Companies keep sending employees overseas and losing them shortly after their return. This brain drain carries a high price tag and it's often avoidable.
International assignments carry a hefty price tag, costing two to five times an employee's base salary at home every year of the assignment. As businesses continue to go global, they are sending greater numbers of employees abroad, and senior management is asking finance professionals to justify the huge expenditures and to pinpoint the value delivered. So far, expatriate programs fall short of expectations, and ROI appears anemic.
A total of 28 percent of expatriates leave their companies within two years of returning to home base, according to the Global Relocation Trends 2000 Survey Report, an annual survey conducted by GMAC Global Relocation Services/Windham International, the National Foreign Trade Council and the SHRM Global Forum. (For more on the Survey Report's results, see Expat Survey Stats.) The expatriate departure rate is probably even higher than the Survey Report indicates, because 45 percent of survey respondents didn't know what happened to their expatriates, according to Ilene Dolins, vice president of GMAC Global Relocation Services/Windham International, a Liberty Corner, N.J., provider of support services for relocating employees and their families. "Our experience shows that the [turnover] number typically runs 40 percent to 50 percent within two to three years of returning," she says.
While the number of expatriates could lessen in an economic slowdown, it isn't likely to change dramatically. Respondents to the 2000 Survey Report said that 43 percent of their revenue is generated outside of their home country. International know-how, whether the issue is technology transfer or joint ventures or strategic alliances, will continue to be a logistical and competitive necessity.
J. Stewart Black, managing director of the Center for Global Assignments, a consulting and research firm in San Diego, states, "Suppose you send someone to Beijing for four years at a half million dollars a year. That's a $2 million investment. Everybody wants to maximize returns on investments, and increasingly a company's assets are not plants and equipment. They are people. If a company wants better financial performance, it has to get a better return on those assets. That's what CFOs are charged with championing and stewarding. This is a strategic issue that shouldn't be delegated just to the human resources department. The deployment of people is expensive enough and important enough that it should be seen as a strategic activity, and all senior executives finance, operations, human resources, etc. need to think about it."
Mixing and Matching
U.S. companies send employees abroad for a variety of reasons. The most obvious is a specific business need for example, to set up a new manufacturing facility. Companies also put managers in international positions to groom them for possible leadership roles. And there is a contingent of employees who actively seek out internal job opportunities in foreign countries because they want to gain international experience.
Carolyn Gould is a partner at PricewaterhouseCoopers in Florham Park, N.J., who handles international assignments administration for the company's employees as well as for various external clients. She states, "There isn't a core group of people who are all going abroad for the same reasons. For example, maybe you are an American who wants to do a tour in Europe it's good for your career but there is no business reason to have an American over there. The company may say that it's OK to go over there for two years and the company will keep you in the U.S. benefits plan. But while you are there, you are going to be under a local compensation package. That's different from a typical expatriate package, where the company needs to have a particular person over there because of technical skills and keeps the person on a home-country-based package. The point is: There are a lot of issues to deal with when you have varying types of assignments, and that makes it more difficult to put together expatriate plans."
According to Gould, "When employees go on these assignments, in many cases, they become very autonomous and they gain a lot of international experience. There aren't a lot of companies that can bring those individuals back to the home country and put them in a role that will take advantage of both that autonomy and that international experience. When you talk to many of the assignees, that's why they end up leaving."
The Four-Point Cycle
Employees, whether they volunteer or are asked to go abroad, generally have similar expectations for their American homecoming. While they may not expect to be treated like conquering heroes, they do expect some rewards for service abroad. Too often they become victims of "out of sight, out of mind" syndrome.
Companies fail to capture their return on investment for several reasons. Black, who is also a professor of business administration at the University of Michigan and the author of "So You're Going Overseas" (Global Business Publisher, 1998), states, "There are four elements to the cycle selection, training, support and repatriation. It's a cycle that feeds on itself. Even if you do three out of four things right, doing one wrong can have a disastrous effect." Here's how to effectively address the four elements:
1. Selection. The biggest cause of repatriate turnover is the assumption that employees who succeed at home will succeed abroad. Black says, "Most companies spend virtually zero time, energy or money to look at anything other than business experience. There are all kinds of cross-cultural aspects to look at; you've got to live in a country and adjust to it. There are assessment instruments out there, based on solid research, that identify what general characteristics are essentially predictive of someone doing well in a foreign environment." Black says the assessment tools can cost between $200 and $500 per employee.
2. Training. According to Black, from 1971 to 1991, only 20 percent of Americans going abroad received predeparture training, as opposed to about 60 percent today. However, he contends, "the average number of hours given to people getting training is less than a day between four to six hours total. Compare that to Koreans or Japanese, who are getting 100-plus hours on average."
3. Support. Once they leave the United States, employees become invisible for a number of reasons. When a performance appraisal is given solely by a manager in the foreign country, an employee can fall off the radar screen of managers at home. When an expatriate chooses not to use home leave to return to the United States and reconnect with bosses and colleagues, he or she slips further into the background. Also, says Gould, "what companies have done historically and what they are now trying to change is put the assignees into a totally different computer system, disassociated from any home unit. For tax reasons and other things, the employees are put in a separate company identification system. That creates a big issue because how do you then make sure they are tied back to somebody in the home country?"
4. Repatriation. It's culture shock all over again. Maybe there is no position for the expatriate. Maybe downsizing or reorganizing has changed the landscape no familiar faces, no familiar structure. Until things get sorted out, the employee is reduced to performing low-value activities.
Never underestimate the psychological ramifications of re-entry into the United States. Black says, "International assignments are not easy, and employees expect some recognition, not all of which needs to be translated into promotions or money. However, when the recognition is lacking everyplace no promotion, no money, no appreciation of skills or knowledge or insight then employees wonder, 'Why did I spend all that time and energy?' And that's a main motivator to look elsewhere and find a company that appreciates what the employee has to offer."
