[HROA Essentials] Outsourcing: How workforce mobility is improving the bottom line
As the European Union continues to expand, and business booms in the Far East, companies of all shapes and sizes are establishing a global presence in their respective markets. Living in a world where products, technology, and information are bought, sold, and exchanged across 39 time zones, it is only logical that businesses look to workforce mobility to handle global challenges.
Whether organizations are seeking entry into a new geographic market or bolstering its existing overseas needs, employees who are willing and capable of working outside their home environment play an important role. Thirty years ago, it was difficult to imagine that workforce mobility in Europe would become so widespread, but with the creation of the EUâ€"and the creation of a common currency and goalsâ€"member states have been successful in the relocation game despite language barriers and compliance variation.
The number of relocation providers serving the European market is significant (see sidebar), making workforce mobility less complicated than in the past. The administrative burden has been handed off to vendors, leaving organizations the ability to focus on core areas of business. According to Kathleen Morris, VP of Global Solutions Consulting Group, Prudential Relocation, "Companies don't necessarily have the core competences in-house so they prefer to focus on core business and keeping up to date on all tools necessary to run a program. It is time consuming and a lot of clients are not interested in running those services."
For the past eleven years, GMAC Global Relocation Services has conducted a survey on worldwide employee relocation trends. The most recent results, released this past spring, show some key issues: assignment completion, younger expatriates, and family concerns. The 2005 study involved 125 organizations of all sizes, which manage more than 155,000 expatriate employees. And 46 percent of respondents have corporate headquarters outside the U.S.
According to the GMAC survey, the majority of expatriates are younger workers and the proportion increasingly female. About 54 percent of workers are between the ages of 20 and 39. The low likelihood of family constraints among a younger workforce makes this group ideal candidates for relocation. Also, many younger workers already have the language skills needed to work in international markets and have a personal desire to experience other cultures.
However, new hires make up only 12 percent of the expatriate population, indicating that employers want experienced workers in their international locations. But employers do see the value in preparing the expatriate workforce. Training was cited as an important component of the relocation process. Fifty-seven percent of respondents offered preparation for some assignments, while 24 percent offered it for all assignments.
The implementation of relocation plans can contribute to success or failure for an organization. Global companies need global policies; it makes the management of expatriates easier and can also save money in the long run.
According to a 2005 Pricoa Financial survey entitled, "Growing and Protecting Today's Global Workforceâ€"European Mobility Trends," 44 percent of respondents have a single-assignment policy around the world, and 39 percent use a mix of policies. Pricoa surveyed 131 companies within 12 European countries.
Forty-six percent of organizations surveyed by GMAC believed that outsourcing improved policy application. GMAC also reported that 65 percent of respondents were engaged in efforts to reduce costs associated with international assignments, citing policy as a channel for achieving this goal.
The costs associated with workforce mobility can be steep; each company handles its expenses differently. However, there are basic charges that are hard to avoid. Besides providing compensationâ€"this may include extra perksâ€"companies also handle costs associated with moving, housing, storage, education, and transportation.
"Primarily the cost of international assignment is usually three to four times salary. Companies are looking for ways to still encourage mobility and make sure they can manage those programs, transfer talent to where it needs to be, and manage costs, " stated Morris. She added that slashing salaries was neither effective nor plausible; instead housing and tax costs are more easily managed.
Twenty-six percent of respondents cited housing as an area in which cost was increasing, 13 percent cited taxes (see Fig. 1).
Outsourcing is another way employers are looking to save money. HRO not only eases the administrative burden but is also integral in cutting costs. Morris describes one way outsourcing can help reduce spending.
"In terms of overall coordination, we strive to manage the timeline for the move so we are limiting some additional costs that might incur," she said. "If we are shipping household goods so that they arrive and can be immediately delivered into the permanent housing as opposed to excess storage, we manage the employee move so we can limit the amount of temporary housing. It's really a balancing act to make sure we have that timeline well coordinated and if we do we will save the client money."
