Expatriate Executives Unaffected by Crisis
Companies are not cutting expatriate executives despite being 3 times more expensive, the number of expatriates has remained unchanged throughout the crisis.
Faced with global cost cutting programs due to the financial crisis, companies report that their number of expatriate country managers has remained the same in the course of the last 5 years. Less than 20% of companies report that the financial crisis has even had a significant influence on their expatriate policy.
These are the main findings of a global survey by the executive search firm Pedersen & Partners conducted among 297 global and regional HR directors from international companies. Among them, more than 100 are Fortune 500 companies.
The cost for an expatriate manager constitutes a significant financial burden for most companies. "The compensation package of an expatriate country manager is on average 3 times higher compared to a local manager", says Conrad Pramboeck, Head of Compensation Consulting at Pedersen & Partners. "Depending on the country and the cost of living gap, the multiple between local and expatriate compensation packages is usually between 2 and 5."
In addition to base salary, bonus, long term incentives and company car, expatriates also receive an expatriate allowance, health and accident insurances, housing allowance, school fees for children, free home travel, language classes, and cultural training.
Expatriate or Local Manager
Only 15% of the companies intend to replace their expatriate country manager with another expatriate, 35% are undecided between locals or expatriate managers. The remaining 50% of the companies indicate a clear preference to hire a local manager but find it difficult to identify and hire such managers.
Scarcity of local management talent is a global phenomenon in many emerging markets. 65% of the companies agree that the lack of local talent is among the top reasons why they employ expatriates.
The number of expatriate country managers has remained the same over the last five years. However, there has been a shift in the regions where expatriates are assigned.
In countries like Poland, the Czech Republic, or Slovakia, where local management talent has developed in the course of the last 10 to 15 years, expatriates have been largely replaced by locals. Alternatively, their expatriate contract was changed to a "local contract plus", where they lose most of their expatriate perks, like free housing or school fees, but keep higher cash compensation compared to their local counterparts.
On the other hand, the number of expatriates is still growing in developing countries, like Azerbaijan, Uzbekistan, Armenia, or Mongolia. The pool of qualified local managers with international business experience in these countries is yet small.
Why Companies Assign Expatriates
Poul Pedersen, Managing Partner at Pedersen & Partners explains, "Companies assign expatriate country managers for 3 main reasons:
•?Business needs in the host country: The main goals are to grow business and help develop local talent.
•?Implement corporate culture, structures, and processes in the local organisation.
•?Develop the management skills of the expatriate: In many companies, a successful international assignment is a prerequisite for further career development within the corporation and part of the leadership strategy."
On average, companies are satisfied with their expatriate programs. Their experience shows that it is easiest to reach goals related to the implementation of corporate structures and processes. Given the limitations of language and cultural barriers they report the greatest difficulties in people related issues.
Expatriates can in many cases only be leaders and facilitators while they depend on locals for implementation and execution. Therefore, many companies report that success largely depends on the individual manager and less on the system of expatriation.
The success of an expatriate country manager has less to do with his technical abilities but rather with his emotional intelligence. Expatriate country managers have to prove flexibility to adapt the original course to the local circumstances. They must be able to improvise and grow business in an ambiguous and uncertain environment.
The cost of an expatriate may be immense, but it is still much lower than the potential loss of business because of bad management. "Attracting and retaining the right managers is the number one key success factor of international companies," says Poul Pedersen.