International HR Administration: Reducing Foreign Workforce to Cut Costs May Be Counterproductive, Experts Warn

Bloomberg Law for HR Professionals is a complete, one-stop resource, continuously updated, providing HR professionals with fast answers to a wide range of domestic and international human resources...

By Lien Hoang

Oct. 16—Companies that have tried to save money by sending fewer employees to work in other countries need to be careful that their strategies aren't counterproductive, experts in the relocation industry warned at a conference in Singapore Oct. 14.

Among the many cost-cutting measures companies have used since the Great Recession are the reduction of staff assigned to work abroad and the reduction of their relocation packages.

“I'm sure you've all suffered the pressure on the cost of your programs,” Brian Friedman, founder of the Forum for Expatriate Management, said at the Asia-Pacific Global Mobility Summit. “I mean, there's no doubt that the traditional assignee is expensive.”

Cost-Saving Incentive

An increasingly common cost-reduction strategy that has emerged in recent years is gainsharing. When applied to global mobility, an example of gainsharing would involve a company that gives its reassigned staffer a housing allowance and allows the expatriate to keep half the savings if the actual housing expense is less than the allowance.

One company that experimented with this convinced 40 percent of its expatriates not to use their full housing allowances, Friedman said.

General Motors has also had success with this strategy, said GM global mobility lead Rita Chye.

“It's highly administrative, but it was so, so successful,” Chye said. “About 70 percent of our expats took it up and we were able to prove our [allowance] caps are too high.”

Gainsharing is “not for everybody,” however, “because a lot of our leaders did not like the fact that we were allowing our assignees to pocket cash,” Chye said.

Similarly, Caroline Thorley-Farrer, regional international assignment manager at British American Tobacco, said her company is moving away from gainsharing.

Thorley-Farrer told the audience about an expat employee who saved money by handling his own shipping, which required taking the time to bribe a customs official.

“So not only have we overcompensated him and overpaid him an allowance that he didn't need to spend the full amount of,” Thorley-Farrer said, but “he's actually cost us extra money for the time that he's now spent in his little trip back and forth to customs.”

“Cash has a place, but it has to be managed sensibly,” Thorley-Farrer said, because of how “dangerous it can be to put the money in the hands of employees.”

Experts also noted that the incentive to save money may encourage employees to do something illegal or to put themselves at risk by moving to more dangerous areas to save on rent.

Ineffective Cost-Cutting

While gainsharing can backfire, other austerity measures might simply be ineffective, according to conference speakers. Outsourcing, for instance, may not actually cut costs but only shift them to a different line on the balance sheet.

In obsessing about lowering their international assignee (IA) numbers, companies may also push managers to reclassify assignments, which would not necessarily save money but again simply change the account from which it's drawn.

Too much emphasis on cost cutting can also have a negative effect on employee development, Thorley-Farrer warned, giving the example of employees in Malaysia who were being groomed for higher positions but because the company didn't want to increase its IA count were offered local-to-local packages, under which they resigned their Malaysian jobs and moved permanently to Singapore, short-circuiting the plans to advance them in Malaysia.

“Just focusing on the IA numbers, which is what we have been doing, instead of focusing on the talent pipeline, is misguided,” Thorley-Farrer said.

Phasing Out Allowances

As the economics have become less favorable, companies have tried to save money by phasing out allowances and “tiering” their assignments. Fewer relocations qualify for top-tier expat packages, and other packages are being cut back. Companies also have pushed two forms of localization that bring down costs, the first to reclassify expats as locals after they've lived in their new assignment locations for several years, the second to train cheaper local colleagues to replace expats.

As companies look to scale back, it makes sense to examine relocation costs like housing, shipping and taxes, Friedman said, but he added that downsizing the team that runs the relocation programs—the global mobility function—isn't cost-effective.

“We've actually done research, and the cost of the global mobility function is typically about 2 to 3 percent of the cost of the program,” Friedman said. “So no one is ever going to cut cost in any serious way by cutting down the people in the global mobility function.”

To contact the reporter on this story: Lien Hoang in Singapore at

To contact the editor responsible for this story: Rick Vollmar at


Request Bloomberg Law for HR Professionals