Cutting the cost of relocation

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first_img Previous Article Next Article Comments are closed. HR is under increasing pressure to get a grip on itsexpatriate relocation costs. Scott Beagrie discovers some expert tips on how toreign in the budgetIf you are employed by a multinational company, then you’re probablyfamiliar with the workplace sans frontieres, where expatriate management is anessential part of your job. You will also be highly aware of the immense costsinvolved. An international assignment will typically cost two to three timesmore than an employee’s annual salary. With nearly every economy in the world running at a snail’s pace, thepressure is on HR departments to control relocation costs. In a recent surveyby relocation services provider Cendant Mobility, 63 per cent of its clientssaid cost containment or reduction was their biggest relocation challenge for2003, while a further 16 per cent cited more accurate budgeting. Assuming that HR has asked the right questions before sending someone off toKuala Lumpur or Hong Kong to carry out an assignment in the first place, hereare some key areas of consideration when looking to manage internationalrelocation costs. Policy review Conducting a thorough review of current policy is as good a place to startas any. If communicated as a new strategy designed to meet the demands of atougher economic climate, a well-thought out policy revision will feel lesslike a cost-controlling exercise. “The key is getting the policy right. If you do that, the rest of itshould scroll through,” says Ian Mann, managing director of HR consultancyECA International. “And that means you need to have a very good idea ofall the components that go into your policy.” Sue Bury, client relationship manager at staff relocation specialistsCountrywide Mobility, also highlights the importance of tight budgetarycontrol. “We find problems with companies not fitting one and with noparameters an employee can go off and spend loads of money,” she says. Begin by benchmarking your policy against competitors, as it will help youidentify how much fat there is in your own. “By benchmarking across theindustry, you can make sure you have the latest trends and ensure you areproviding the most efficient policy for the assignee,” says Peter Holland,managing director of recently set up Expatriate Management Services (EMS). Once you’ve carried out the review and analysed the results of thebenchmarking exercise, home in on the detail. Policy is a vast and highlycomplex area, and is impossible to cover comprehensively here, but thefollowing are some suggestions made by the relocation experts interviewed forthis article. A popular route for companies to take, especially within Europe, is thereduction or even elimination of foreign-service premiums. There has also beena shift away from specific reimbursement to ex-pat employees of cost of livingdifferentials in favour of a lump sum payment. In Europe, many companiesrecognise that staff don’t have to buy the same goods or services as at home,and instead adapt their shopping to what is available in local markets. Thecost of living differentials are sometimes so small that it doesn’t justify thecost of the administration. One alternative to offering a full menu of services and meeting all thecosts of an ex-pat employee is to donate a lump sum of cash to the worker, andlet them invest it in what is key to them. The downside of this ownership isthat they may choose to spend it on something other than the essential servicesit was intended for. If there are ex gratia payments that must be made, such as assignmentincentives or an aggravation allowance, make sure they are paid in one hit tominimise administration costs. As Bob Sperl, senior international consultant atHR consultancy Watson Wyatt, points out: “If you only ask the individualto relocate or move once, then it is reasonable to only pay them once.” A more radical and hard-headed business approach would be to seriously questionwhether a worker is ever likely to repatriate. An individual might start athree or five-year assignment which is then continually extended; meanwhile,the company is still paying into their UK pension plan, even though theemployee has no intention of returning. “If the individual isn’t realistically coming back, let’s find that outupfront and get out of the whole expatriate package from the outset, or atleast only build it in for a 12-month transition period,” says Sperl. Recruitment While policy reviews and managing suppliers undoubtedly offer potential forreducing costs, the greatest scope for savings is to move the process upstreamand focus on recruitment. Instead of trying to identify candidates forassignment once a need arises, organisations should assess staff mobility atthe point of recruitment. Scott Sullivan, corporate services manager UK & Ireland for CrownRelocations, suggests that one reason relocation is so costly, is because thefirst (and often, only) people who come to mind for such positions, areinherently expensive senior executives. This stems from the fact that most companies have an insufficient talentpool to draw from, but if you get the recruitment and retention strategy right,it is possible to build a bank of pro-mobile people suitable for suchpositions. Savvy, career-minded staff, for instance, take