In addition, says Black, "most employees about 70 percent of them feel like their international experience is totally wasted. Also, in our research, approximately 70 percent eventually take a demotion over the position they had abroad. The job may be a step up from the position they left in the United States, but it's less than what they had overseas."
Getting It Right
To evaluate and improve your international assignments program, take the following steps:
- Implement better tracking systems. The Global Relocation Trends 2000 Survey Report shows that 45 percent of respondents didn't even know how many expatriates were still their employees. Tracking turnover and all the costs of overseas assignments will gauge the success or failure of a program.
- Formalize the expatriate policy. GMAC Global Relocation Services' Dolins suggests, "Have a standard policy as the spine, but make it flexible to put things in place that are unique to particular countries. For example, in some countries you need a hardship allowance, and in some you don't. Without a policy, companies will find themselves negotiating on everything, and the negotiation drives people crazy because it takes up a huge amount of time and costs the company a lot of money."
- Consider a mentoring program. An at-home sponsor can serve as an adviser for the expatriate, keeping tabs on the assignee's activities and monitoring job opportunities that may interest the employee upon his or her return. According to Gould, a mentoring system is in place at PricewaterhouseCoopers. She says, "In our case we try to hook assignees up with people at more senior levels because there is more of a likelihood that the senior people will still be in their positions when the assignees return."
- Train the whole family both before and after departure. The top reason that international assignments fail is family concerns, yet only 32 percent of companies provide training for the entire family. Dolins explains, "Often, when executives go on international assignments, they travel a lot in the region and the families are left to fend for themselves. A family with a negative attitude and unpleasant experiences will make your employee unproductive."
Black adds, "Before people go abroad, they are not very motivated or capable of understanding the more complicated cultural issues. There needs to be in-country training on the deeper aspects of the culture. You can't do it within the first month of arrival because people are too preoccupied with the logistics of settling in. But it needs to happen before six months, because people will only suspend judgment for so long. After six months, employees form judgments right, wrong or indifferent and undoing them is really difficult."
- Make them come home? Mandating that employees use annual leave to return to the United States pits career concerns against personal desires. Some companies cover travel expenses for annual leave only if the expatriate returns home; some cover travel expenses, up to a limit, regardless of where the expatriate goes on leave. However, most companies with formal mentoring programs require that employees return home, usually once or twice a year, as part of the mentoring program.
- Provide better documentation. Managers in foreign countries who conduct performance appraisals for assignees should work with man-
- agers in the United States to ensure that the ratings and recommendations make sense, so that the expatriates can be repositioned when they return home.
In addition, Black suggests that companies conduct a two-part assessment well in advance of repatriation. Returning individuals should write down what advanced skills they have attained, how their interests have changed and where they see their careers going. Managers in the home office should also conduct assessments to see if the viewpoints merge. Black says, "Once you get a dialogue going, you start to get toward an approximate match maybe not in terms of a specific job but maybe in terms of an area."
- Make assignees accountable. Many changes can occur at home base while the assignee is away. Gould says, "We say all the time that repatriation should start before someone leaves. The reality is in today's current environment it's almost impossible for me to tell anybody what they are going to be doing in three years. We try to educate our own assignees that both the company and the assignees have a responsibility for their careers. The assignee has to make a point of always keeping in touch with somebody in the home country."
And the Winner Is ...
Finance executives can use a number of strategies to cut the costs of international assignments: send fewer people; create more short-term, as opposed to long-term, assignments; and focus on sending employees who have no family dependency issues. However, those strategies don't necessarily improve turnover rates, nor do they address the fact that expatriates who remain with the company probably underutilize their newly acquired experience.
While global strategy may be on the lips of CEOs, expatriate programs haven't caught up with the rhetoric. Whether the economy is growing or slowing, it's likely that most companies will continue to send a significant number of employees on foreign assignments. Most of the expatriates will acquire new skills, knowledge and perspective the reasons for sending them. The only question is whether the company that pays the bill for the international education will reap the long-term benefits.
Expat Survey Stats
The following statistics are taken from the Global Relocation Trends 2000 Survey Report, an annual survey conducted by GMAC Global Relocation Services/ Windham International, the National Foreign Trade Council and the SHRM Global Forum. Ninety percent of the 154 survey respondents were companies with headquarters in the United States. The survey was conducted in 2000 and reflects 1999 data.
- Fifty-eight percent of respondents expect the number of expatriates to increase in 2001; 29 percent expect no change; 13 percent expect a decrease.
- Fifty-nine percent of companies deploy one to 25 expatriates; 11 percent deploy 26 to 50; 10 percent deploy 51 to 100; 13 percent deploy 101 to 500; 4 percent deploy 501 to 1,000; 3 percent deploy over 1,000.
- Seventy-one percent of expatriates are married; 77 percent of married expatriates take their spouses on assignment; and 60 percent of expatriates with children take those children on assignment.
- The U.K., United States and China are the most active destinations; China, Brazil and Mexico are the primary emerging destinations; China, Brazil and Russia are the most challenging locations.
- The most critical relocation challenges are finding candidates (93 percent), intercultural understanding (91 percent), and career management (89 percent).
- Fifty-eight percent of assignments are up to three years in length; 42 percent are more than three years.
- Forty-three percent of companies provide no cross-cultural training for expatriates.
- Twenty-seven percent of companies provide a job-completion bonus; the most common bonus criteria are assignment completion (88 percent) and on-schedule completion (78 percent).
- Four percent of companies outsource part of their international program; 4 percent completely outsource their international program.