U.S firms bemoan rising cost of overseas postings

Aug 24 2006 by Nic Paton Print This Article

Nearly half of U.S companies believe that sending employees on international assignments is becoming more expensive and harder to manage, new research has suggested.

The Global Assignment Policies and Practices Survey by audit and tax firm KPMG LLP has found that 38 per cent of employers worry that their assignment programmes are more generous than they need to be.

And 48 per cent believed international assignees took "too much time and effort to administer", up 12 per cent on a similar survey last year.

"The survey also identified some interesting contradictions," said Achim Mossmann, national director of global mobility advisory services in KPMG's International Executive Services practice.

"While companies say they want to cut costs, for example, only 14 per cent say that a primary goal of their expat programmes is to control programme costs and ensure an appropriate return on investment," he added.

"Indeed, despite many companies saying they want to improve the costs and efficiencies related to their international assignment programmes, some are actually moving in the opposite direction," Mossmann warned.

"Our experience with clients tells us that companies who manage the entire process well – beginning with assignment-specific goal setting, identifying appropriate candidates and ending with securing appropriate jobs for expats upon repatriation –have a better return on investment," he continued.

As an example, Mossmann cited the finding that only 23 per cent of companies surveyed had established assignment-specific career goals for every assignee, down from 31 per cent in last year's survey.

And 38 per cent of respondents said the main reason assignees left the organisation upon repatriation was that "no appropriate job was available in the home country", up nine percentage points from 2005.

Overall, just 38 per cent of those surveyed "strongly agreed or somewhat agreed" that they handle the repatriation process well, down from 49 per cent in 2005.

"Given the significant financial outlay required for an international assignment, companies should focus on setting the appropriate career management infrastructure to better manage the retention of their international assignees," advised Mossmann.

The survey also found a 54 per cent jump in the number of companies using short-term assignments, compared with last year.

Ben Garfunkel, national partner in charge of KPMG's International Executive Services practice, said: "Many companies still believe in the myth that short-term assignments are more cost-effective and easier to administer because they have fewer immigration and tax requirements.

"But short-term assignments actually require much more advanced planning and oversight to ensure tax and immigration compliance, which can make them less cost efficient in the long run," he added.

"Educating company administrators about the tax and immigration requirements for these types of assignments may better equip them to capture the intended cost benefits more consistently," he continued.

The 2006 survey also uncovered some interesting cultural and industry differences in assignment policies.

As the practical definition of "family" continued to shift, companies in Asia-Pacific and Europe had expanded their international assignment benefits coverage to "other dependents" on a much larger scale than companies based in the U.S.

For example, the survey found that 79 per cent of Asia-Pacific-based respondents and 73 per cent of European-based respondents offered international assignment benefits to unmarried domestic partners of the opposite gender, compared with only 37 per cent of U.S-based companies.

From an industry perspective, 76 per cent of financial services companies offered this benefit, compared with 27 per cent of energy companies.

In instances where the cost of living was lower in the host country than in the home country, 46 per cent of European companies surveyed implemented a negative cost-of-living allowance (COLA), compared with just nine per cent and eight per cent of Asian Pacific and U.S. companies, respectively.

When an assignee was not charged the difference in COLA, the positive cash flow became a benefit retained by the employee and increased the overall cost to the company.

The survey also revealed that "localisation" continued to be a current focus area for respondents.

Localisation occurs when an assignee becomes a permanent employee in the host country, instead of working on a limited term assignment.

The number of companies handling localisation on a case-by-case basis increased to 31 per cent, up from 29 per cent last year.

"The steady trend toward administering localisations without a formal policy may encourage ad-hoc implementation, which has significant cost implications," said Mossmann.

"In the long run, the absence of a localisation framework may end up costing the company even more when assignments are extended indefinitely," he concluded.