Why the Strategic Use of Inpatriation Benefits Multinationals

You have probably heard an old aphorism – Time is Money. Today, in the knowledge economy, it is more suitable to equate money with knowledge though. I believe that any contemporary economist would argue that knowledge (and technology) are the required components for enhanced productivity and economic growth. This premise holds particularly true for multinational companies (MNCs). Indeed, from the international human resource management literature, we know that intra-company knowledge transfer is a key source of competitive advantage. Moreover, we know that this key source is embedded within individuals, hence making the ‘mobility of individuals’ the prominent mechanism of knowledge transfer.

In the context of MNCs, expatriation, i.e. sending employees from the company’s headquarters (HQ) to a foreign subsidiary, is one prominent and widely used example of such mobility. Yet, another type of mobility has received increasing attention, which is inpatriation. Inpatriation means sending employee from an MNC subsidiary to the company’s HQ for a limited period of time. Similar to expatriates, inpatriates can be viewed as knowledge transfer agents. Although there is some solid evidence to assume that inpatriates should be effective in transferring knowledge in MNCs, the academic literature provides no clarity yet on how they do so and what are the strategic outcomes. In other words, how do inpatriates provide value to their subsidiaries after returning from headquarters?

To address this question, my colleagues Heejin Kim, Anne-Wil Harzing and I conducted a qualitative study in Japanese MNCs. Our aim was to explore whether and how inpatriates’ knowledge transfer activities provide value to their subsidiary. More specifically, we looked at performance-related outcomes such as the expansion of functions, products and customers in the subsidiary, and subsidiary evolution (i.e. change in the roles and responsibilities of a subsidiary).

Our data, derived from 40 interviews in Japanese MNCs’ HQs and their overseas subsidiaries in Korea and China and complemented with secondary data on annual sales and manufacturing quality, helped to illuminate the short- and long-term functions of inpatriation that contribute to subsidiary outcomes.

First, the primary and explicit purpose of inpatriation involves acquiring individual-level knowledge. We see it as a short-term function of inpatriation, which is usually pronounced already in the initial mission or goal of the international assignment. Our empirical evidence shows that apart from so called task knowledge, which inpatriates are sent to acquire in the first place, they also acquire language/cultural knowledge and relational knowledge. As many of our informants mentioned, language/cultural knowledge is providing the important basis for understanding context and thus properly interpreting and transferring the gained knowledge. Relational knowledge refers to the knowledge of ‘who does what’ and ’who knows what’. For example, this is how one interviewee illustrated the point:

If I pick up the most important thing I have learned in Japan, that is ‘how to get approval for your proposal’. Who is in which department/team, who knows what, and who can decide what? Without knowing this, however brilliant your proposal is, it will never get approved. (Kim et al., 2022).

Second, after the knowledge is acquired by an individual, it needs to be converted to organizational knowledge. We see this as a long-term function of inpatriation. Given that such knowledge transfer is not automatic, we identified two important catalyst processes: building subsidiary absorptive capacity and maintaining access to information. Building subsidiary absorptive capacity means enhancing subsidiary members’ ability to access, acquire and apply external information. Inpatriates helped to enhance this capacity by disseminating what they learned at the HQ to the other subsidiary employees. Our interviews indicated that inhouse knowledge diffusion is usually aided by promoting former inpatriates to team-lead or supervision positions, where they can teach newly employed staff. Moreover, inpatriate retention in general is important, as it leads to the accumulation of former inpatriates, who then support the ongoing practice of inpatriation and in-house knowledge diffusion.

Apart from knowledge dissemination within the subsidiary, former inpatriates also engaged in nurturing the social capital they have created in the HQ, thus maintaining access to information. Most of our informants reported that they kept in touch with their former colleagues at the HQ, both formally and informally. Ongoing interactions supported the feeling of ‘being part of one team’ with their HQ colleagues, and improved the speed and quality of communication with HQ.

As to the outcomes, our data indicate that the aforementioned short-term and long-term functions of inpatriation resulted in subsidiary capability building and subsidiary evolution. Capability building consisted in the development of resources and skills in terms of function, product, and markets. The evolution of the subsidiaries in our sample occurred through an increased collaboration with HQ staff, expansion of functions to support sister subsidiaries, and improved status in the company network. These effects were more pronounced to the extent that the MNCs used inpatriation successively over time.

All in all, as our findings provide rich evidence of how inpatriates contribute to knowledge transfer and subsidiary development, we clearly recommend MNCs to view inpatriation from a more strategic perspective. Naturally, the strategic use of inpatriation implies careful planning of selection, training, and retention of inpatriates, as well as implementation of systems that support knowledge transfer. Moreover, a subsidiary could design a long- term plan of successive inpatriation to build a foundation and channel for continued knowledge flows with HQ. So if you have been contemplating a more systematic use of inpatriation in your company, this evidence offers additional impetus of doing so!

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