint venture as well as for Toyota’s partner GM (Katz, 1988). Thus, the risk of knowledge spillover was prevalent for Toyota, as the company transferred knowledge, on which its competitive advantage was based, to the joint venture.
In conclusion, the expatriate’s role in the phase subsequent to the establishment of the manufacturing operations, is mostly concerned with the transfer of knowledge through training or position filling and the acquisition of knowledge from the foreign subsidiary in order to foster organizational learning processes. Keeping control and diffusing the corporate culture can be seen as minor tasks. The coordination function as well as the opportunity to enrich the skills of top management prospects does not seem to be perceived as relevant at Toyota’s headquarters during this period.
3.2.2 Growth phase in the 1990s and 2000s
As Toyota’s operations in the United States were growing, the capabilities and resources in the subsidiary were increased as well. By establishing a support centre for their supplier and consulting them in Toyota’s production techniques, Toyota USA improved
26 the relations to US suppliers and the supplier’s cost competitiveness (Smith, 1993). The training and consulting of suppliers and Toyota’s own employees was increasingly executed by American personnel in subsequent years. When the subsidiary opened a plant in Texas in 2006, they fully relied on trainers from the plant in Kentucky (Chappell, 2006). Due to the extensive transfer of knowledge from Japan in previous years, the US subsidiary was then able to do tasks like these alone. In addition, the availability of skilled labour in the United States has increased, so that the transfer of expatriates for the purpose of filling expert positions declined. However, due to Toyota’s globalization strategy, not only the demand for Japanese expatriates decreased. Toyota built additional plants in Europe and Asia, which limited the availability of Japanese expatriates in Toyota’s other operations around the world (Chappell, 2007c). The Japanese headquarters did not have the resources to send a corresponding number of sufficiently skilled expatriates abroad (The Economist, 2005).
Along with Toyota’s globalization of its operations in the late 1990s and 2000s, they tried to make their management more multinational as well (Bremner, 1997). Based on the argument that local managers can better handle many aspects of doing business in their home country, Toyota came to the conclusion that a subsidiary should be controlled by local managers, in principle (The Nikkei Weekly, 2000). This view was in marked contrast to Toyota’s staffing policy in subsidiaries abroad in previous years.
Toyota wanted to increase the localization of its operations and was willing to cede some control to its foreign subsidiaries in exchange. For instance, Gary Convis was the first local manager running a Toyota plant in the United States (The Associated Press, 2002). However, simply replacing expatriates with local managers does not provide local responsiveness. The local managers need to participate in decision-making processes at headquarters level to incorporate their local market knowledge within the MNC.
Nevertheless, despite the HR internationalisation strategy, changes in executive staffing in the subsidiaries occurred very slowly in the following years. This development has been influenced by the objective to maintain local management talents as well. Many talented local managers left Toyota, because they felt having hit a ceiling in the subsidiary (The Nikkei Weekly, 2000). Expatriate managers have blocked promotion opportunities in the past. A radical change in staffing policy would have given Toyota the opportunity to retain more international management talent it desperately needed. In order to be competitive on the labour market for executive managers and high potentials, it is crucial to offer promotion opportunities within the subsidiary at all levels.
