As an American transplant to Asia, Cathy Loose knows first-hand what the issues are when companies post “strategic talent” such as CFOs outside their country.
“Look at the assignment as a great opportunity for development and exposure,” advises the Director of Benefits at Towers Watson, an employee benefits and talent management company. “Make sure you keep in contact with the regional office or headquarters, so you don’t lose visibility.”
Loose spoke to CFO Innovation’s Cesar Bacani about strategic talent mobility, including the new trend of Asian companies sending finance and other executives abroad. Excerpts:
Towers Watson recently did a survey of some 100 companies across the globe, 43 of them in Asia Pacific. Are you finding that companies are replacing expatriates with homegrown talent these days, particularly in Asia?
Since the financial crisis, there’s definitely more interest and effort by companies in terms of accelerating or at least making localization a formal process. In the past, companies tended to have a localization policy, but they really never implemented it. They said they could afford [the expat pay].
But now localization is definitely much more prevalent, even for the top positions.
What do we mean here by localisation?
Localisation really means transferring someone from an expat assignment into a local arrangement, including what we call local-plus. This means converting [the expat compensation arrangement] into a local package, but possibly with some additional subsidies and allowances like housing, educational allowances for children.
The end result is that the package is more aligned with local packages?
The salary structure will be based on local structure. The person will be converted into the local benefits package, including pension, retirement and health care coverage.
Usually there will be no more tax equalization, back-to-home-country visits and so on. But it can be difficult to convert immediately into the local arrangement. In some cases, if you look at localized packages, they are still relatively higher than possibly a local package, but at least they follows the local package in terms of pay structure.
Are you seeing many expats accepting local terms or do you see them leaving for home instead?
If you’re looking at expats coming from US and Europe, most realize that there’s no more job opportunity in the home country, and so their only choice is to accept a localized position in the host country.
We’re seeing within the last three to four years more acceptance, more willingness [by expats to localize], recognizing the economic conditions in their home country.
Are there instances where US and European expats come here already on localized terms?
Absolutely. They are cross-border hires where they’re coming in terms of immediately localized or local-plus arrangement, not on an expat arrangement. In certain markets, it’s much easier to localize, for example in Hong Kong, Singapore and Japan, where the pay scale and the benefits are comparable to international standards.
It is obviously more difficult in emerging markets like China or Vietnam, where the local structure is not as comparable. Companies have to make a lot more exceptions [in compensation] for these emerging markets.
Can’t these emerging markets source from other emerging markets like the Philippines?
Yes. Also from India, which is one of the biggest export sources. Even expats coming from Australia, that’s very common.
So if you send someone from India assigned to Vietnam, the pay package would be lower than if you send someone in from Europe?
Correct. But even then, they would not be on a complete local package. There would be some elements of allowances that would be added on top of the local salary. It’s more like a local-plus arrangement.
A company looking at controlling talent mobility costs should look at localization and local-plus packages?
There’s no question cost containment is one of the drivers. But another part that we also have seen is the fact that the profile of the assignees is no longer just executives. We see a younger generation of people from the West and Asia that are willing to be mobile. Because of that, they are also willing to accept a less traditional expat package for career development purposes.
Some of them would be starting out, with a couple of years of experience, and they are willing to explore and look at opportunities overseas as part of their career development. These up-and-coming young talent don’t expect a full traditional expat arrangement.
But are companies willing to entrust a 28-year-old CFO with financial management in a new market?
Oh, no, you wouldn’t bring the person is as the CFO. You would bring the person more as a middle manager or entry-level manager.
There are two types of talent. One you can call the critical/strategic talent. Those positions would be someone with very significant experience as CFO, and they would come in as a traditional expat, with all the perquisites and tax equalization benefits.
Then you have a completely different group of talent, what we call the emerging young developing talent. Those would not occupy the top critical positions. They would be going there more for development purposes. Those would be the positions that would be structured as the local plus, localized package.
So you would have a critical strategic talent with traditional expat package, and you may also have a younger talent on local-plus package. The idea is that the younger person will be trained up and eventually take over from the expensive expat?
You want the critical talent to go out and build the business, put in place the operations, the process, and then transition out in terms of transferring that knowledge to the young generation, the younger talent.
When companies think about this, they should think holistically. The assignment is also about developing new talent, essentially creating this new talent pool so that it can help you build up the pipeline.
What happens to the international assignee after he or she has returned home? Is that person likely to then go on to greater things within the company?
That was the assumption in the past. I think now it’s less clear because we do see that sometimes expats with international assignment going back to home country find it difficult to reintegrate. They’ve been out so long they’ve lost the connection and the visibility within the home country.
