Expatriate Management Challenges and ROI in Global HRM

Introduction to Expatriate Management in the Global Economy

Economic liberalization has prompted many global organizations to expand their business operations and build their reputations internationally. This process—known as globalization—is a worldwide integration strategy aimed at producing standardized products with broad global appeal and rationalizing operations across the world. To achieve this goal, organizations must send designated representatives on overseas assignments in order to maintain the standards of their products or services abroad (Hafitah & Ismail, 2007).

With the changing landscape of global working opportunities, global relocation programs are becoming a major recruitment and reward tool used by human resource professionals. Yen (2006, p. 1) observes that to succeed in any global relocation program, employees' professional and personal needs must first be fulfilled. The human resource manager must assess the overall effect of the program on the organization. Selection of the most suitable candidates for international assignments is also a key consideration, carried out in the most cost-effective manner possible by analyzing the financial feasibility of the program.

The function of strategic planning is to provide firms and agencies with a sense of guidance by clarifying their mission, goals, and objectives (Thompkins, 2002, p. 97). The objective of any manager should be to link strategic objectives to the positioning of human resources in ways that achieve the stated mission. Thompkins argues that a sound management approach must ensure accountability at all times (2002, p. 98). This can be demonstrated through the daily monitoring of statistics that each employee submits. The organization can use this information to track employee performance and determine whether employees are working toward the desired results. Thompkins further notes that workers often skew goal statements and production measures toward the results that are easiest to achieve, regardless of whether those results advance organizational goals (2002, p. 100). It is therefore important to monitor performance regularly to ensure that employee activities and results remain connected to management strategies.

Human resource professionals are learning that attracting top global talent depends on more than a competitive salary. According to Furness (2006), companies must also offer competitive positions and attractive destinations. She argues that emphasis should be placed on local orientation programs, cross-cultural training, and spousal networking opportunities.

Strategic Challenges in Expatriate Selection and Compensation

Compensation is a critical consideration in expatriate management. Employees need to live comfortably, meet their basic needs, and support themselves and their families while abroad. The common perception is that working overseas comes with a large salary package; however, the reality is that decisions increasingly revolve around the cost of living in the host location and the welfare of the spouse and children.

Human resource managers involved with employee relocation face several common challenges. They must first secure an outcome that is attractive for both the assigned employee and the organization, which requires careful planning before the program is implemented. One significant challenge is that HR professionals themselves often require international experience, and they must bear the cost of acquiring that experience through training and professional development.

Participating in decision-making and ensuring their input is heard and acted upon also presents a challenge for many HR professionals. Overcoming the risks involved in relocating a person poses further difficulties. These risks extend beyond policy terms and conditions and affect both the assignee and the organization, encompassing migration, taxation, payroll, and local employment conditions (Yen, 2006, p. 2).

There are also disadvantages associated with both home-country and host-country payroll approaches. In the home-payment approach, the entire expatriate compensation is paid in the home-country currency, and the employee must regularly convert a portion into the local host currency to cover living expenses. This leads to variations in the amount received due to fluctuating exchange rates. In the host-payment approach, the company pays the full salary in the host currency, which means that exchange rate changes directly affect the conversion of the savings portion into the home currency (Gibson & Traber, 2010).

Proper planning must be in place to avoid last-minute decisions. Cittadini (2006) insists that this prevents situations in which managers are informed about an assignment only moments before—or even after—an employee's departure. She advises that educating the business about the risks of inadequate preparation is vital. She also highlights the importance of HR involvement in decision-making and the indispensable need for relocation support. HR managers should attend to the emotional well-being of the employee, including the welfare of the spouse, an area that many professionals overlook (Yen, 2006, p. 3).

According to Alexander (2006), the initial sourcing of suitable candidates who can adapt quickly to a new environment is difficult. Finding an individual who can relocate smoothly to a new country and settle there effectively is a persistent challenge. There is also a continuous demand for mobility, and managing it properly remains difficult. Securing high-caliber individuals with the required skills and qualities is challenging, as is delivering those individuals to their destination and ensuring they settle in on time.

Gender in expatriation presents another challenge for managers. Beyond understanding cultural differences, managers must also be aware of gender dynamics. In male-dominated societies, female expatriates may encounter cultural barriers that affect their performance in international assignments. To help these expatriates overcome such challenges, managers should first understand the cross-cultural differences they will face, then apply that understanding within the context of the expatriate role and the organizational structure. This approach can facilitate better adjustment for expatriates and improve their acceptance by local employees.

Mobility barriers are an important concern for organizations, as is retention. Companies sometimes place too much emphasis on financial revenues and outcomes, whereas employees working abroad tend to be more long-term oriented. They need to support their families but do not necessarily place paramount importance on a large remuneration package as their primary motivation for pursuing an international career. HR managers often misunderstand this dynamic, and that misunderstanding affects their decisions.

