Cutting the cost of relocation

HR is under increasing pressure to get a grip on its
expatriate relocation costs. Scott Beagrie discovers some expert tips on how to
reign in the budget

If you are employed by a multinational company, then you’re probably
familiar with the workplace sans frontieres, where expatriate management is an
essential part of your job. You will also be highly aware of the immense costs
involved. An international assignment will typically cost two to three times
more than an employee’s annual salary.

With nearly every economy in the world running at a snail’s pace, the
pressure is on HR departments to control relocation costs. In a recent survey
by relocation services provider Cendant Mobility, 63 per cent of its clients
said cost containment or reduction was their biggest relocation challenge for
2003, while a further 16 per cent cited more accurate budgeting.

Assuming that HR has asked the right questions before sending someone off to
Kuala Lumpur or Hong Kong to carry out an assignment in the first place, here
are some key areas of consideration when looking to manage international
relocation costs.

Policy review

Conducting a thorough review of current policy is as good a place to start
as any. If communicated as a new strategy designed to meet the demands of a
tougher economic climate, a well-thought out policy revision will feel less
like a cost-controlling exercise.

"The key is getting the policy right. If you do that, the rest of it
should scroll through," says Ian Mann, managing director of HR consultancy
ECA International. "And that means you need to have a very good idea of
all the components that go into your policy."

Sue Bury, client relationship manager at staff relocation specialists
Countrywide Mobility, also highlights the importance of tight budgetary
control. "We find problems with companies not fitting one and with no
parameters an employee can go off and spend loads of money," she says.

Begin by benchmarking your policy against competitors, as it will help you
identify how much fat there is in your own. "By benchmarking across the
industry, you can make sure you have the latest trends and ensure you are
providing 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 the
benchmarking exercise, home in on the detail. Policy is a vast and highly
complex area, and is impossible to cover comprehensively here, but the
following are some suggestions made by the relocation experts interviewed for
this article.

A popular route for companies to take, especially within Europe, is the
reduction or even elimination of foreign-service premiums. There has also been
a shift away from specific reimbursement to ex-pat employees of cost of living
differentials in favour of a lump sum payment. In Europe, many companies
recognise 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. The
cost of living differentials are sometimes so small that it doesn’t justify the
cost of the administration.

One alternative to offering a full menu of services and meeting all the
costs of an ex-pat employee is to donate a lump sum of cash to the worker, and
let them invest it in what is key to them. The downside of this ownership is
that they may choose to spend it on something other than the essential services
it was intended for.

If there are ex gratia payments that must be made, such as assignment
incentives or an aggravation allowance, make sure they are paid in one hit to
minimise administration costs. As Bob Sperl, senior international consultant at
HR consultancy Watson Wyatt, points out: "If you only ask the individual
to 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 question
whether a worker is ever likely to repatriate. An individual might start a
three or five-year assignment which is then continually extended; meanwhile,
the company is still paying into their UK pension plan, even though the
employee has no intention of returning.

"If the individual isn’t realistically coming back, let’s find that out
upfront and get out of the whole expatriate package from the outset, or at
least only build it in for a 12-month transition period," says Sperl.

Recruitment

While policy reviews and managing suppliers undoubtedly offer potential for
reducing costs, the greatest scope for savings is to move the process upstream
and focus on recruitment. Instead of trying to identify candidates for
assignment once a need arises, organisations should assess staff mobility at
the point of recruitment.

Scott Sullivan, corporate services manager UK & Ireland for Crown
Relocations, suggests that one reason relocation is so costly, is because the
first (and often, only) people who come to mind for such positions, are
inherently expensive senior executives.

This stems from the fact that most companies have an insufficient talent
pool 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 such
positions.

Savvy, career-minded staff, for instance, take a much more favourable view
of international and global working, and consider it an essential part of their
career development. These individuals could then be assigned on an
international transfer basis on one-way tickets with streamlined benefits,
where they quickly merge into their new surrounds with a benefits package
commensurate with their local peers.

"HR can optimise the return on investment of international assignments
by dedicating their attention to career planning, retention and identifying a
pool of internationally mobile talent," says Sullivan. "Not only will
this approach raise HR’s profile with the organisation, particularly at
boardroom level, but it will enable HR to have a positive impact on the
business’ bottom line."

Accommodation and the benefits of short-term assignments

Local rental is another high-cost area, with 69 per cent of UK companies
providing free housing – specifying a ceiling rent – to expatriates, according
to an annual survey carried out by ECA International. Only 10 per cent offer no
help. But although it often represents the biggest proportion of costs in an
overseas assignment package, accommodation is also one of the hardest areas in
which to reduce costs, and any cuts must be handled sensitively.

One of the major arguments against cost-cutting for UK companies stems from
the state of the domestic property market. Soaring property prices in recent
years mean that both partners often need to work to meet mortgage payments, and
overseas assignments usually lead to the loss of one spouse’s salary. So
anything less than free accommodation isn’t going to appeal. While the UK home
can be rented out to ease the situation, this isn’t always a popular
resolution, and the process of attempting to do so can also generate further
costs.

One couple Personnel Today spoke to were forced to spend £7,000 on home
improvements just to stand a chance of renting their property in a highly
competitive rental area.

Nonetheless, significant savings can be realised by not housing the assignee
in expatriate compounds – where rental charges are often at a premium – and
using 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 housing
that their peer group would have in the assignment location."

The past three years has seen a steep rise in the number of short-term
assignments which, as well as often being a more popular option for the
employee, don’t carry the inherent relocation costs of longer-term postings,
and can therefore be used as a method of controlling costs. According to the
Global Relocation Trends Survey 2002, 50 per cent of companies surveyed said
they are looking for alternatives to the long-term assignment, and the chief
reason cited was cost effectiveness.

Short-term assignments typically range from three to 12 months, with staff
less likely to want to uproot their families for such a length of time and less
justification for doing so. This removes a suite of relocation costs, and
offers scope for reduced local rental costs in temporary or serviced
accommodation. 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 to
be 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 immigration
lawyers to freight companies and relocation agents. It’s vital to agree set
costs with them from the outset to provide better financial certainty.

"Having a clear definition of what those costs are is obviously
critical," 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 differentials
among suppliers.

Holland at EMS has seen in the region of 1,000 suppliers in the past three
years, and reports variations of between 40 and 60 per cent in freight
handlers’ rates alone. So it is hardly surprising that David Edwards,
international HR adviser at Pair – a company that deals with expatriate issues
on behalf of industrial group, Atlas Copco – routinely demands that expatriate
staff get three quotes for any service.

Most HR departments have long been keen outsourcers, but you might not have
considered it for relocation. Specialist companies offer integrated services
removing the administration burden and will take on the practicalities of the
process. And because of their buying power, outsourcing organisations can often
negotiate better rates from suppliers.

"The greatest cost savings for HR professionals managing corporate
mobility projects can be achieved by outsourcing the administration of projects
and redirecting their valuable expertise towards human capital planning and
strategy 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 the
early identification of individuals who want to relocate overseas, and the
creation of a structure and system to identify and keep in touch with these
employees to ensure a successful mobility strategy."

Comments are closed.