International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting Overseas Assignments Require Complex Plans By Gerald Zukauckas and Elizabeth Reichelt According to a recent survey, 66 percent of U.S.-based companies intend to send more people to work overseas this year. Indeed, many companies, particularly those in a start-up mode, rely on expatriates - international assignees sent from the home office in the U.S. - to work in their foreign operations. Unfortunately, companies may be overlooking the complexities involved in relocating staff to other countries - risking high costs and missed business opportunities. Sending employees to work overseas is expensive. Costs range from two to five times the employee's annual base salary, before taxes, depending on the host country. Obviously, locations such as Tokyo, compared to Atlanta, are exorbitant. However, relocating employees to developing countries can also be surprisingly expensive, due to the limited availability of amenities such as Western-style housing and schools. U.S. companies traditionally subsidize or pay for relocation costs, housing, education, recreation, transportation, security, household help, etc., to ensure their expatriates enjoy a lifestyle on par, at a minimum, with home. Some companies even offer stipends to working spouses who put their careers on hold during the assignment. The dollars add up quickly indeed. In addition to the tangible costs of the assignment, companies must also consider the hidden costs of lost business opportunities when an assignment is less than successful. For example, a U.S. manager sent to open his company's sales office in China was unaware of the proper protocol for dealing with local authorities. As a result, the competitor's office opened for business six months sooner. The company's estimated losses dwarfed the entire cost of that expatriate assignment. Failures of this magnitude are not frequent. Statistics show that, in fact, most assignments fail when families are unable to adjust to the new country and request an early return home. Whatever the cause, there are a multitude of challenges that start-up international ventures simply cannot afford to ignore. The cornerstone of managing international assignments is a comprehensive and well-communicated written policy. As companies expand overseas, they typically make the mistake of negotiating the terms of each assignment on an individual basis. One major insurance company, which grew from five to 120 expatriates within five years, found that it essentially had created 120 different policies (an administrative and costly nightmare). A good international assignment policy is competitive in the marketplace, outlines the roles and responsibilities of the company and the expatriate, avoids inequities among the expatriate population, promotes administrative consistency and, importantly, controls costs. Once the policy has been created, it needs to be communicated, not just to the human resource department and the expatriates but to all those involved in the process, particularly the unit that will bear the costs. Do companies with just a handful of expatriates need to worry about the administrative aspects of an international assignment program? Absolutely! Highly specialized expertise is required regardless of the size of the population. Experienced domestic human resources professionals quickly realize that administering international assignments is different from traditional domestic human resources. Many find themselves overwhelmed by the complexities, unsure of what questions to ask or where to get the answers on routine tasks, ranging from payroll to benefits. For example, how many companies know where to turn for information about medical insurance for U.S. employees living in France? Companies usually choose to either educate and train existing staff on these issues, hire a specialist from another company, seek outside counsel through one or more consulting firms or, increasingly, outsource the entire international human resources function. A masterfully drafted policy executed by a dedicated team of international assignment specialists does not ensure success! If the wrong employee is sent overseas, a failed assignment is almost guaranteed. "Wrong" may mean the employee or family is ill-suited to such a significant lifestyle change. Or wrong may mean the employee has the technical skills needed to do the job, but few of the necessary, but often overlooked people skills, such as cultural sensitivity. The company should conduct a careful assessment of the employee's skills, abilities and motivations for taking the assignment prior to offering him/her the job. Once the employee has been selected, the process of securing work permits and visas for the family should begin immediately, as approval may take anywhere from 10 days to several months, depending on the host country. Under no circumstances should an employee or any family member leave the U.S. without having these papers in order. Any attempt to circumvent the system may be met with harsh results that range from deportation of the family to a shutdown of the company's operations. For example, England requires a special entry clearance for the accompanying family members of an expatriate. Clearance must be granted by the British Consulate in the U.S. If the family members do not obtain this clearance prior to arriving in England, they may be turned away at the port of entry. While this does not affect the employee's work status, it is a very unpleasant way to start the assignment and will more than likely affect the employee's ability to focus on the job at hand. As regulations vary from country to country, it is wise to consult with an outbound immigration attorney prior to beginning the process. In addition to advising on how to obtain a work permit, an immigration attorney will also be able to advise on which work permit is appropriate for the employee. Having the wrong kind of permit could be just as dangerous as not having one at all. For example, in Korea it is possible to be barred for life from re-entering the country if an expatriate has the wrong kind of permit. Other problems to anticipate include securing visas for couples who are not married, or for families who plan to bring non-dependents with them. A major issue for many working couples is the reality most countries will not allow the spouse to work legally. Once the visas are in order, companies need to adhere to future deadlines such as work paper expiration dates. For example, if a request for extension is needed, it should be made well before expiration to allow time for processing. It is also wise to caution family members that