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."