You would assume, in a well-integrated workforce planning strategy, the person with the international experience should come back and be able to progress, be promoted. Whether that actually happens, that’s difficult to say at this point.
Organisations haven’t been able to track this carefully to make sure that that’s the workforce movement.
This is where we talk about measuring and tracking the ROI. Part of that metric is to look at the overall career progression of people coming back from international assignment. Given that the company has put in that much investment in the individual, do you really get that much in return on that investment?
So what’s the answer? Are companies really getting a good return on international assignments?
Forty percent of all companies regardless of the region have an average turnover rate of 12% of expats after the second year coming back from an assignment. This is more prevalent among European companies – 63% indicate that 12% or more of expats leave after the second year of repatriation.
Only 28% of Asian companies say that there is at least more than 5% turnover rate among expats repatriated after the second year of repatriation.
So Asian companies are getting better ROI than the Western companies. What may be some of the other key metrics?
We talk about career progression or promotion, achievement in terms of individual contribution to the local business. There’s a number of metrics that could be looked into.
Is there a metric that directly correlate how much was spent on the assignee and how much he or she then brought back to the business?
That’s what we talk about in terms of doing a cost-analysis, looking at the amount that you invest on an individual on an annual basis versus the contributions brought in to the local business.
This would be an HR and finance issue, wouldn’t it?
That makes sense. If finance and HR team up to look at the financial implications, this will make a compelling message. Without statistics in terms of showing the cost and ROI, I think it makes it difficult to measure how effective the overall process is.
Your survey actually found differences among Asian, European and US companies in terms of assignment failure.
When you talk about family issues and challenges, US companies and European companies consistently list that as a key challenge. A lot of that also has to do with distance and geography, and also dual career, dual income couples.
These are much more prevalent as compared to Asian companies, although more than 50% of Asian firms also list family issues as a reason for assignment failure. It may be not as significant as Europe and US, but significant enough to become one of the key barriers.
I think the difference here could be combination of various things. We’ve seen dual career couples in Europe and US. Most companies recognise that when you have two incomes, by accepting the assignment you end up losing the second income, not to mention the career opportunities of the traveling spouse. That does not make it attractive in terms of the assignment.
For Asian companies, education seems to be the drawback. In Japan, children have to be in a Japanese educational system [abroad], otherwise it would be difficult for them to leave and then be able to come back to the traditional educational system. A lot of Japanese expats thus decide not to bring the family along.
According to the Towers Watson survey, only 14% of Asian companies provide support for the family as a means of minimising assignment failure. Why so low?
I think it’s because of the traditional practice in Asia that the focus is just on the assignee. Family often comes as a second thought. This [support for family] is recognised more by US and European companies.
But it tends to be very much just basic support. Among all organisations on a global basis, it’s not as strong as it could be.
Because of cost reasons?
I think to some extent, but I think it is more to do with the focus on the assignee. Once the family gets [to the new country], once they settle down, the company does not really get involved anymore. It’s up to the assignee’s spouse to acclimate and adapt to the local environment.
Sometimes, particularly in certain markets and certain geographies, it’s very difficult for the spouse without a career to integrate into the local culture. There could be some innovative approaches to solve these family issues.
What advice can you give to the potential long-term expatriate?
From my personal viewpoint, as an expat myself, I think the first thing is to look at the opportunity from a more positive standpoint, focusing on it from a career perspective and not looking at what kind of package you will be getting. Look at the assignment as a great opportunity for development and exposure.
Secondly, going down to the nitty-gritty in terms of looking at the package, be realistic in terms of your expectations. You need to have a good knowledge and awareness of what the current market practice is on expat assignments, whether you can expect a full package or a lesser package. Do your homework ahead of time, and come in with realistic expectations.
Thirdly, it is important to make sure that you keep in contact with the regional office or headquarters, so you don’t lose visibility when you go back to the home country. When you have home leave, it’s important to always stay in touch.
Sometimes expats have the expectation that if they go out, people will take care of them. That’s not necessarily true anymore. You have to take some initiative in terms of looking at opportunities, exploring, working closely with the HR function, as well as your reporting manager, to ensure that your contributions are recognised, and that you know what the plans are when you go back, in terms of reintegrating into the home country.
You need to really push and try to get as much as possible and trying to make sure that the process is in place. Even if the company says it’s difficult, at least keep the dialogue open throughout the process. Make sure during the performance review that concerns and issues are being raised and addressed.
When is it justified for someone to turn down an international assignment?
There will be times when you have to say, no, the opportunity is not there for me. You need to look at your own personal development, at what the assignment is and your own current position in the home country. You have to see how the assignment best fits your skills, your position, your career development.