The year 2008 will probably be remembered as a year of soaring costs. With high inflation, escalating oil prices and the falling greenback, companies are under pressure to keep a close watch on rising prices.
HR too, has felt the squeeze. With Singapore's higher cost of living, expatriates are pressuring HR for larger living allowances in order to foot climbing apartment rentals – which HR practitioners attribute as the biggest factor for the rise in expatriation costs.
According to a 2007 ECA International survey, the cost of renting a three-bedroom apartment in Singapore rose 28.25% in 2007 compared to 2006 levels – making the republic the fifth most expensive Asian city for expats. This is a big surge from the previous year's 8.48% rise in living costs.
General manager of ECA International, Asia, Lee Quane, says another aspect which has led to the higher expatriation costs is high inflation. In another ECA International survey released in June this year, Singapore is now the 13th most expensive Asian city based on a basket of 128 consumer goods and services. The hike in fuel prices, which went up 13% between September 2007 and March 2008, is one factor which contributed to the rising costs of living.
So how can companies still justify bringing in an expensive expatriate and what is the role of an expat?
For new industries such as life sciences and healthcare, the shortfall in talent with a certain level of senior experience is a large problem, especially as China emerges as a new player looking to fill its empty labs with the cream of the crop.
The problem, says Martin Painter, intertim director at RSA Singapore, is the relatively young age (it's barely a decade old) of the life sciences industry in Singapore. While the country has no problem supplying entry-level fresh graduate positions, many organisations are unable to fill middle and senior positions and functions due to the lack of people with the right experience. “That’s why companies have to look outside of Asia to hire these people from Europe and US where the industry is more mature. Not everyone [from Singapore] has the opportunity to go to established markets and experience the job development life cycle,” he adds.
But, this situation is likely to be less severe in the next five to ten years, Painter says, “as indigenous talent in this region will gain the experience and management skills” necessary in order to take on top managerial jobs in the field.
Wendy Yang, regional HR and corporate affairs director for APAC of Rentokil Initial Asia Pacific Management, sees it differently, choosing to put aside the “local versus expatriate” dichotomy, but to prioritize the issue from a recruitment perspective. She says the company’s focus is on matching the right person to the job. “When we recruit people, we don’t restrict it to people who are already in Singapore, but we look at people who are ready for the role.” However, Rentokil Initial does cover the one-time relocation fee and housing accommodation costs of its foreign senior managers.
But in lieu of such high costs, is it justifiable for companies to bring in expats? Yang says if the right person is brought in, it can essentially generate more revenue for the company. The talent's knowledge, skills and experience will eventually be the company’s pay-off for its initial costs.
That isn’t to say HR shouldn’t take precautionary measures against hiring the wrong expats. As with every other senior manager Rentokil Initial interviews, Yang says a lot of communication and interaction work is conducted prior to making an offer to a senior manager. This entails meeting the team involved, and gathering a full understanding of what the job and company culture is like.
“For senior managers, they do not make their decisions so quickly,” says Yang. But if the senior manager still does not stay at least one year, the company has the right to ask for partial repayment of the relocation fee.
Edmond Ang, vice president and head of global rewards programme for shipping firm, Neptune Orient Lines, agrees. It is justifiable for companies to have expatriation programmes, he says, especially in emerging countries where there is a leadership gap that needs to be filled. Ang says companies also need to think about repatriation and should have a career plan for their expats after they finish their overseas assignment. Therefore, it is important that expats who are sent overseas are considered “high potentials”, so when the time comes for them to be repatriated, they can look forward to a high-level job or have their experiences and skills able to fill the company's need.
But what other cost-saving measures and alternatives are companies looking at?
Expatriation – now shorter than ever
Traditionally in emerging economies where companies are starting up and are facing a leadership shortage, one easy solution companies fall back on to plug talent gap is to send a leader to helm the new business. But now, Ang says companies are now looking at is short-term relocations as an alternative instead, sending an expatriate overseas from six months to a year instead.
Quane, however, begs to differ, maintaining that three-year stints still comprise the majority of assignments. But he does note that short-term commutes are on the rise, with many from Singapore jet-setting up to Kuala Lumpur, Bangkok or Jakarta for anywhere ranging between five days to two weeks, only to return home for the weekend. The reasons why companies are opting for commuting work range from not requiring a full-time employee or the increase in project-based assignments like employee training.
Short-term expatriation assignments benefit both company and employee, as they do not create any serious disruption to the employee’s career plan and family life. The company also gets to save on other family-related relocation costs, such as children's education and family visitation trips.
