Many expatriates have a miserable time overseas. Nearly half leave their employers within a year of completing foreign postings. To stop this happening, many companies are turning to relocation specialists. Charles Simonds reports on this fast-growing service industry.

Moving employees to overseas offices is an expensive business. According to the National Foreign Trade Council (NFTC), a US organisation set up to promote cross-border investment, it costs between $300,000 and $1m to move a manager earning around $100,000 to a foreign country. This includes the cost of finding a house for them to live in, moving their furniture and personal effects, educating their children, sorting out their tax affairs and paying them additional living, hardship and transport expenses.

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None of the multinationals interviewed by fDI was willing to reveal how much they spend each year on relocation. But firms such as Chevron and Motorola, both of which have more than 1500 employees working overseas on four or five-year contracts – are reckoned to spend at least $100m.

Despite the huge sums involved, most companies seem to make a mess of relocation. According to the Center of Global Assignments (a Utah-based think-tank), between 10% and 20% of all US managers posted overseas return home prematurely because they do not enjoy working abroad.

The NFTC estimates that an astonishing 49% of all US expatriates leave their companies within two years of returning home from overseas assignments. The reason for this is hard to pin down but one possible explanation is that many employees start to feel abandoned and out of the loop when working abroad, and fail to “re-connect” on their return.

A modern problem

Historically, senior managers have remained blissfully unaware of these problems. One survey by Cigna International Expatriate Benefits in the late 1990s found that 53% of employers thought they were doing a “good to very good job” on expatriate relocation.

But in recent years – as FDI levels have risen and the number of employees working overseas has increased – companies have begun to take relocation more seriously. Many have decided to outsource the whole process to relocation specialists.

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Relocation rush

“The relocation industry is really starting to take off,” says Peter Holland, a former RAF pilot, now operations manager of GMAC Global Relocation Services, one of the leading relocation companies in Europe, with 70 employees in London alone.

“Companies are concerned about the high cost of moving employees around the globe and they have begun to understand that relocation companies can execute the process better and more cheaply,” he adds.

The biggest providers of relocation services in Europe have been the major accounting firms, which have secured a lot of business from companies already using them as accountants or strategy consultants.

PricewaterhouseCoopers, for example, has around 2500 full-time relocation consultants, according to Stephanie Phizackerley, a partner at the firm’s human resource consulting division. “We have more than 2000 multinational clients,” she says. “Most of them are from the US and UK but our client list in continental Europe is growing.”

Most of their work involves advising companies on how much it would cost to send an employee to a particular location, sorting out work permits and handling tax returns. Many companies also use them to set up offshore financial bank accounts and investment trusts for their employees.

Competition hots up

But as the market has grown, the big five relocation companies have faced growing competition from independent firms, such as Cendant, GMAC Global Relocation Services, Prudential Relocations and Relocation Resources International.

All these companies started out as US domestic relocation specialists but now have offices in Europe and Asia, and can provide expatriate relocation services for multinationals on a global basis. They offer a broader range of services than the accounting firms but, typically, do not administer tax returns or offshore pension schemes.

“We offer complete relocation packages from finding a school for the employees’ children to providing them with kidnap insurance,” says Peter Holland. “We have hot lines in each country so that our clients can ring if something goes wrong.”

There are also dozens of smaller firms that specialise in helping executives find houses and schools in specific cities or countries, such as Martine Ruiz International (France), Pacific Properties (Hong Kong and China) and Express Relocation (Mexico).

Despite their small size, these firms pick up a surprising amount of business. Kingsdale, for example, based in south London, handles relocation work for BOC, Oracle and Canon Europe, according to one of its directors, Daniel Natoli.

He says: “It is hard to compete with the bigger firms but we win business because we can provide a much more personal service and can work faster. We recently found an executive an apartment in central London within four days of receiving the call.”

Until the early 1990s, house searches were typically carried out by “50-year-old women wearing sensible shoes and pearls” – in the words of a British relocation consultant. But these days, most small relocation firms are staffed by former estate agents.

The cost of hiring a relocation consultant varies according to the country and service required. In the UK, house and school searches cost between Ł300 and Ł500 a day per employee, according to industry sources. Consultants in emerging markets such as India, China or Egypt charge between Ł150 and Ł350.

The right school

Mr Natoli estimates that it usually takes three or four days to find the right house and school, that is, Ł2000 at the most. This might sound a lot considering estate agents do it for free, but businesspeople with overseas experience say it is money well spent, particularly in large cities such as Bombay or Shanghai.

“Unless you have lived in a city before, do not try to deal with real estate brokers on your own,” advises one Cairo-based expatriate. “You will end up in the wrong part of town paying five or even 10 times the going rate.”

Cultural training (which costs roughly the same as house hunting) could also appear an unnecessary luxury. But, according to a survey carried out by the West Virginia University Center for Chinese business, 35% of western businesspeople working in China say they wish they had received more of it.

The training normally consists of a day with a retired businessperson who has worked in the country before discussing issues such as “how are the British or Americans viewed by the locals” and “what tricks do local companies try to pull”. Sometimes behavioural psychologists are used to provide advice on “how to get on with the locals”.

Independents’ day

Most relocation companies bring in freelance specialists to provide cultural training for their clients. But a growing number are sending clients to independent firms, such as Culture Shock or Farnham Castle.

Mr Holland says cultural training can help companies know in advance if an employee is suited to a particular country. “We had one client who was due to move to the Middle East,” he recalls. “He came in with his wife for a day’s training. It soon became clear that the wife was going to find it very hard to live in the region, so the company decided not to send them.”

All-in-one relocation packages – where the company helps the employee to move to the country and then provides administrative support during the assignment (paying bills, filing tax returns and so on) – are obviously more expensive and usually charged on a month-by-month basis.

Ms Phizackerley estimates that this kind of service can cost between Ł1000 and Ł10,000 a year per employee (excluding fixed costs such as hiring freight charges), according to the range and quality of services provided.

Mr Holland says companies outsourcing a lot of business to individual relocation companies should be able to obtain hefty discounts.

Some firms such as HSBC (which has more than 1000 employees working in around 40 countries), prefer to use different companies for different relocation services, doing some of it in-house.

Who to use

“We use Deloitte & Touche to advise our employees on tax planning, file their returns and make sure they are complying with local regulations,” says an official in the bank’s human resources department.

“House and school searches are done by independent companies chosen by us on a country-by-country basis. But we work out the rental allowance in advance and areas of potential interest. Cultural training is done by Culture Shock.”

Ms Phizackerley warns that this approach might not be suitable for smaller companies with less experience of sending employees overseas. “I would always try to have a single relocation provider,” she says. “It helps to have a single person responsible for the job, so that things do not fall through the cracks.”

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