The cost of sending managers and technical specialists on foreign deployments is leading multinational companies to rethink their expatriate placement strategies. With revenues battered by the global economic downturn, companies are redefining their goals for overseas deployments, slashing the length of assignments and rethinking who should go – and from where.
All this is happening at a time when many young managers are eagerly seeking expatriate experience as a valuable addition to their resumes, yet many desert their companies within a year of their return, creating yet another headache for employers.
This is not a problem that corporations can ignore. In a 2010 survey of 120 multinationals, companies reported that a record 58% of their revenue is now generated outside the country in which they are headquartered – compared with a historical average of 44%. Multinational corporations remain eager to seize opportunities in emerging markets such as China and India, the source of much of their growth.
The need to fill talent gaps, whether managerial or technical, remains the dominant reason for posting employees abroad. A growing reason is the perception that overseas experience is important in grooming high-potential employees for corporate leadership roles.
Still, in 2009, 46% of multinationals cut back on foreign postings, according to a survey on trends in relocation by Brookfield Global Relocation Services. In 2010, however, a similar percentage is expected to increase expatriate deployments, but often on less generous terms.
“The recession has been a catalyst in accelerating change,” says Brookfield executive vice-president Scott Sullivan.
Mr Sullivan says the survey revealed the lowest-ever level of international transfers to or from corporate headquarters – 56% of all transfers. In contrast, there was an increase in moves from one non-headquarters location to another. One in four transfers was within the same region/continent. Half of all transfers from a European country were to other European destinations.
There are several advantages to keeping assignments within the same region, says Mr Sullivan. They may be less expensive and they can mitigate cross-cultural challenges, because there is often less variation in housing, education and other standards within a given region than between regions. There is also little reason to send people from headquarters when the needed skills are available in the region or, better yet, locally.
Nevertheless, to contain costs, companies are intensifying their control of all relocation decisions and policy-making by centralising them in headquarters locations, the survey found.
In particular, there is a clear move to reduce the length of foreign assignments – a trend that began even before the global downturn. A survey by Mercer, a specialist in human-resources consulting, found that two-thirds of the 220 multinationals in its survey have developed special policies for short-term assignments.
The advantage of short-term deployments for companies is the opportunity to trim the benefit packages they have to offer expatriates. Indeed, 88% of firms said their compensation for short-term assignments is the same as if the employee were at home, compared with only 65% who pay the same for long deployments.
Shorter assignments may reduce the need for the spouse in a dual-income family to give up a job to follow the transferred employee, along with the need to move a whole family and its associated costs. Instead, the company may simply offer more frequent home leave to an expatriate worker.
'Commuter' policies are also gaining in popularity. These allow an employee to remain at his or her home base and simply travel during the week, or for a few weeks at a time, to a location abroad. Mr Sullivan says 36% of companies in its survey were developing commuter policies, mainly for destinations within a few hours of the home base.
Mercer found a 28% to 45% increase in commuter assignments in Europe, and a 30% to 35% increase in North America in 2010.
Going it alone
The 'single status' assignment – where the employee is deployed without family – is becoming more common even for longer periods, according to Mercer consultant Geoffrey Latta. In such cases, expats can be provided smaller accommodation and the cost of maintaining a spouse and family is avoided. As many as 56% of companies – especially European ones – follow this practice, according to Mercer’s 2010 survey.
The fact that spousal dissatisfaction is generally cited as the main reason for lack of success in a deployment may explain the growth of the single-status practice.
In spite of the costs, sending expatriates can still be cheaper than employing locals in some cases. Mr Latta notes that highly qualified local staff in China can be quite expensive, for example. “They are also very willing to jump ship if they are not paid enough, so you can get more stability with expats,” he says.
In addition, Mr Latta notes, companies are becoming more attuned to the need to nurture future top management with international experience.
Finding suitable candidates for expatriate work remains high on the list of challenges companies face, both surveys show – especially in countries that present the greatest assignment difficulties.
Brookfield’s survey lists China (16%), India (14%), Russia (7%) and Saudi Arabia, the US and Brazil (each 4%) as the countries seen as most challenging territories for expats. All of these countries except Brazil also yielded high levels of 'failure' of assignments. The UK is also rated as a destination where many expats failed in their assignments. Why the UK? Factors listed in the survey responses included “difficulty adjusting", "family issues" and "culture”.
A 2010 survey by the Economist Intelligence Unit (EIU) explains why choosing the right candidate to send abroad is so important. In its survey, cultural sensitivity was identified by three out of four respondents as the most important requirement for success abroad. Yet cultural conflicts were also the leading cause of problems.
Only 46% of expats welcomed the opportunity to learn a foreign language, according to the EIU report, yet willingness to do so is a key element of success abroad. “Perhaps the will to learn a foreign language is a measurable marker of the more nebulous ‘cultural sensitivity’,” suggests the report.
Other challenges facing expats include envy of their higher salaries by locals, and conflicts with headquarters that “don’t understand” the local business environment, the EIU survey reported.
Of the 418 executives that the unit surveyed, 80% believed that experience in a major emerging market would boost their careers. Yet, the report notes, “the heightened career expectations of returning expatriates present a management dilemma, particularly in a depressed economic environment”.
All three surveys highlighted the high dropout rate among expats who return from their deployments to receive no recognition of their new skills or no opportunity to use their new experience. Brookfield’s survey, in line with industry estimates, found that 38% of returning staff quit within one year of repatriation.
Retention – or in industry parlance 'talent management' – is therefore a major challenge confronting multinationals.
Meanwhile, a PricewaterhouseCoopers forecast predicts a 50% increase in international assignments by 2020. “We believe the war for talent will continue to be the major human resource issue to 2020,” the report states. “Global mobility will play a key role in solving the labour availability conundrum.”
Companies that have not already begun to manage their talent would do well to get started.