It is now so common for multi­national corporations to move employees across the globe that relocation companies estimate up to 2% of multinational corporate employees are working abroad at any one time.

As companies have continued their global expansion over the past few years, it was widely believed this percentage would only grow. The advent of the economic downturn, though, has seen a different picture emerge. Retrenchment and cost-cutting are rife. This is changing the nature of the expatriate business assignment altogether and prompting companies to seek better value from the investments they make in overseas assignments.

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According to global real estate consultancy GMAC’s annual Global Relocation Services study, international assignment and mobility trends have changed in the past 12 months. Its latest report surveys some 180 international companies about the practices they are pursuing as they move expatriates around the world.

Companies surveyed in December 2007 were positive, with 68% predicting their expatriate population would increase in the coming year.

But that survey was conducted after a number of years of heavy global expansion as signs of the financial crisis were only just beginning to appear. The following year’s survey showed that among those who had expected to expand the number of their expatriate workers in 2008, only 37% of them actually did. Predictions for 2009 show a dramatic difference, with only 33% of companies expecting expatriate populations to increase.

 

Costly burden

The whole process of moving employees is costly. If it is not handled properly, it can often result in failure to reap any benefit from the relocation. Companies are starting to rein in expatriate population expansion and there is greater ­scrutiny over candidate selection.

Policy and benefit offerings on international assignments are being cut back and firms are beginning to evaluate local hiring as more of an option, says Scott Sullivan, GMAC’s senior vice-president of global relocation services, who notes a simultaneous increase in the availability of talent in local markets.

Schools and housing are the most expensive items to consider. Against the backdrop of the economic downturn this may see companies view single people as more cost-effective candidate choices for relocating abroad. “The days of the expatriate package windfall are largely over,” says Mr Sullivan.

 

Family friendly

With family concerns accounting for the majority of overseas assignment refusals and assignment failures, companies either have to select candidates without dependants or find a family-friendly way of relocating staff with families to get a good return on their investment.

According to GMAC data, filling in skills gaps used to be the main reason companies sent employees abroad. Of late, though, one of the more pressing reasons for relocating staff has been to boost their management expertise. Building management expertise has risen up the ratings in the past five years’ surveys. “International assignments are much more of a strategic tool to develop and circulate talent within a company,” says Mr Sullivan. “It’s a trend that is certainly continuing.”

Barclays Commercial’s Chris Van Niekirk, who services multinational clients seeking to expand overseas, concurs that within the true multinational firm it is quite common for senior managers to spend a period running the company’s Asian or Latin American operations, for example, before reaching board level. On a more general basis, though, his clients are thinking very carefully about relocating staff as they put international expansion plans onhold.

“But the people follow the business and once a decision has been made to move into a market, the human resources question depends on the local talent pool in that location,” says Mr Niekirk, adding that some emerging markets have limited access to talent meaning companies are often forced to relocate.

When a company has decided that relocation is the best option, ensuring the assignment is not a failure is critical. Tim Carnegie, a location consultant at global real estate consultancy Cushman & Wakefield, says the biggest inhibitor on the internal draw of people with the right skills and experience willing to take an international posting is the lack of international schools.

Finding international schools in emerging-economy locations becomes an issue outside larger capital cities and limits the labour pool to those without children of schooling age or who are prepared to send children to boarding school. “It has been a surprising showstopper on some occasions and it causes some issues because the cost of supporting the international worker goes up dramatically with schooling,” says Mr Carnegie.

 

Housing stock

Although schools can often be the biggest challenge, the availability

of housing stock for foreign workers is also difficult for companies relocating large numbers of staff. “Ford bought Daewoo in Romania and had a particular issue finding accommodation,” says Mr Carnegie. StPetersburg in Russia also has a shortage of housing for its growing number of international auto­motive-sector employees.

In Angola, oil giant BP is leasing more than 300 houses for its foreign workers -- which represented one of the largest costs for the company when entering the market -- because of such a limited stock. When UK company Cadbury opened a chewing gum factory in Nogrod in Russia, it built a Portakabin hotel for its foreign workers because of the shortage of suitable accommodation. This shows how drastic the situation can sometimes be.

 

Market dynamics

The decision to buy or rent depends on the dynamics of the local market. Mr Carnegie says that while it is often better to buy, many companies find themselves not wanting to tie up capital in overseas assets. This means that although it is hugely expensive, many firms usually opt to lease because of the flexibility it affords them.

Regardless of whether a location can offer adequate schooling or housing, what companies need to perfect above all if they are to continue to reap the benefits of international assignments is the right candidate-selection process.

Much of the glamour has been taken out of overseas assignments as a result of the economic downturn. This has forced companies to focus more closely on where the benefits of relocating staff lie. This may mean better value in future for companies – as well as the end of the expatriate luxury lifestyle.

 

IN FOCUS

 

COMMON PITFALLS OF RELOCATION

PricewaterhouseCoopers (PwC) relocation consultant Ben Wilkins warns that:

-- Companies need to be sure that they are clear about the assignment objectives and criteria for candidate selection, otherwise the assignment has a high chance of failing. Typical reasons for overseas assignments may include skills transfer, personal development, the organisation’s corporate talent and leadership development programme or it may be an individual’s own request to go overseas.

-- Companies underestimate vastly how much it costs to send people overseas. In general, a fully comprehensive expatriate package is about three or four times the cost of a local employee. This kind of investment means a company should know they are sending the right person and have clear objectives for that employee.

-- PwC research has shown that companies overestimate the significance of the financial package for employees. While the individual is concerned with remuneration, they are often more interested in benefits such as potential for development, leadership opportunities and professional challenges. This mismatch means employers who focus solely on the financial package are putting their investment in the wrong place.

-- Repatriation is something many companies fail to deal with and thereby fail to get a real return on their investment. A returning individual with newly acquired and improved skills that is assigned straight back to the role they were in when they left is more than likely to leave the company. Some companies have a high turnover rate in this situation and in effect pay to make their employees more valuable for other companies to reap the benefits of their international assignment.

-- It is vital to make the individual aware of their tax and social security liabilities on their salaries and bonuses. Companies should offer advice as a matter of course on the tax impact of moving country. This should range from giving out literature to retaining a tax advisor to complete returns for the employee in the home country and the country of assignment. In some cases, if a company fails in this regard, there is a risk it could be liable for the individual’s unpaid tax liabilities because overseas tax authorities will always find it easier to chase a company rather than an individual.

 

 

IN FOCUS

HOW TO CHOOSE A SCHOOL ABROAD

Harriet Plyer of the International Good Schools Guide gives some advice on what to do before choosing a school abroad:

-- Check whether the school is accredited or inspected by a recognised agency or organisation to be sure it is run properly with appropriate testing and course work and good fiscal governance. It is important to note that graduating from an unaccredited high school may make it difficult or even impossible to enter an accredited university if a student is heading for the US.

-- Parents should examine exam reports for themselves and compare them with results for similar schools in other countries/locations. Go directly to the exam board’s websites for results (for example, American SATs and AP at www.collegeboard.com or for UK results, The Good Schools Guide at www.goodschools guide.co.uk).

-- Parents should find out where students usually go on to further their education. If there is a broad range of universities, the school is helping students find places that suit them.

-- Parents should check how easy is it to meet other expatriates or locals by seeing if there are school events for parents and children. If there are many local children in the school, parents should see whether they have been together long enough to have formed cliques.

-- Parents should visit the school, preferably in session, and try to involve children as much as possible in any decisions.