Expats in Emerging Markets: Revising Previous Trends?

Exactly two years ago I wrote about emerging markets and the scarcity of talent these markets were experiencing. As the main message read, multinational corporations started actively expanding into emerging markets where they faced a lack of talent because local managers often did not have the necessary set of skills and preparation. As such, emerging markets became a popular destination for expats. Echoing this notion, another of my previous posts discussed the migration outlook for 2013, highlighting that, due to both the pull of opportunities there and the push of the crisis in developed economies, emerging economies would make for a ‘great talent escape’ for Western talent. Midway through 2014 seems to be a good time to revisit these arguments.

In fact, a recent article in the Financial Times argues that the demand for expatriate managers in emerging markets may be ending and that several reasons may explain this.

First of all, the change in recruitment dynamics might be due to the rise of a new skilled generation of local managers. As stated in the FT article, ‘training of local executives has started to produce results’. Naturally, given the economic and demographic growth in developing markets, we can expect a stable increase in college-trained employees. This trend was projected already in 2012 by The Oxford Economics survey, which noted that nowadays already over half of the world’s college graduates (54%) come from the top emerging markets (the E7: Brazil, China, India, Indonesia, Mexico, Russia and Turkey). The same survey predicted that by 2021 the percentage of graduates from emerging markets will further rise to 60%.

Apart from formal education programs, locally headquartered successful businesses and multinationals are investing into the training of their talent pools on their own. Specifically, as seen from the Lenovo example given in the FT article, these employers are providing training and mentoring programs for their high-potential employees to catch up with international standards.

Secondly, the push factor of the economic crisis in the West is being reduced, which means there are more jobs available back in the developed markets and, hence, less reasons for an ‘escape’. As such, Western expats are not that attracted to emerging markets anymore, which implies that in order to lure them back employers in emerging markets (or with subsidiaries in emerging markets) need to provide higher incentives. Naturally, given the increased availability of local talent, the idea of higher expat costs is far from appealing to employers in developing locations.

Finally, emerging markets do not seem an easy target for multinational corporations anymore. According to a recent Forbes article, by now domestic companies are thriving and pose a real competition for foreign MNCs. Indeed, recently the Boston Consulting Group presented a report, which lists 50 local businesses as great examples of ‘local dynamos’. Although traditionally emerging markets were dominated by big multinational corporations, today this very trend is changing – and quite visibly so, because according to the same report the local dynamos have been growing faster than comparable companies in both emerging and mature economies during the period of 2009-2013. Naturally, focusing on local markets and local consumers, these home-based businesses would prefer local talent, who culturally fit into the environment.

All in all, there seems to be some evidence suggesting a decline in Western expat inflows to emerging markets. The need for external expertise is still there of course, but it is declining as the skill gap is being quickly reduced by local talent. This general trend probably indicates that apart from being a pool of needs and opportunities, the emerging markets are also becoming a pool of resources and solutions.