Sending an employee to work overseas has always carried a big price tag. With tax equalization, housing allowance, cost-of- living adjustment, and other benefits, the typical expatriate compensation package is three to five times base salary at home. But that multiplier pales next to another, less visible cost: roughly 40 percent of foreign assignees switch employers within two years of returning to the United States. “Companies are struggling with the fact that they give people international experience and some other company ends up capitalizing on their investment,” says Jeanne Marie Metz, account manager in Ernst & Young LLP’s Global Employee Solutions Centre.
For Palo Alto, California-based computer giant Sun Microsystems Inc., the issue exploded in the early 1990s when human resource officials realized that turnover among returned expats had reached 62 percent. “We realize it’s pretty silly to spend all this money developing employees and then not find ways to recoup the investment,” says John Hall, Sun’s vice president of international human resources.
Until recently, few companies bothered to track turnover among their returning expats. Foreign assignees, usually U.S. nationals, cycled from one country to the next, filling jobs for which qualified people were not available locally. Success was measured in completed assignments, not in what happened to the assignees afterward. Some expats spent their whole careers abroad; those who returned home before retirement often ended up in positions unrelated to their international experience.
Today, expats are playing a more strategic role. Overseas assignments may be used to integrate new acquisitions into the corporate culture, represent the company’s interests in a foreign joint venture, or develop a corps of internationally experienced managers. “We use expatriates for a number of reasons,” says Ted French, president of financial services and CFO of Case Corp., a Racine, Wisconsin, maker of farming and construction equipment with $6 billion in revenues. “Of those reasons, executive development is number one in importance. We are a global business and we need people to have a global perspective.”
Despite the high costs, expat counts are inching up at many U.S. companies. Sixty eight percent of companies responding to a recent survey by The Conference Board, a business research organization in New York, reported an increase in expatriate employees during the preceding five years; 56 percent predicted further increases–and the trend held even at companies in which total employment is expected to shrink or stay the same.
The profile of the typical expat is changing, too. According to Windham International, a global relations firm in New York, instead of just American men, many assignees are now non- U.S. nationals. Twelve percent are women, a figure that’s expected to rise to 20 percent by the year 2000. And assignments often involve transfers into the United States or between foreign locations, not just from the United States out.
At Case, international experience is a definite advantage. About half the company’s top 100 finance executives have had such experience. But despite the importance of the program, French won’t tolerate an ounce of financial fat in it. “We’re constantly working on ways to drive the costs down,” he says.
Attention to the expat problem is showing results. Extensive interviews with financial officers, human resource executives, consultants, and former expats reveal that companies get the most out of their investment in expats if their corporate programs include seven simple features:
1. Careful Selection
By last fiscal year, Sun Microsystems had reduced its expat turnover from 62 percent to 29 percent. This year, it’s on track to reach 13 percent. One reason for the improvement is more and better planning. “More attention is being given up front to identifying the right assignments and the right people for them,” John Hall explains. “We have quite a rigid process for getting an expat position approved and another for choosing the person to fill it. We want our people to think long and hard, not just about the experience and skills set, but about the whole situation and what type of people will succeed in that environment.”
2. Cheaper Alternatives
Part of the planning process is weeding out expat assignments for which the business goals can be met with a short-term assignment, a series of international trips, or a local national. With 210 expatriates out of 140,000 employees, FedEx, the Memphis-based express delivery company, looks to fill as many positions as possible with local nationals. “An expatriate is almost without exception more expensive than a local national,” says Alan Graf, executive vice president and CFO of parent company FDX Corp. “For both cost and management reasons, we want our expatriates to develop local nationals and eliminate expat assignments wherever possible.”
But in a company in which international revenues are expected to exceed domestic revenues within 10 years, expatriate assignments are also an important leadership development tool. Successful expats “come back with a broader knowledge of how FedEx works, and can make broader contributions to the company,” Graf says. Case uses assignments that last less than six months whenever possible. “If you’re not in the foreign country for 180 days, you are not treated as an expat for tax purposes, so we do a lot of moving people in and out for periods of time to get the tax advantages,” explains French.
3. Multitiered Programs
Sun Microsystems, which has about 115 foreign assignees, used to provide everyone with the same generous benefits package, including payment in U.S. dollars and full tax equalization. Then, in 1992, the company began to limit that package– which costs 2.5 to 5.5 times base salary, depending on location–to assignments deemed strategic. For nonstrategic positions, simply referred to as international assignments, employees get assistance with relocation and repatriation, but are paid as local hires, costing Sun only 1.5 to 1.75 times base salary. Of Sun’s current expats, only 30 are strategic, while 50 are on international assignments and 35 are on short- term assignments. “We’ve shown that you can move people around the world in ways that benefit not only them and their careers, but the company as well, without providing the richest expat benefits,” explains Hall.