Measuring Return on Investment for Expatriate Assignments

There is no widely accepted formal or informal definition of return on investment (ROI) as it applies to international assignments in many organizations. However, the ROI of expatriate assignments is generally defined as an estimate in which the financial and non-financial benefits of the company are compared with the financial and non-financial costs incurred during international assignments. Research indicates that many companies have never seriously considered this measurement despite pressure to justify their continued international assignments. Most managers emphasize value over cost and remain confident in their reasons to invest in expatriates (McNulty, Cieri & Hutchings, 2007, p. 8).

When measuring the ROI of an expatriate assignment, the HR manager must first explain the importance of the investment to the broader business. The manager must also demonstrate the costs associated with the assignment and the benefits it will deliver. HR managers are encouraged to prepare cost projections to ensure they fully understand the expense of an assignment in advance. These projections should include estimates for the compensation policy, benefits, allowances, and both host and home country taxes (Yen, 2006, p. 3). According to Furness (2006), the business case is built from internal information by examining both successes and failures. He further cautions that the failure of an assignment is extremely costly to the company.

The aims of the international assignment must be taken into account. These may include developing a new business, strengthening market presence, or advancing skills within an industry. In all such cases, a high-caliber individual is assigned the responsibility. The HR manager must ensure that the right person is selected for the role. It is the responsibility of both the assignee and the organization to ensure that the ROI is realized (Ernst & Young, 2006).

For organizations planning to grow on a global scale and gain experience in the international business arena, expatriate assignments are a necessary strategic investment with long-term implications. These assignments are expensive: international postings can cost three to five times the equivalent domestic assignment. If currency exchange rates become unfavorable, costs increase further. Even when expatriate programs are considered strategically invaluable, companies should attempt to justify the return they receive on those investments (Krell, 2005, p. 1).

One obstacle in estimating ROI is that tracking costs can be difficult and the returns calculated can lack precision. A survey conducted by Cendant Mobility in 2004 found that only 14% of 146 HR managers indicated that their company measures the ROI of expatriate assignments. There is considerable variation in what it means to measure ROI for an international assignment, and there is no definitive formula — though this does not mean that ROI measurement cannot be performed (Johnson, 2005).

In basic terms, ROI is calculated by subtracting costs from benefits: what remains after the costs of a project have been subtracted from the benefits the project delivers. To measure the ROI of expatriate assignments, the first step is to estimate all associated costs. If a company can track all costs linked to an expatriate assignment, it becomes possible to estimate the ROI. Experts acknowledge that calculating all expatriate costs is difficult and complex. The costs of international assignments can be both controversial and sophisticated to determine (Krell, 2005, p. 2).

Causes of expatriate failure often stem from an inability to adapt to at least two cultures simultaneously — the working culture of the international organization and that of the host country community. Expatriates who fail to practice effective leadership and networking skills are particularly vulnerable to assignment failure.

Few companies formally measure expatriate performance. This is partly due to the limited research examining predictors of job performance in a cross-cultural work environment. Failure is commonly defined as damage to relationships with international clients resulting in the loss of market share, or the early return of an expatriate from an international assignment.

Another reason for the lack of data on expatriate success and failure rates is that a large number of multinational organizations do not monitor the costs of expatriate performance. The few companies that do measure costs tend to focus on pre-assignment and operational costs, overlooking the costs associated with repatriation (Minter, 2008, p. 40).

Conclusion: Linking Expatriate Strategy to Global Organizational Goals

Many companies have a hard time analyzing and quantifying the value that international assignments bring. Only a few companies can provide even an approximate estimate of the benefit of their international assignment program in terms of revenue impact. In surveys of international companies, only a small number report having implemented a process to track the ROI of their international assignments — reflecting a broader inability to track costs and measure returns accurately (Mercer International Assignment Survey, 2010).

Research on measuring expatriate ROI through case studies of international firms concludes that an organization cannot estimate what it has not defined, and cannot measure what it has not managed. The research suggests that ROI calculations can be improved by clearly establishing why expatriates are used, what gains the firm expects, and how organizational performance will be affected.

Managers should clearly understand why they deploy expatriates and should link those reasons to their global strategies. The research also concludes that the failure of managers to adopt a systems-oriented, long-term view of international assignments significantly undermines the rate of return obtained from expatriate programs (McNulty, Cieri & Hutchings, 2007, p. 17). A more disciplined approach — encompassing clear goal-setting, cost tracking, emotional intelligence training, and strategic alignment — is essential for organizations seeking to realize the full value of their international assignment investments.

References

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Minter, R. L. (2008). Preparation of expatriates for global assignments: Revisited. Journal of Diversity Management, Delaware State University.

McNulty, Y., Cieri, H. & Hutchings, K. (2007). Measures of expatriate return on investment: Empirical evidence from global firms. Business and Economics, Monash University, p. 9.

McNulty, Y. & Tharenou, P. (2004). Expatriate return on investment: A definition and antecedents. Journal of International Studies of Management and Organization, pp. 68–95.

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Tahvanainen, M. (2008). Expatriate performance management. Helsinki School of Economics and Business Administration, pp. 269.

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