In the cost projection, the manager must include the estimates for the compensation policy, the benefits, allowances and both host and home tax (Yen 2006, p. 3). According to Furness (2006), the business case is built from internal information and this is done by looking at both the success and failures. He further warns that the failure of an assignment is very expensive to the company.
The aims of the international assignment must be taken into account. These may include development of a new business, market strengthening and skills advancement into the industry. In all the cases, an individual of high calibre is assigned the duty. The human resource manager must ensure that the right person is assigned the duty. It is important to that it is the responsibility of both the assignee and the organization to ensure that the return on investment is realized (Ernst & Young, 2006).
For organizations that plan to grow on a global scale and gain experience in the international business arena, expatriate assignments are a necessary investment in a strategic goal for long-term basis. Expatriate assignments are expensive investments. International assignments cost three to five times as those allocated in the mother country. If currency exchange rates become unfavorable, they become even more expensive. Even when expatriate programs are considered priceless it is important that companies should attempt to justify the return they get on those expensive investments (Krell 2005, p.1).
The obstacle in estimation of return on investment is that tracking costs can be difficult. Returns calculated can also lack precision. A survey carried out by Cendant Mobility in 2004 showed that only 14% of 146 human resource managers indicated that their company measures the return on investment of expatriate assignments. There is great variation on what it means to measure the return on investment of an international assignment. There is no definite formula, though that doesn't mean that return on investment measurements cannot be performed (Johnson, 2005)
On basic terms, return on investment is found by subtracting the costs from benefits. It means that return on investment equals what is left over after the costs of a project have been subtracted from the benefits that the project delivers. When measuring the return on investment of expatriate assignments first, estimate all the costs. If a company can track all the costs associated with the expatriate assignment, then it will be possible to estimate the return on investment. Experts have admitted that it is difficult and tricky to calculate all the expatriate costs. The costs of international assignments can very controversial and can be sophisticated to determine (Krell 2005, p.2).
Causes of expatriate failures are due to their inability to adapt to at least two cultures while on assignment. This includes the working environment of the international organization and the international community in the host country. The expatriate may not practice effective leadership and networking skills leading to failure in the assignment.
Few companies measure the expatriate performance. This is due to the scarcity of research examining the forecasters of job performance while employed in a different work culture. Failure is described as damage to relationships with international clients resulting in loss of market share that initially existed. Early return of expatriates from an international assignment is also seen as failure.
Another reason why there is lack of information on success and failure rates among expatriates is that a large number of multi-national organizations do not supervise the costs of expatriate performance. The few companies who measure the cost focus on pre-assignment costs and operational costs of the assignment. They do not measure the costs associated with repatriation (Minter RL, 2008, p.40)
The most significant expatriate costs include overall salary package, housing, living allowances and physical relocation that includes the movement to the host country of the employee, the assignee properties his family. Another important cost of expatriate assignments involves harmonizing differences in pay and benefits between different countries. Differences in cost vary depending on factors such as exchange rates which can change on different occasions and global tax concerns which can be very complex.
Tax issues are more complicated by the fact that in some countries, expatriates are taxed in both their home and host countries. An example of this country is the United States of America. In some of these cases, the firms reimburse them for the additional burden caused by the taxes. The reimbursement is considered taxable income in both the host and home country. The amount and due date of expatriate taxes vary based on factors like the timing of payments and international treaties.
Many companies have a hard time analyzing and quantifying the value that international assignments bring. Only a few companies can provide either an approximate estimation of the benefit of their international assignment program in terms of impact. Some base this impact on the revenue or provide accurate figures on the benefits generated. In a survey conducted on international companies, only a small number of companies report having put into place a process to track the return on investment of their international assignments. This implies being unable to track costs and to measure their return (Mercer International Assignment Survey, 2010).
To measure rate of return on investment, many managers use measures based on success instead of measures that are appropriate to a company global strategy. Many of the measures that they use are often improvised or adhoc in nature. The informal rate of return on investment grouped into approval purpose where the expectations are calculated on paper as a tool for decision making. It is carried out as a budget or a letter. Another measure is financial that determine whether the costs are more than the budget or whether there is increments in revenue.
A short-term functional measures assess the immediate benefits of the assignment. Long-term measures assess beyond the completion of the assignment. Individual measures are based on the benefits to the individual or the expatriate rather than the firm (McNulty, Y, Cieri, H and Hutchings, K, 2007, p.9)
A research conducted o measuring expatriate returns on investment, a case study of international firms concludes that an organization cannot estimates what it has not defined. Moreover, a firm cannot measure what it has not managed. The research suggests that return on investment calculations can be improved in various ways. The reasons why expatriates are used, what gains are expected by the firm and how its performance is affected are important factors and should be considered.
The manager should also know why they use expatriates and should link these reasons to global strategies. They research also concludes that lack of managers to adopt a system view for a long-term international assignment affects the rate of return obtained from expatriations (McNulty, Y, Cieri, H and Hutchings, K, 2007, p.17)
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