Overseeing the construction of a new factory in Brazil, chatting with the manager of a subsidiary in Germany, attending a board meeting in London, it’s all in a day’s work for the leading executive of a multinational corporation. To accomplish all these tasks though, you arguably need a certain background, not least foreign language skills and cultural sensitivity to understand local nuances and customs. How better could this baggage have been acquired than through international experience? As firms operate in an increasingly globalised environment, it seems likely that they value managers who are able to navigate such contexts – and are willing to reward them accordingly.
However, ‘international experience’ is a general term – how much time do you need to have spent, say, in Japan to master the subtleties of local business etiquette and successfully negotiate with Japanese partners? And would it have to be in one stretch or would repeated visits prove just as useful? Does studying abroad count as well? Also, how do such skills really translate into more generous paychecks or seats on corporate boards?
“In recent decades, the career paths of managers and professionals have become more international, and a shortage of truly transnational managers has been identified,” explains a team of researchers from ESCP Business School’s Paris and Berlin campuses in a paper demonstrating the importance of international business education for career success. “Such managers and professionals must possess certain knowledge, qualifications and competencies. Accordingly, business education programs have evolved to produce these new, ‘cosmopolitan’ managers.” This explains some schools’ efforts to develop specific skills, like ESCP’s innovative, award-winning serious game.
Why experience abroad is valuable – and valued
In recent research showing how different facets of a CEO’s international background shape remuneration, professor Stefan Schmid and then-PhD candidate Sebastian Baldermann found evidence that “earlier and manifold international education experiences are particularly valuable.”
To explain why international work experience matters in the first place, they used human capital theory. Its basic assumption is that an individual’s characteristics transfer into his or her ability to perform certain tasks or jobs. In short, work experience abroad enhances innovativeness, creativity, adaptability and other characteristics that help to cope with a globalised business world.
With former PhD student Frederic Altfeld, Stefan Schmid had previously shown that working abroad provides CFOs with valuable knowledge and skills that increase compensation. In another paper published with former colleague Paul Pronobis and Tobias Dauth (HHL Leipzig Graduate School of Management), he even demonstrated that“CFOs’ international education and international work experience are important factors in higher accounting quality.”
Experience, including international experience, can have different effects on different dimensions of career success.
Stefan Schmid
Indeed, multinational corporations (MNCS)depend on human capital resources to build their competitive advantage: “Firms can rely on individuals who are able to deal not only with a challenging external environment, but also the intricate cultures and expectations that prevail in many large organizations operating across borders.”
MNCs will therefore attempt to attract internationally seasoned executives, whose human capital they view “not only as valuable, but also as a rare and inimitable resource”. They also need to be retained or recruited with adequate salaries. Even more so in the context of the escalating “war for talent” which according to some other colleagues’ research calls for specific management practices. In addition, top managers with valuable prior experience may have a stronger influence on the decisions made in MNCs, including those regarding their own compensation, so they are likely to bargain attractive packages for themselves.
Can you have too much of a good thing?
Based on Stefan Schmid’s extensive research on international experience, there are several dimensions to consider for career success:
- Duration obviously matters, as shown by Stefan Schmid and Sebastian Baldermann in their research about CEO compensation. They cite former Pfizer CEO Henry McKinnell as saying that “to get the benefits, you need to stay long enough to make some mistakes and correct those mistakes.”
However, based on the study of CFOs’ compensation, staying abroad for too long has an adverse effect due to losses in social network ties.
What about executives’ ability to reach companies’ upper echelons? In another scientific article published with PhD graduate Dennis Wurster, Stefan Schmid had previously showed that stays abroad have beneficial, but also adverse effects on managers’ ascent to the top: “Once a certain threshold of international work experience is exceeded, being away from home impedes managers’ long-term career advancement.”
- Schmid and Baldermann also theorised that the timing of a stay abroad – earlier or later in the career – matters. Their empirical analyses showed that earlier international work experiences are associated with higher compensation.
- What they term the ‘breadth’ of international work experience, or the number of different stays abroad, is likewise relevant in that it broadens the stock of knowledge and competencies.
Their study showed that the more numerous a CEO’s international work experiences are, the higher his/her compensation.
- Furthermore, the researchers argued that cultural distances between the home and host countries of the CEOs’ matters too. It becomes apparent from their analysis that going to countries that are culturally more distant pays off more in terms of compensation.
It’s not that simple, however, and a delicate balance is required to reap the benefits: “We previously showed that being in countries with high geographic and cultural distance to the home country significantly decelerates managers’ career advancement, measured by the time to the management board appointment,” Stefan Schmid asserts.
- Last but not least, Schmid and Baldermann showed that maturity, a trait gained both through age and career length, enhances the value of the international experience and translates into higher salaries. “Maturity allows CEOs to better access and utilize the human capital resource that was built throughout stays abroad. For instance, if a CEO improved his or her skills in dealing with different cultures in foreign countries, he or she would become more seasoned and experienced in applying these skills with increasing maturity,” they explain.
“Career success can mean many things, such as high compensation, fast ascent to the top, long tenure on the board, satisfaction etc. Hence experience, including international experience, can have different effects on different dimensions of career success,” Stefan Schmid adds.
“This does not change the fact that some degree of international experience is beneficial, if not necessary, for a successful international career.” You just have to get the different dimensions of international experience right – including an international business education – and become a truly ‘cosmopolitan’ manager!
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