Survey: Companies Burdened by Overseas Assignment Costs, but Few Work to Gain Efficiencies

Many companies say they are looking to trim their international assignment program costs, while also trying to reduce the time invested in administering these programs, according to the results of KPMG’s 2006 Global Assignment Policies and Practices Survey, conducted by the International Executive Services practice of KPMG LLP, the audit, tax and advisory firm.

According to the KPMG survey, 38% of corporate respondents believe their assignment programs are “more generous than they need to be.” At the same time, 48% believe their international assignees take “too much time and effort to administer,” a 12% increase from KPMG’s 2005 survey findings.

“The survey also identified some interesting contradictions,” said Achim Mossmann, national director of Global Mobility Advisory Services in the International Executive Services practice of KPMG . “While companies say they want to cut costs, for example, only 14% say that a primary goal of their expat programs is to control program costs and ensure an appropriate return on investment.”

“Indeed, despite many companies saying they want to improve the costs and efficiencies related to their international assignment programs, some are actually moving in the opposite direction,” Mossmann said.

“Our experience with clients tells us that companies who manage the entire process well — beginning with assignment-specific goal setting, identifying appropriate candidates, and ending with securing appropriate jobs for expats upon repatriation — have a better return on investment. It seems that many companies do not utilize all of the tools and resources available to them to ensure a cost effective, yet competitive, international assignment program,” he said.

Assignment-Specific Career Goals

As an example, KPMG’s Mossmann points to the fact that only 23% of companies surveyed this year say they establish assignment-specific career goals for every assignee, down from 31% in last year’s survey. And 38% of respondents said the main reason assignees leave the organization upon repatriation is that “no appropriate job is available in the home country,” up 9%age points from 2005. Overall, only 38% of those surveyed “strongly agree or somewhat agree” that they handle the repatriation process well, down from 49% in 2005.

“Given the significant financial outlay required for an international assignment, companies should focus on setting the appropriate career management infrastructure to better manage the retention of their international assignees,” said Mossmann.

The KPMG survey also found a 54% jump in the number of companies using short-term assignments, compared to last year. Ben Garfunkel, national partner in charge of KPMG’s International Executive Services practice, said, “Many companies still believe in the myth that short-term assignments are more cost-effective and easier to administer because they have fewer immigration and tax requirements.”

“But short-term assignments actually require much more advanced planning and oversight to ensure tax and immigration compliance,” Garfunkel said. “Which can make them less cost efficient in the long run. Educating company administrators about the tax and immigration requirements for these types of assignments may better equip them to capture the intended cost benefits more consistently.”

Cultural, Industry Differences Revealed

The 2006 KPMG survey also uncovered some interesting cultural and industry differences in assignment policies. As the practical definition of “family” continues to shift, companies in Asia-Pacific and Europe have expanded their international assignment benefits coverage to “other dependents” on a much larger scale than companies based in the U.S.

For example, the KPMG survey found that 79% of Asia-Pacific-based respondents and 73% of European-based respondents offer international assignment benefits to unmarried domestic partners of the opposite gender, compared with only 37% of U.S.-based companies. From an industry perspective, 76% of financial services companies offer this benefit, compared with 27% of energy companies.

Also, in instances where the cost of living is lower in the host country than in the home country, 46% of European companies surveyed implement a negative cost-of-living allowance (COLA), compared with just 9% and 8% of Asian Pacific and U.S. companies, respectively. When an assignee is not charged the difference in COLA, the positive cash flow becomes a benefit retained by the employee and increases the overall cost to the company.

Focus on Localization

The survey also revealed that localization continues to be a current focus area for respondents. Localization occurs when an assignee becomes a permanent employee in the host country, instead of working on a limited term assignment. The number of companies handling localization on a case-by-case basis increased to 31%, up from 29% last year.

“The steady trend toward administering localizations without a formal policy may encourage ad-hoc implementation, which has significant cost implications. In the long run, the absence of a localization framework may end up costing the company even more when assignments are extended indefinitely,” according to KPMG’s Mossmann.

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