This article was updated on July 19, 2018.
When you expand into an international market, employee knowledge is a critical component of success. There's a classic, ongoing debate among HR leaders about whether you gain more know-how by transferring expatriates from your existing operations into the new market or if you're better served by hiring local employees. The truth is you get different kinds of employee knowledge with each staffing strategy.
When you send an expatriate, the expat employee will carry a deep understanding of your organizations's products, policies, systems and culture. On the downside, the expat employee may know little about the local market you're entering (its laws, language, purchasing habits, culture, etc.).
The local hire, on the other hand, will likely have a wealth of knowledge pertaining to the local market, but will know little about your organization and the overarching strategy driving your expansion.
For HR leaders who need to develop staffing strategies on a global level, both sides of the coin will have advantages and challenges.
Hiring Locally vs. Expat Employee: Cost
In general, transferring an expat is more expensive and will cost your organization two to three times what the same employee would cost back home, according to Harvard Business Review. You'll need to pay a higher salary to convince the expat to work abroad, and HR will have to manage time-consuming immigration and tax-related issues. You'll need to provide the expat with training in a foreign language and basic cross-cultural skills. You may need to pay for the expat's housing and moving costs. You may even, depending on the market you're expanding into, be forced to pay personal security/safety costs to protect them.
All of this comes with the risk of not seeing the return on your investment. Expats may find themselves burning out because of culture shock and the stress related to being away from home and family.
Of course, the available talent pool in the locale to which you're expanding is relevant in deciding whether to send an expat or hire locally. For some positions, you simply may not be able to access local talent, which makes the expat option more attractive despite the higher associated costs and burnout risks.
If the local talent base needs development, the expat may be the only choice.
Factors That Make Hiring Local Talent More Attractive
Lower cost is a major advantage when discussing the local hiring option. Local talent can also start working more quickly because they won't have the time-consuming issues of relocation and immigration or visa status.
The main advantage local hires provide is a deep knowledge of the country. "The most important reason to go with locals is that they're local," says Radius Worldwide's Larry Harding. "They speak the language, they understand host-country business customs, and if you've hired well, they come with strong local networks and personal connections."
The local talent's value can go far beyond the daily duties of their role.
When Hiring Local Talent Is Less Attractive
Unlike the expat employee, local employees have no experience working inside your organization. They'll need time to adapt to your organization's procedures and operating routines, from IT systems to reporting structures to communication styles. In addition, the local hire may confront language and cultural barriers when interacting with headquarters.
Just as you'd need to train any expat in adapting to the local market, HR would need to support and train the local hire to adapt to working and communicating effectively within your organization.
How to Optimize the Benefits and Minimize the Risks
Much depends upon your organization's goals and needs when it comes to expanding into the new market. If you find the local market lacks the expertise you need (i.e., that expertise must be developed), you may have no alternative but to go with the expensive transfer of an expat.
Even if you hire all local talent, you must invest heavily in training so they learn your organization's processes, systems and strategic goals. You could also consider sending an expat on a short-term assignment, maybe three to six months, in order to provide a solid orientation to the local team and to promote connectivity as the new office works to get up to speed.
In essence, there is no definitive one-size-fits-all solution to the complicated issue of global staffing. If you understand your organization's goals and the pros and cons for each hiring option, you'll be in a position to make the best choice.