a much more favourable viewof international and global working, and consider it an essential part of theircareer development. These individuals could then be assigned on aninternational transfer basis on one-way tickets with streamlined benefits,where they quickly merge into their new surrounds with a benefits packagecommensurate with their local peers. “HR can optimise the return on investment of international assignmentsby dedicating their attention to career planning, retention and identifying apool of internationally mobile talent,” says Sullivan. “Not only willthis approach raise HR’s profile with the organisation, particularly atboardroom level, but it will enable HR to have a positive impact on thebusiness’ bottom line.” Accommodation and the benefits of short-term assignments Local rental is another high-cost area, with 69 per cent of UK companiesproviding free housing – specifying a ceiling rent – to expatriates, accordingto an annual survey carried out by ECA International. Only 10 per cent offer nohelp. But although it often represents the biggest proportion of costs in anoverseas assignment package, accommodation is also one of the hardest areas inwhich to reduce costs, and any cuts must be handled sensitively. One of the major arguments against cost-cutting for UK companies stems fromthe state of the domestic property market. Soaring property prices in recentyears mean that both partners often need to work to meet mortgage payments, andoverseas assignments usually lead to the loss of one spouse’s salary. Soanything less than free accommodation isn’t going to appeal. While the UK homecan be rented out to ease the situation, this isn’t always a popularresolution, and the process of attempting to do so can also generate furthercosts. One couple Personnel Today spoke to were forced to spend £7,000 on homeimprovements just to stand a chance of renting their property in a highlycompetitive rental area. Nonetheless, significant savings can be realised by not housing the assigneein expatriate compounds – where rental charges are often at a premium – andusing peer-group housing instead. “Stop looking to put people in highly-priced expatriate ghettos,”says Sperl. “If the assignment warrants it, try to put them in housingthat their peer group would have in the assignment location.” The past three years has seen a steep rise in the number of short-termassignments which, as well as often being a more popular option for theemployee, don’t carry the inherent relocation costs of longer-term postings,and can therefore be used as a method of controlling costs. According to theGlobal Relocation Trends Survey 2002, 50 per cent of companies surveyed saidthey are looking for alternatives to the long-term assignment, and the chiefreason cited was cost effectiveness. Short-term assignments typically range from three to 12 months, with staffless likely to want to uproot their families for such a length of time and lessjustification for doing so. This removes a suite of relocation costs, andoffers scope for reduced local rental costs in temporary or servicedaccommodation. Determine how long staff need to be away as it may be the case,for instance, that the costly senior person you want for the job only needs tobe there for the start-up, or to oversee a particular phase of a project. Setting budgets managing suppliers and outsourcing The relocation process relies on many suppliers, from tax and immigrationlawyers to freight companies and relocation agents. It’s vital to agree setcosts with them from the outset to provide better financial certainty. “Having a clear definition of what those costs are is obviouslycritical,” says Mann at ECA. “If you don’t know how much it costs,how can you save money?” It’s also best to get several quotes, as there can be huge differentialsamong suppliers. Holland at EMS has seen in the region of 1,000 suppliers in the past threeyears, and reports variations of between 40 and 60 per cent in freighthandlers’ rates alone. So it is hardly surprising that David Edwards,international HR adviser at Pair – a company that deals with expatriate issueson behalf of industrial group, Atlas Copco – routinely demands that expatriatestaff get three quotes for any service. Most HR departments have long been keen outsourcers, but you might not haveconsidered it for relocation. Specialist companies offer integrated servicesremoving the administration burden and will take on the practicalities of theprocess. And because of their buying power, outsourcing organisations can oftennegotiate better rates from suppliers. “The greatest cost savings for HR professionals managing corporatemobility projects can be achieved by outsourcing the administration of projectsand redirecting their valuable expertise towards human capital planning andstrategy implementation,” says Crown Relocation’s Sullivan. “As the market for outsourcing mobility management continues to grow,perhaps the most important advice for HR professionals is to work towards theearly identification of individuals who want to relocate overseas, and thecreation of a structure and system to identify and keep in touch with theseemployees to ensure a successful mobility strategy.” Cutting the cost of relocationOn 18 Nov 2003 in Personnel Today Related posts:No related photos.last_img

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