Reworking C&B packages
Yang says in light of higher accommodation costs, there are definite pressures from employees who have to live with higher leases. One way Rentokil Initial addresses this concern is by reviewing the employee’s C&B package. And while the company might take on additional housing costs, such costs would be factored into the overall C&B package, and the company may implement other measures such as holding back from higher salary increases.
In all, Yang says HR will look at how the company can manage the costs while still being fair to the employee by not expecting them to foot the entire increase in accommodation.
Another strategy is offering expats a localised or local plus C&B packages, whereby companies pay employees based on host-salary compensation instead of the expatriate’s home salaries. In addition, companies would typically include housing and educational costs.
Quane says localisation is popular in countries such as Singapore and Hong Kong, where local cash compensation is relatively high compared to elsewhere in the world. “So you are able to attract a person from the US, Australia or UK into Singapore and Hong Kong on local compensation.”
There are two reasons Quane cites for C&B localisation. First, it is more cost-effective, and second, it makes sense if companies are relocating expats into Asia on a permanent basis. “This is one way in which companies are adjusting in terms of policies,” he says.
Going home
Without a clear succession planning scheme, companies may soon find expats stuck in a country where they have no reason to move back home. To worsen the situation, expats would be reluctant to develop the local talent pool as it would make their jobs redundant, says Ang.
“Companies who do not think about repatriation will find their talent stuck in the host country, claiming that local talent cannot be found or the expats will not spend much time developing local talent,” Ang says. And the consequences are high. These companies would usually experience high attrition amongst local talent who see a glass ceiling and feel as though they would be unable to break through to the top positions, as these are occupied by expatriates who have no reason to move on.
“And companies are to blame as they have not developed an attractive repatration process where an expatriate can expect to come back to a relatively attractive career,” Ang says. Furthermore, expatriation costs will spiral over the long term, as this group of employees become indispensable to the company.
In Quane’s view, companies which offer a localisation plus package typically expect their expats to be in the host country on a non-permanent basis from anywhere between one to three years. “Therefore, a company would pay a relatively high salary for three years, and hopefully they would localise the position afterwards.”
But while localised packages may be more cost-effective in the short run, there is a high cost to be incurred if the expatriate ends up staying for long – as the expat would enjoy both expatriation perks such as housing, children’s school fees and a high salary.
Thus, Ang feels it is part of HR’s responsibility to ensure that the company’s management not only picks someone with a lot of potential, but also make sure the expatriate is tasked with the responsibility of developing the local talent pool as well.
Bringing down the roof
In Ang’s 20 years of HR experience, he notes expats tend to stay slightly below or exceeding the housing allowance budget which the company provides. Back when he was working for Motorola, he implemented a gainsharing programme. This scheme encourages expats to stay under the accommodation budget, with any savings split evenly between employee and company.
But there are limits as to how low the rents can go as well, says Ang, as the company would not want expats to live in cheap places where it “may cause hardship for the company”. In addition to cost savings, Ang says the biggest benefit of the gainsharing programme is helping to moderate the housing demand among expats. Plus, companies are also looking to cast their accommodation nets a little wider, Quane says. While previous strategies may mean companies only looked at expatriate-friendly places such as District Nine, it is now on the onus of the expatriate to decide where he wants to live. If the expatriate opts for a larger apartment, it would mean having to move out of the city centre.
But this strategy works because Singapore is relatively small and has a short commute between places. Quane warns the same may not be applicable in other Asian cities like Jakarta and Vietnam where there are security and safety issues, and HR may have to place certain limits to the expats’ accommodation.
Interim management
Interim management could be a solution for companies in which a person can be brought in on a short-term basis to help plug in the gaps in the succession pipeline, work on a project basis or to temporarily helm an overseas office.
Because the life sciences sector is facing a dearth in specialists, interim recruitment can help by engaging on a short-term assignment basis, ranging from ten days to a year.
Painter says since managers tasked to fill these interim positions have years of experience in a much bigger capacity, “they would be in a role with far greater experience, so they would be able to come in and hit the ground running. Obviously they may have to learn a little about the company and the structure, but their experience will be far greater than the actual position that they will be doing.”
While interim employees in the UK used to comprise of mature workers, that is not the case now, Painter says, as for most interim employees in their mid-30s to 40s it is a lifestyle and professional choice. “They may not want the baggage of belonging and not getting into office politics. They may like the freedom of picking their work, and deciding when they want to do it.”
With the depth of their experience, interim employees can impart good advice to their less-experienced colleagues. One other benefit of interim employees is that they can also facilitate company’s change management process as the employee would not be tied up with company history and politics. “They can come in and look at the business and give the company a more independent view on how they should move forward,” Painter says.
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