Controlling Costs in China

Though a few steps can help trim costs, experts say tracking return on investment for the inevitable costs of relocating employees to China yields the strongest bottom-line results.

Monday, January 5, 2015
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Global relocation assignments for employees are an expensive-though often worthwhile-proposition, and the greater China region leads the list of those that are the most challenging for organizations to control relocation costs in a new survey by Cartus, a global relocation firm. The company's fourth annual Trends in Global Relocation: 2014 Biggest Challenges Survey compiles responses from 164 mobility managers worldwide.

Among respondents, 53 percent ranked China as the most challenging global region for controlling costs, yet the region ranked second-most critical to future business success; the United States ranks No. 1.

The results are no surprise to Singapore-based Robert Line, Cartus' vice president of client services for the Asia Pacific region. Aside from pricey housing-and premiums for better locations, such as those close to international schools-China's regulatory environment can be difficult to navigate and can vary by region, or even within cities.

"If you look at China closely, they change their customs [and] immigrations requirements very regularly," Line says. "This week alone, they changed what short-term assignees can and cannot do under different types of visa. The risks of being noncompliant in a place like China are financially very adverse." tracking can help companies measure whether assignments are worth the investment, he adds.

"The traditional way of reducing costs is to hack away at benefits, but what we see increasingly-and recommend where appropriate-is that businesses look at increasing the value of the assignments they have," Line says. "What are they asking people to do? Are they tracking it? What are the business outcomes that are expected?"

Ensuring that employees are chosen for technical skill as well as ability to adapt can improve success rates, he says, and some companies are working to align talent management strategies with global assignments groups.

Core/flex plans are another response to increasing costs, says John Fernandez, vice president of global services and account relations for Scottsdale, Ariz.-based Global Mobility Solutions. He says various surveys have found that nearly three-fourths of companies now use core/flex elements.

"That is where we deliver a set of core benefits," he says. "Some, you can't go without, but then there are flexible benefits under a cap budget. Then the employees are in the driver's seat to determine what services are important to them. But you have to have someone who understands the business and develops realistic caps." 

Some companies are turning to local-plus or expatriate-lite packages, says Eleanor Ungemack, global practice leader for Crown World Mobility in Danbury, Conn.

"For senior people-CEOs and management directors-they expect a full expatriate package," she says. "On other assignments-especially those for a technical need for a self-initiated or career enhancement assignment-you'll see a lot of companies going toward a local plus package or an expat lite (which keeps an employee on the home country payroll and is tax equalized but may reduce other benefits)."

Workforce planning is key in successful relocations, says Trish McFarlane, vice president and principal analyst for the human resource practice at Delray Beach, Fla.-based Brandon Hall Group.

"The way to combat the challenges is for the HR leader and other decision makers to have a plan upfront to address some of the barriers," McFarlane says, adding that Brandon Hall Group's 2014 Workforce Management study shows that 54 percent of organizations believe they need to improve their workforce analytics capabilities.

Better planning can help show whether a relocation is necessary, she says, and setting reasonable expectations upfront can help reduce costs-by commencing language studies in an employee's home country rather than on assignment, for example.

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Companies have growing concerns about the costs, especially with more assignments into second, third and fourth-tier cities, which can increase hardship allowances and cost of living, says Stacy Baker, manager of consulting services for Pittsburgh, Pa.-based AIReS Corporate Relocation Services.

Offering a modified cost of living allowance after the first year on assignment and each year thereafter or offering an expat-lite program can cut some costs, she says.

"Companies may also wish to consider utilizing extended short-term assignments so that the associate is unaccompanied, thereby reducing the costs of housing as well as the cost of living allowance, and eliminating the elongated international schooling costs," Baker says.

But companies need to carefully weigh how cost-cutting measures affect outcomes, says Achim Mossmann, principal in New York City-based KPMG's global mobility services practice.

"China is a culture where you generally need more time to establish a relationship," he says. "I think China, at the end of the day, is a country where-maybe this goes back to the original question why it is so expensive in China-there are not a whole lot of workarounds."

Return on investment can vary by industry, Mossmann says, but a careful selection process will offer organizations the best long-term results.

"Companies should develop criteria as to not only what business acumen they are looking for but also the personal criteria and supplement that with intercultural training, with specific aptitude testing," he says.

"One thing I have seen companies doing is actually selecting people who have Chinese or Indian original nationalities and are interested in going back to their homeland," he says. "Instead of only focusing on the cost component, the second, selection component is crucial."

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