Companies are failing to comprehensively measure costs and return of investment (ROI) for staff sent on international assignments, according to a report issued by international benefits consultancy Mercer.

Mercer's International Assignments Survey 2008 shows that a majority of companies are unable to accurately calculate their ROI, with 71 percent describing the measurement of financial benefits with international assignments as a challenge. The primary reasons are a lack of appropriate measurement tools, decentralised data and time constraints.
 
Estimation of cost

 “Expatriate assignments cost between 1.5 and 4 times what a local employee would cost. They represent a major investment, particularly those that include family. Measurement is vital,” says Matthew Hunt of Mercer.
 
 “Companies are looking for ways to reduce costs by hiring local staff instead, by reducing or eliminating benefits and allowances, or by looking for alternative ways to address pressing business needs. Some companies are replacing long-term assignments with short-term ones. However, this may be counter-productive, and companies are acting without sufficient information on the effectiveness of current policies,” says Hunt.
 
From the 200 multinational firms surveyed, only 28 percent indicate that all costs are compiled in a central database and approximately, 60 percent felt that they could obtain a fair estimation of the costs. The elements most commonly taken into account when projecting the costs of international assignments are expatriate package costs (salary, premiums, allowances and benefits) and relocation support costs (pre-assignment trip, language training, moving, relocation agency, and tax assistance).
 
Administration costs linked to the management of expatriate compensation are also considered by 77 percent of the companies. Some costs incurred but less typically taken into account include the possible departure of the assignee during or after the assignment (considered by 37 percent), the break-up or discontinuity of functioning teams in the home country (considered by 13 percent) and the cost of mentoring programmes, which are only considered by 4 percent of responding companies
 
Measuring ROI

A lack of centralised financial control systems and inadequate (or missing) software tools are reported as the main challenge in measuring ROI.   Just over a quarter could either provide a rough estimation of the benefit of their international assignment programme in terms of its revenue impact or provide accurate figures on the benefits generated.
 
The report revealed that 44 percent do not measure the benefit of international assignment programmes and 28 percent find it extremely difficult to measure the impact in terms of revenue generated. Only a small handful of companies (3 percent) report implementing a process to track the ROI in terms of measuring costs and rate of return.
     
Hunt notes that “activities such as measuring the impact of international assignments on promotions or on salary-increase progression typically require not only a well-established process but also integrated, centralised databases that large companies, by their nature, often lack.”
 
Beneficial elements taken into account when calculating ROI usually include: increase in business profitability and revenue (60 percent); development of a pool of skilled, experienced managers, global culture and competencies (59 percent); whether expatriates met the assignments’ goals (57 percent); development of local competencies (56 percent); and the increase in market share in the host location (40 percent).
 
Companies improve on  measurement procedures

Most companies however are working to improve international assignment ROI.
Seven in 10 have taken measures to improve the clarity and communication of objectives for their expatriates, and over half have improved the international assignees’ selection process. Forty-three percent have made progress in improving or reinforcing the follow-up process with expatriates throughout the assignment, and the same proportion of companies has improved post-assignment management. Close to a third of the companies have customised their assignment terms and conditions to better match the assignments type.
 
Less common tactics are measures such as reducing the number of international assignments by considering alternatives (18 percent); shortening the length of assignments (16 percent); reducing the compensation and benefits packages (11 percent); or encouraging intra-regional transfers rather than inter-regional transfers (3 percent).
 
The survey shows an increase in the number of international assignments since the survey was last carried out in 2005. Over half of respondents reported an increase in subsidiary-to-subsidiary transfers. This rose to nearly two thirds among Latin American companies. The proportion of female expatriates is also increasing at a rate of about 1 percent per year and stands at 14 percent of the total. Just over one-quarter of companies foresee an increase in single status assignments (assignments in which employees leave their families in their home countries when moving to host countries).
 
Post-assignment issues
 
Less that half (42 percent) of the companies guarantee a job to the employee upon repatriation, while 13 percent guarantee suitable global placement, reveals the survey. Less than half respondents (44 percent) take measures to facilitate an expatriate’s reintegration while a third stated that they provide various forms of support.
 
On a positive note, three quarters of the respondents stated that employees with international experience benefit from accelerated promotion although 41 percent of companies do not know how many employees leave the company within two years of repatriation.
 
"Employees with international experience are also more valuable to other employers,” says Mercer’s Matthew Hunt, “So companies need to work harder and offer an attractive career progression to ensure their skills do not end up with a competitor. Companies invest time and money in these programmes so measurement is key.” 

15 October 2008

Mercer /Expatica

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