Foreign executives in local organisations – country contexts and implications for practice in Asia
Findings from research on FELOs can be applied to organisations in other emerging economies. However, country contexts need to be taken into account. In addition, it is important in all cases to take LOCAL perspectives seriously (through gaining the participation and perspectives of representatives from local organisations). Research must carefully distinguish between global- and country-level influences on the FELO phenomenon, and organisational, group, and individual levels of investigation. FELO typologies assist in identifying which combinations produce successful outcomes (and those which are likely to fail). Insights gained from FELO research are relevant to government-sponsored development initiatives as well as executive search firms. The findings are of particular importance to emerging market firms and business practitioners in the context of internationalisation and globalisation.
One such context is the Talent Corporation recently set up by the government of Malaysia. In that country, efforts are underway to attract foreign talent (as well as overseas Malaysian talent lost to ‘brain drain’). Foreign executives in local organisations of Malaysia are still rare, but that rarity may be diminishing. Similar initiatives can be observed in other countries — even in Asian state-owned organisations.
Vietnam Motor Industry Corporation and Vietnam Shipbuilding Industry Corporation, for example, were given government approval to search for foreign CEOs (Phillips Fox, 2006; Vietnam Investment Review, 2006). Foreign executives in local organisations of Vietnam may become somewhat less of a rarity as the country works hard to find its competitive niche among larger neighbours. More . . .
The manpower and transmigration minister has with effect from 29 Feb 2012 banned foreign executives from 19 positions in local organisations. Positions include Chief Executive Officer (CEO), various human resources (HR)-related positions such as Personnel Director, training and development supervisors as well as cccupational safety specialists.
A ministry official said that the rule would only apply to wholly owned local organisations, not to foreign-invested companies. Industry representatives have nevertheless voiced their concern about this surprising rule. Developments in Indonesia appear to go against trends in other countries. More . . .
Foreign executives in local organisations of Singapore have been somewhat more common than in other ASEAN countries for some time. In a bid to attract foreign talent, Singapore’s Ministry of Manpower commissioned a study in Q4 2010 to analyse the key challenges local organisations face in attracting and retaining global talent. Assimilation issues specific to new direct hire foreign executives (as well as overseas Singaporean talent lost to ‘brain drain’) were a key focus. Approximately 60% of companies are placing emphasis on identifying and developing global talent for future roles. While most companies follow local benchmarks, some may offer higher salary bands or adopt modified salary scales higher than that of local employees (26%). Some provide a sign-on or project completion bonus (19%), or mobility premiums (11%). However, the study notes that compensation is just one piece of the talent puzzle, and that significant challenges remain in various administrative areas. More . . .
Foreign executives in local organisations of China are still rare, in contrast to the large number of expatriates working in subsidiaries of global multinational companies. A recent study by Chinese academics and published in a Chinese language domestic journal comes to similar conclusions as FELO research. The study questioned whether Chinese independent directors, supervisory boards and audit committees can effectively fulfil their supervisory roles, enhance corporate earnings quality, and restrain the self-interests of Chinese managers. The researchers posit that foreign executives have an important role to play in this regard, are free from the influence of China’s complex interpersonal relationships, and can avoid a lot of interference besides bringing valuable international experience.
As Chinese local organisations in China are attracting more and more foreign executives to join their management teams, the study investigated their performance in the period 2003 to 2007. It concludes that foreign executives can win people’s trust more than local executives do, that they reduce corporate risks, lower embezzlement ratios, and improve audit quality. Studies in other countries such as South Korea come to similar conclusions (see below). Although salary differences, language barriers, and issues of trust and control remain significant barriers, the study calls for greater involvement of foreign executives in local organisations.
Several municipal governments in China have adopted specific incentive schemes for foreign executives, based on the significant positive contributions these ‘outsiders’ make to local economies. In addition, the State Administration of Foreign Experts Affairs (SAFEA) values the importance of outsider views. Foreign experts are seen as contributing to China’s growth. More . . .
Workforce diversity, including the employment of foreigners, women and the disabled, has increased in Korea in recent years. While the number of women working in large companies with 500 or more employees increased 1.6-fold in the decade from 2001 to 2010, and employment of people with disabilities 5.7-fold, a 4.0-fold increase occurred in the number of foreign employees (SEIR 2011). However, few foreigners hold executive positions and even fewer are foreign executives in local organisations.
Nevertheless, more than 10% of South-Korean listed companies are now reported to have at least one foreign executive in their top management teams (as of Feb 2012), suggesting that the FELO phenomenon is growing rapidly in that country. While a large number (36%) of the 189 foreign executives counted by the Korean Listed Companies Association among 14,862 executives in 731 firms is from neighbouring Japan, a third of them hail from the United States. From the perspective of cross-cultural management research, a lot can be learned from these cases involving significant cultural distance. More . . .
A study by Korean researchers (Jongmoo Jay Choi, Sae Woon Park, and Sean Sehyun Yoo, 2007) finds that outside independent directors have a significant positive impact on the valuation of companies. Foreign independent directors, in particular, contribute positively to corporate governance and firm performance. The empirical results show that family ownership interferes with board independence and hinders rather than enhances firm performance in Korea. This is related to the practice of chaebol firms of favoring as outside directors local executives from affiliated group firms and individuals with political connections rather than independent directors suitable for management monitoring. These results suggest that the presence of outsiders — whether truly independent local directors, foreign executives or representatives of foreign investors — can be good for company performance because it contributes to outside monitoring and independent market discipline.
Choi et al. theorise that this positive impact is critical in emerging markets subject to external shocks and lacking in local corporate governance infrastructure. In such contexts, firms with insider-dominated boards and entrenched inside ownership (such as Korean chaebols) can improve performance by adding outsiders and actively involving them in major corporate affairs. They further hypothesise that this context is different from the insignificant effects of super-independent boards found in developed economies, which are characterised by high market liquidity, economic stability, and well-developed external governance mechanisms.