When are international managers a cost effective solution? An exploratory study in a sample of Spanish MNCs

A common claim in the literature of expatriation is the one referring to the high costs of expatriation. In this paper, on the basis of transaction cost literature, we show how limited this approach is. In particular, we 'consider a set of costs that, although ignored in traditional expatriation literature, must be accounted for when an MNC is deciding on whether to recruit expatriates or local managers in its subsidiaries. These costs include selection, training and performance evaluation costs. We also formulate a series of hypotheses around the situations in which the total costs of recruiting expatriates are lower than those generated by local managers. We them test these hypotheses in a sample of 124 SpaniSh MNCs. The results of the study allow us to explain the apparent contradiction that, although businesses have a need to reduce costs, they continue to employ apparently costly practices such as expatriation.