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Key Topics
- Requirement
- Question 1
- Solution
- Part A: Traditional Expatriate package and its benefits
- Part B: Limitation of the package
- Question 2
- Strengths of local international policy are as follows:
- Weaknesses of local international policy are shown below: -
- Opportunities provided by local international policy are described below: -
- Threats because of local international policy are defined below: -
Requirement
Question 1
a. Describe the content of a ‘traditional’ expatriate package, and the reasons of the company to provide such benefits.
b. What limitations do you see in this kind of expatriate package when it comes to handling the company's emerging needs?
Solution
Answer:
Part A: Traditional Expatriate package and its benefits
The traditional expatriate package of the company provided special treatments to the employees who were part of the talent pool. Earlier this talent pool comprised of very few employees because of which the company was in the position to provide enormous benefits to its high talent employees with respect to expatriate assignments. The company then wanted to have 70 percent of the expatriates in career assignment and 30 percent on a job assignment. The traditional expatriate package was quite liberal for the expatriates. The expatriate traditional package provided all the necessary expatriate facilities and services. In case of traditional package even the pre assignment visit to the foreign land is paid to the expatriate. The company even provided assistance for two years in case of house hunting, negotiation, a good school for the children of the expatriate. Whenever the company, required transferring their employees to a foreign land with limited knowledge they were given an expat package. The company incurred additional cost on certain cases to an extent of three times the base salary. The reason for the company to provide such benefits is that people look forward to more challenging assignments in the foreign land and are interested in career growth opportunities across the borders.
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According to the traditional expatriate package only the top talent of the company is to be provided with all the benefits. Also the reason of transfer has to be only because of career or job assignment and therefore all the assistance would be provided by the host country, whereas in case there is an internal employee who wants to get relocated, then in that case the company would no longer consider the employee to be part of the talent pool. As the same job could have been filled up by a local employee and henceforth the company would not apply the benefits of the traditional expatriate package to the same employee who was earlier considered to be part of the talent pool as the sole reason of the shifting of the employee to another country is career growth or job assignments. Therefore, all the benefits of practical things that has to be taken care of like where to live, schooling, visa and paperwork are covered in traditional package only in case of high talent employees sent for a career growth opportunity for not more than three years.
The traditional package also aimed at giving maximum international assignments to as many employees as possible because of which the company had the policy that the total duration of assignments would be no more than three years. The other condition that was put forward was that the employees should not accumulate many assignments because then the duration of three years would have been crossed and the reason for the company to provide such a benefit is that the longer an employee stays in the foreign land the chances are that the career of another employee gets blocked.
Part B: Limitation of the package
Expatriate package can be considered successful if the number of expats would have been in accordance to the company requirements, but the greatest limitation as per the emerging needs of the company is that the number of expatriate population has risen to 750 people with more than three years of tenure. In certain cases, in more than 10 years making, it impossible for the company to keep continuing with the traditional expatriate package which provided benefits to the talent pool for a three year tenure.
The company was established 120 years back and its operations were in Germany. To increase the profits of the company the operations and sales also had to be increased. Because of the inadequate capacity in Germany the company had to expand in the year 1920 and then had its operations in various countries of the five continents. More than two third of the employees of the company are employed outside the home country Germany. With regard to the extensive expansion all over the world the controlling of the organization from German head office was an impossible task. Therefore, there arose a need to have small, flexible units to manage the operations in a better and an organized manner. Therefore the company took the decision of setting up a national organization in each country for the efficient controlling purpose. Then eventually these national organizations were given an independent status. The executive board focused more on user oriented policy for all the operations spread throughout the continents in different parts of the world. Because of the reorganization process, the product divisions obtained a very major and important profile in the structure. The organizational charts of the company clearly show a clear role of both the product divisions and the country organized in the corporate structure. There was a long upturn period for the company because of which the company today has to face the blow of economic crises. Therefore, in order to handle the company’s emerging needs the biggest limitation it faces is that the employees take undue advantage of the benefits and stay for longer periods in host country’s or keep relocating at their sweet will for more than 10 years by taking up multiple assignments and even staying there permanently. Henceforth it is all the more essential for the company to rethink on its strategy and manage the cost that is involved in providing the benefits to these expats. This has turned up to be the main limitation in the traditional expatriate policy wherein all the necessary benefits that are provided are that there are many cases of employees who have been in the same country for eight years on an expat package, though the company policy stated only three years of assignments should be taken by the expatriates. There are also cases of employees who have had more than two expat assignments. Therefore, the employees in these cases are out from their countries for more than ten years and the company is still unaware that whether these employees who no longer fall in the expat category would be coming back to their home country or not. Therefore, in order to handle the companies emerging needs as it is growing at a very rapid speed it is essential to go way with the traditional expatriate package. Also, as per the current emerging need of the company a single traditional package cannot work independently as the company operates in 60 countries all over the world with more than 116000 employees. This big network requires the company to have different types of packages for different type of international work. In the case where the employee interest is overpowering the company’s interest it is essential for the company to go away with the traditional package and cut down the cost of the company by offering alternative packages for international work.