Although domestic relocation is outsourced on a larger scale, international expatriate relocation is growing. Companies are either offering blended services, which allow them to partner with providers, or they are handing control completely over to vendors. According to Stephen Fairn, managing director for Pricoa Relocation EMEA Region, in Europe complications arise around outsourcing due to inherent inertia in the market and issues around regulations such as revised Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
In choosing an outsourcing provider, companies are looking for experience with working on a global scale. Experienced providers bring consistency and standardization to the relocation process, whether dealing with a large or small client base. Twenty-one percent of organizations surveyed by Pricoa have more than 50,000 employees and addressing their needs can be a challenge. Many large-scale businesses need help with tracking and managing program infrastructure, and larger companies are looking to outsource their entire workforce mobility programs, according to Morris.
"Large organizations also have assignees that they don't know. One of the key challenges is keeping track of how many assignees they have, where they are, and if they are operating in the countries under a compliance basis, from a legal immigration standpoint," adds Fairn.
Short-term expatriate assignments not only improve workforce mobility but can also help reduce costs according to Fairn. In the GMAC study, 62 percent of respondents sought alternatives to long-term assignments, and 39 percent had implemented short-term assignment programs, with most of those citing cost as the reason behind this approach.
Besides financial savings, another big push for shorter work assignments has been employee preference. Many workers are no longer interested in spending long periods of time away from family and friends; typically short-term assignments are less than a year in length.
Other alternatives include commuter assignments and localization. Employees are spending half of their work week outside their home country and flying back for the other half. Localization involves moving long-term assignees into permanent positions outside the home country to establish a local base within the host country. As more and more organizations incorporate localization plans, 39 percent of GMAC's respondents said they experienced an increased reliance on the localized workforce.
Organizations also report cost savings. Morris pointed out, "Most companies have employees stay on the home salary pay range, but with localization they are on the host country payroll. Because they are trying to encourage movement even when it is local, they might still pay part of education reimbursement or part of housing or other allowances for a period of time so the employee and family can get acclimated into that environment."
Although strides made in workforce mobility have been significant, there are underlying challenges such as expatriate turnover that companies continue to address. According to the GMAC study, 21 percent of expatriates left employers while on international assignments and another 23 percent left within one year of returning from an international assignment. Because they have experience in the international market, expatriates are attractive candidates for employment and leave to seek out better opportunities. Others were dissatisfied with their international arrangements.
Employers must think of ways to address these issues in order to keep attrition rates high. Especially, as some employees become more selective with their choice of international assignment. Some employees are not as eager to leave their families or disrupt their home life. Sixty-seven percent of GMAC respondents cited family concerns as the main reason for assignment failure. Addressing the needs of employees is critical.
"There is a balance between companies looking to balance cost and fulfill employee needs. If they aren't fulfilled the assignment won't be successful and will end up wasting money. Companies are trying to balance cost vs. ‘how can I make sure my employees get everything they need to be successful in a new environment.' Employees are looking at ways to balance family and the needs of company," adds Morris.
Where the Needs are
But enough with the why's and how's of relocation, what about the where's? For European organizations, Germany, France, and the U.K. are the most popular destinations for international assignment. Fairn stated that location is primarily driven by business needs, and these three countries represent the biggest markets. He added that Russia is now being considered for expatriate assignments along with Dubai for the financial sector. GMAC reported that China, India, and Singapore are emerging markets, again proving that business continues to shift further East.
International assignments not only benefit employers but employees as well. Companies can expand their global presence, while workers gain an incredible amount of experience in international markets. To develop a successful workforce mobility program, companies must consider the following: employee needs, practical ways to cut costs, reliance on more alternative assignments, and the needs of emerging areas such as Asia and Eastern Europe not only as destinations but also as sources for a bigger candidate pool.
Source: HRO Europe
By Denise Doig, Managing Editor of HRO Today, FAO Today, and HRO Europe magazines. She can be reached at ddoig@outsourcingtoday.com.