Just a little over a decade ago, traditional three- to five-year expatriate assignments were plum positions afforded to up-and-coming long-term employees. Generous relocation packages, compensation and perks for their family while abroad, combined with a top position when they returned home often spelled a financial boon.
Enter 2000: The very real threat of terrorism, down economies, cost-cutting measures, stricter tax and immigration rules, and exploding technologies that tie people together without leaving their offices all combined to make generous expat-assignment packages an easy target to slash.
The cost of traditional three- to five-year expat assignments is prohibitive for some firms. With increased globalization, companies are looking at local talent in emerging markets such as India, China and parts of Latin America to fill the jobs once the domain of expats. This practice not only saves money, it reduces cultural issues and incorporates local employees’ personal networks and experience. According to a survey by PriceWaterhouse Coppers, by 2016, 70 percent of companies plan to hire local talent overseas while only 19 percent plan to use expatriates to fill those jobs.
Importantly, though, some locations still lack the indigenous management experience and expertise that companies need. So the long-term flow of talent around the world is inescapable. In this instance, many companies seek less costly alternatives to traditional assignments, such as short-term assignments, permanent transfers, localization, or extended business travel. As economies rebound, relocation is becoming more attractive as evidenced by the 2012 Atlas Van Lines’ annual survey that found only 12 percent of respondents expect to reduce relocation activity versus the Atlas 2009 survey that reported 52 percent of respondents planned to reduce relocation.
However, today’s expat assignment structures are as varied as the jobs themselves.
Traditional long-term expatriate assignments
Although not as common as in the past, the typical three- to five-year expatriate assignment is still the traditional form of placement overseas. The employee and family relocate to a country, and in addition to salary and cost-of-living adjustments, the compensation package can include housing, school allowances, career support for the spouse or partner, shipment of goods, storage, tax assistance, pet relocation, relocation services, visa and immigration services and cross-cultural training. Such extensive support increases the chance of a successful assignment, but at a significant cost.
Three-month to one-year postings are attractive since often the family stays in the home country, saving the company many thousands of dollars. The spouse or partner can keep their job, the children can remain in their schools, and costs are restricted primarily to employee housing and travel to and from the host country. The potential downside is that this might not be long enough for the expat to complete the work required.
With localization, the expatriate is transitioned from an expatriate package to local terms of employment. From the company’s standpoint, this can reduce the expatriate population and attendant costs and alleviate inequity between expats and local employees. Localization usually occurs after a typical 3-5 year assignment, because the company needs the employee to stay on or because the employee wishes to remain in the host country Most common is the straight localization, where all expatriate benefits are eliminated as of the localization date. In other cases, benefits are phased out or a lump sum is offered. Localization is more attractive when the employee is moving to a location with a higher compensation and standard of living.
An employee is simply transferred to another country and the move is handled the same as a domestic transfer. This is different from localization in that the employee immediately receives host country salary and benefits without an expat package for any duration. Permanent transfers can be less costly, but they have a higher risk of assignment failure, often because cost savings is paramount and other considerations haven’t been adequately addressed.
Many employees like the challenge of living abroad, and seek out serial assignments in several countries. Often, global nomads grew up in households that moved every few years, and they thrive on their learned cross-cultural skills. Others possess a wanderlust and yearn for the change and adventure the life of a global nomad affords. This practice has become far less common, given the costs to the company and more stringent immigration rules and enforcement.
Extended business travelers
Companies are showing their creativity and flexibility in this category, although there are significant immigration and payroll risks. Typically, extended business travelers are employees who work abroad for more than 30 days but less than 180 days per year. For some, it might mean that employees regularly commute – often weekly – from their home base to an assignment overseas. This has been a common business practice in Europe for decades. Or, an employee works from the home country with an overseas’ staff, communicating primarily through virtual meetings and phone calls, which cuts down on the number of commuting trips overseas. Careful record-keeping is essential.
There are several alternatives to traditional international assignments, and many offer potential cost savings. But it’s crucial for the company not to lose track of the goals of the assignment itself and the needs of the employee and family. An incorrectly structured or failed assignment can cost the company far more in penalties, attrition and lost business opportunities than any potential relocation cost savings.