It is very essential for the company to cut down the very heavy expenditure on expats as they stay in a country for more than the assigned period and the reason of career advancement which was initially the reason of sending the employees to a foreign assignment gets nullified. Therefore it becomes all the more important to cut down the cost of the expensive expats. Also, it is important to create more equity with the local employees and therefore the local policy is prepared so that the local person does not earn less than a foreign employee for the same job profile. Also, it is felt that the company in addition to all the benefits which it provided, if it would have provided assistance in looking for a job of the spouse of the expat the problem of relocation would not have arisen as the expat is pleased and comfortable with the assignment. But, if the spouse is jobless then the professional assignments of the expat become unsuccessful as the expatriate is not happy and satisfied at personal front.
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Make a SWOT (strengths, weaknesses, opportunities & threats) analysis of the Local International policy using the information from the case study.
Answer:
SWOT analysis of the local international policy
Strengths of local international policy are as follows:
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The expatriate will have benefits to take an individual host country salary and all other benefits as per the local policies.
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The expatriate will receive settling-in allowances in the host country. These expenses include all significant expenses which may incur while the person moves or transfers to the city. Some of them are provisional accommodation and food when the person arrives, other expenses include children’s school uniforms, books when they take admission to their new schools.
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Medical checkups will be free to some extent when the expatriate arrives. He can avail them as per his/her convenience.
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The expatriate will have benefits of visa and other permission which are relevant in the host country as per company’s present policies.
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Some travelling costs will be received like out journey, one trip to the home country in first country etc.
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Some of the optional benefits include expenses for housing and school’s admission – that is approx 50 % after one year and zero percent after 2 years.
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Other optional expenses which will be received are retention bonus subject to how much time the person spends in the company in the same country.
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Few allowances and benefits are also received as per local needs if the expatriate.
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Hence, in addition to the salary, the company gives extra benefits to expatriate like relocation expenses, settling down expenses, travelling costs, including one trip to home in the first year and a few others depending on the local requirements of the candidate.
Weaknesses of local international policy are shown below: -
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Salary will be decided as per the local salary system of the country and not his/he base or previous salary. This can be bit de-moralizing for the expatriate.
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The expatriate will not be paid for the pre-assignment visit and will have to bear her expenses.
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The expatriate will manage her/his housing facility school search be herself and there will be no support provided by the company.
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All other procedures like managing the cost of living or any other financial support will end after 2 years and the candidate will be treated and given normal local candidate benefits only.
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Few challenges will arrive after the end of first year when the package will be exactly like a local package. Practically, the candidate will become poorer compared to their previous package. All this done to reduce costs and so that the local employee does not feel that he is earning less than a foreigner employee doing the same job.
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The biggest challenge for Akiko will be that she will have to manage everything by herself that is housing, schooling, admission by herself, which is very time consuming and will deviate a person from actual job he is there for. This overall issue will impact performance of expatriate as well.
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Moving on expatriate package is definitely beneficial than going on to local contract where everything will be done by the company to support her. Hence, the overall local contract is not beneficial for Akiko.
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Purchasing power is not compared to home country in local contract unlike in an expatriate package where home country cost of living is also considered.
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Transferring from high income country to low income country will ultimately lead to decrease in salary.
Opportunities provided by local international policy are described below: -
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Once the expatriate moves onto local contract, this is treated as a permanent relocation, but if a good opportunity comes in front of the employee, she can move again to another country on expatriate package, provided the present company has opportunity for her in three to four years.
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The employee and their family may build great rapport with the foreign country as it can help buy employee their own house and children may good friends in their local school.
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The employee has the opportunity to organize themselves better and there may be a chance that they get extra support from Singapore as they might have a policy to treat people who have moved on into their country, they might support her if the company is not providing the same.
Threats because of local international policy are defined below: -
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Children of expatriate will face problems in language while moving to Singapore. In the beginning, they will have to attend an international school. Moreover, there will be no such support from the company for this issue. The children might face problems in their study and making new friends in a new country without much support from the company. These issues are faced when the whole family decided to shift to another country.
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There will also be a problem with pension. Presently, Akiko is covered under a pension in India, but while moving to Singapore she will have to follow their structure. Foreigners in Singapore are not obliged to state pension. All local international employees are given cash and which they are encouraged to invest in private fund. Hence, there needs to be standardized procedures while deciding about pension in future.
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Whole family might face problem as they will have to face new customs and new languages when they move to a different country. They may find difficulty in communicating and making friends. No support from the company may add onto their problems.
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When the expatriate moves on company’s condition he/she will have many benefits and support from the company, but while moving on their own wish may result in managing and handling each and everything by themselves.
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Hence, the expatriate will face decrease in the salary, unfavorable pension system and poor social security with decreased cost of living.
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