In the past, some companies tried to make international assignments more attractive by piling on perks. Today, however, many employers achieve the same results by educating employees about the long-term value to their careers of an overseas stint. “The way we look at it, the assignment itself is an incentive,” says Omar Hakmi, Sun Microsystems’s manager of international assignments. “They know when they come back they have something special on their résumé.”
4. Soft Landings
Most companies pay for language and cross- cultural training to ease the transition of employee and family into the foreign culture. Typically, such training costs from $4,500 to $10,000 per family. On a million- dollar-plus assignment, “that’s a pretty inexpensive insurance policy against failure,” says Michael McCallum, national director of business development for Berlitz International Inc., in Princeton, New Jersey. According to a survey by the Washington. D.C.-based Employee Relocation Council, about 10 percent of foreign assignments are cut short or don’t achieve the stated business objectives. The top reason given for these failures is the inability of an employee’s spouse or family to adjust to the new culture.
This information has led some companies to expand family benefits. Motorola Inc., for example, offers a spousal benefit package of up to $7,500, which may be used by the so- called trailing spouse to “maintain or improve job-related skills.” Items eligible for reimbursement under this program include professional association memberships, tuition, and books.
5. Follow-on Career Development
For many expats, out of sight is truly out of mind–and they return to a company that doesn’t quite know what to do with them. Even if a company guarantees a job at the level they left (a practice that’s becoming less common), expats often remain dissatisfied. Assignees typically feel they’ve grown professionally during their stint overseas, and often expect a promotion.
A recent study of 400 international assignees conducted by Berlitz and PHH Relocation (now part of Cendant Mobility, an international- assignment services firm in Danbury, Connecticut) suggests that returned expats start looking outside their companies for employment when the company fails to provide follow-on career options related to the foreign assignment. Of those surveyed, only 27 percent felt their employers provided adequate career planning during their stint abroad. Only 54 percent felt their firm understood the new skills they had acquired. And 34 percent said those skills were not utilized in the job to which they returned.
Both FedEx and Case retain an impressive 90 percent of their expats. One key factor for FedEx is its rapid international growth, which provides plenty of related jobs for people returning from overseas, says CFO Graf. French attributes Case’s success to a strong focus on long-term career planning and development. “The challenge is always finding the right job for them to come back to,” French says. “Managers of expats have to do a lot of up-front planning. I’ve seen us and other companies lose talented people because we sent them overseas, made a big investment, but didn’t do the career development.”
Ideally, conversations about the employee’s post-assignment job should begin even before the assignment and continue throughout. Companies need to become aware of the employees’ goals and help them set realistic expectations. “When we did focus groups with returned expats, we found out that companies don’t need to spend a lot of money to protect their investment in these people,” says Berlitz’s McCallum. “Things like providing mentors and career counseling can help a lot. What they don’t want is a situation in which the company says, ‘Hey, Mary’s back. What are we going to do with her?’ And while they decide, she’s sitting in her cubicle looking for a new job.”
6. Repatriation Assistance
Less common, but growing in popularity, are formal and informal repatriation programs. Fueling this trend is the dawning realization that many expatriates find their return home personally, as well as professionally, painful. “When you’re overseas, you tend to idealize home,” says McCallum, who spent four years in Brazil doing marketing for a transportation company. “You come back and you expect things to have stood still. It’s a real shock to find out they haven’t.”
For many expats and their families, homecoming is accompanied by a dip in social status, particularly if they were in a country where domestic help is common. “When I returned from Brazil, I hadn’t shined my own shoes or washed my own car for four years,” remembers McCallum. “Suddenly, I had this house in suburban New Jersey and I was overwhelmed.”
7. Attention To Detail
At Sun Microsystems, no expat position is approved without an up-front cost estimate. “In the old days, we didn’t do that, and a lot of people didn’t realize how much it cost,” says Hakmi. At Case, French keeps a lid on costs with a multitiered system similar to Sun’s. “When we’re sending them solely for executive development, it tends to be a higher- level individual, and we look at it more as an investment,” he says. “For other people, it’s more of a cost-benefit analysis–the task that needs to be done versus what it costs us to do it.”
Case also saves money by administering many expat programs in-house, tailoring assignment lengths to take advantage of differences in host country tax law, and cutting back on the locations for which employees can collect hardship pay. Still, French warns, it’s important not to let cost considerations overshadow the underlying rationale for expatriate programs. “If you choose the individuals carefully and if you’re truly doing it to develop future leadership for your company, it is worth every penny you pay,” he says.
Patricia M. Carey is a former editor of International Business magazine
