In addition, the cost of expats should be factored into the decision to enter a market. Major markets will still be profitable even with the presence of expats, but there are many marginal markets that may not be viable once expat costs are included (for example, where Malaysia may be profitable, adjacent Brunei may not be).
The human resources department can also reduce the value of the package offered to expats. If assignment allowances and property costs are 70% of the expat costs, then these costs should be the focus of efforts to reduce total expat costs. For example, one solution is to introduce funding at a blanket level, and then allow the expat to determine how those funds should be dispersed. This strategy fixes the amount of money that is spent on the assignment, rather than have the costs subject to market fluctuations. For example, the price of a trip home can vary significantly depending on when and how the trip is booked. An employee with a finite budget will choose the lowest price option, whereas one with an undefined budget may choose a more expensive option.
Housing costs in particular can be controlled through the use of a fixed total budget (Friedman, 2010). The housing needs of different expats will vary. Any given expat may prefer to have the choice between luxury accommodations with few trips or spartan accommodations with many trips. The expat should appreciate having the choice while the company benefits from having greater cost certainty.
Another financial means of saving money on expat is through the use of deductibles (Friedman, 2010). Deductibles account for the fact that the employee saves money in some areas. For example, if a long-term assignment allows the employee to rent his/her domestic residence, this can be deducted from the housing allowance paid by the company. Other deductibles can be made for education, maid service, medical costs and other areas where the assignment may deliver savings. Similar to deductibles is gain-sharing. In a system where the employee has a set housing allowance, but gets to keep half of what is not spent, the incentive is to take more modest accommodation. The result in a win-win situation where housing costs to the company are lowered and the employee receives extra cash after choosing acceptable accommodations (Friedman, 2010).
Given that housing costs are one of the most important costs associated with expats, the company should consider evaluating the different housing options. Typically, the shorter term the rental, the more expensive it will be, with hotels being the most expensive. Lowering expat housing costs can be accomplished through the use of rentals that are well-matched to the length of the assignment. Hotels are unnecessary, for example, for any assignment over one week in most parts of the world. Short-term rental rents should not be paid for assignments over a few months in length. A human resources department can save a significant amount of money if it takes the time to investigate the local housing market. Indeed, the use of a flat benefit that the employee is free to spend as he/she sees fit will typically result in a better study of the housing market and lower housing costs for the employee.
Relocation costs can be upwards of 15% of total expat costs. As mentioned above, one way to reduce relocation costs is to relocate less often, by keeping expats satisfied. Beyond this, the actual cost of performing a relocation can also be reduced. Last minute shipping is always more expensive, and therefore should be avoided. Better planning of expat moves can reduce shipping costs dramatically. In addition, furniture should be rented locally rather than shipped, to reduce total shipping costs considerably in both directions. For popular assignment regions, shipments can be shared among expats in order to reduce total shipping costs by shipping full loads. Volume limits can be utilized to reduce shipping costs. The limit can be strictly enforced or can be the result of incentives such as deals on storage that compel employees to leave more at home (Friedman, 2010).
It is also worth considering that the human resource department should reduce its own infrastructure for dealing with expat assignments. Part of this can be accomplished through streamlining the expat cost process. For example, the use of multiple cost centers is likely to increase total costs, so the cost center structure should be simplified (Friedman, 2010). Having a simplified formula for calculating expat costs will also reduce the total administrative costs associated with expat management (Friedman, 2010).
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