illegal actions while in the country, such as participating in political demonstrations or possession of drugs, could have an adverse impact on the employee's work status. What, when, where and how to pay the employee poses another set of challenges. Most companies pay their expatriates according to U.S. standards to ensure that the employee remains within the company salary structure when he or she returns. Typically, there are three components to an expatriate compensation package: base salary, performance bonuses (for a job well-done or successful assignment completion), and overseas differentials and premiums. The latter includes costs driven by the assignment, not by performance. They include payments intended to cover items such as moving expenses, childrens' education, home leave, transportation, tax reimbursement and the increased cost of living in the host country. Most companies use a third party to determine the allowance amounts and to help the company benchmark these payments to competitive practices while minimizing costs. In terms of where and how to pay expatriates, many large U.S. banks offer specialized services for expatriates, which can be complicated, involving deposits in accounts in both the host and home country in multiple currencies. It is virtually impossible to separate compensation from taxation issues. The tax liability of the employee and the company depends on the tax laws of both the host and home country, how many days the employee has worked in each jurisdiction, and where and how the employee is paid. It is standard policy for companies to include a tax reimbursement provision in their policy to provide for the fact that most other countries have a higher tax rate, especially on non-citizens, than the U.S. For example, suppose the host country has an income and social tax rate of 70 percent. The company pays the difference between the employees' tax rate in the U.S., say 36 percent, and 70 percent, or 34 percent of the tax bill in the foreign location. In order to accurately plan and effectively monitor tax payments, it is vital that the company seek professional counsel with up-to-date information on local compliance requirements and tax agreements between countries. Cultural training is key, particularly for those companies new to the international arena where employees may be inexperienced in working with foreign nationals. Depending on the depth of training needed, the class may last from one to three days, with the employee being educated concerning proper business and social conduct in the host country. Receiving such training prior to going overseas will enable the employee to acclimate more quickly upon arrival in the host location. Companies also frequently invest in training for the entire family, thereby increasing the family's ability to adapt to the new environment. Ideally, training is offered prior to the family's departure and provides insights into the history, economy and culture of the country, as well as tips on daily life. The most effective sessions are tailored to the family's unique needs (such as finding special education classes for a child) and include guidance on how to deal with culture shock. Orientation programs offered during pre-assignment site visits and again in a more hands-on format after post-arrival, focus on day-to-day living. They may include tours of schools, shopping and recreational areas and practical information, such as how to register for school or apply for a driver's license. Both training and orientation are essential aspects of a comprehensive program. While not inexpensive, their costs are minor relative to the rest of the assignment and the importance of adapting to the new country. Finding a company to move the family's possessions overseas requires more than a search through the Yellow Pages. Experienced expatriate program administrators know to call professionals: international movers with extensive knowledge of customs regulations and procedures, insurance and international routing, as the shipment may travel by freighter, train and truck. The mover should be able to provide assignees with a list of suggestions on what to bring and what not to bring. Unlike domestic moves, costs are typically estimated based on the size, rather than the weight, of the shipment. Costs are high, with the average move hovering around $20,000, so companies are wise to set strict limits on what they will pay for (and strongly discourage expatriates from taking the grand piano along!). Repatriation is generally considered one of the most difficult phases of an assignment because expatriates can be ill-prepared for reverse culture shock after several years of living abroad. Repatriation counseling sessions for the family can help ease the homeward adjustment for the family. A critical issue for the employee may be finding a job within the company where his/her international experience can be an asset. During the course of an assignment, the home office may have downsized or reorganized, or its marketplace may have changed. Although few companies are willing to extend job guarantees to repatriates, upfront conversations with the outbound employee about future opportunities and constant communication during the assignment regarding career planning can mitigate the "out-of-sight, out-of-mind" syndrome that makes repatriation difficult. This also makes good business sense, as unhappy repatriates are often quick to leave the company for the competitor, taking their international expertise with them. These are just a few of the most significant considerations a company must ponder as it sends employees overseas. Given that these issues are so complex, and that failure can be so expensive, companies may question utilizing expatriates. Why not rely entirely on local nationals to manage overseas expansion? Weighing the pros and cons involves looking at control and accountability issues: Will the expatriate be more likely to understand and have a stake in the company's business objectives? It also means evaluating the local staffs, knowledge and experience: in the early stages of international growth, the homegrown employee is more likely to have a unique understanding of the product. Finally, as international ventures often pose high risks for companies, the homegrown employee is a known entity who has demonstrated his/her ability in a domestic position. When this article was first published, Gerald Zukauckas was director of international executive services and Elizabeth Reichelt was an international human resources consultant in the Atlanta office of Arthur Andersen International Executive Services. Advertise on this site Put your company on this site!