Relocation services
Encyclopedia
Relocation services or employee relocation include a range of internal business processes to transfer employees, their families, and/or entire departments of a business to a new location. Like other types of employee benefit
s, these processes are usually administered by human resources
specialists within a corporation
and outsourced to different types of service providers. Relocation services are not synonymous with moving/relocation companies as not all of these companies offer "relocation services'".
Such business processes can include domestic residential services where an employee moves within a country or state as well as international relocation services which include planning for (diplomat
s, managers etc.) working abroad. An agency providing relocation services directs and manages the process of relocation including arranging necessary documents (visa
, long-term stay permissions), finding a new house (accommodation
), finding a school
for children (education
), finding a job for the partner or "trailing spouse", arranging a teacher for the family (language
teaching) and introducing fresh expats to the local culture.
, sending an employee to work in another country (sometimes called a "global assignment" in current HR
jargon) has carried considerable costs while theoretically opening the potential for financial returns for the employer. However, companies contemplating increased expatriate placements, within their home countries (inbound) or overseas in host countries, are frequently penny-wise and pound-foolish with respect to real vs perceived costs.
Perceived relocation costs are easier to identify and therefore receive the most critical attention. Real costs are the sum of all direct and indirect expenses associated with the transfer. Compounding this challenge is the current state of many corporate finance systems, which are not designed to track relocation or to assign management cost data. Relocation cuts across many areas, including travel, transportation, human resources and payroll.
With tax equalization
, housing allowance, cost-of-living adjustment and other benefits., the typical expatriate compensation package is two to three times the home-country base salary. For example, an expatriate with a €100,000 annual salary will cost the employer €200,000-300,000 per year incl. the relocation costs. Other factors influencing international service assignment cost are the host destination, the size of the family (for accompanied assignments where the family relocates with the expatriate to the host country), the expatriate benefits as per the employer's International Service policy, and home-host taxation.
Shorter term assignments have lower costs, especially when they avoid taxation thresholds, so the recent trend has been more short-term assignments and extended business trips. The savings pendulum will swing the other way, however, if expatriate employees are not given enough time to produce its host country to accomplish their assignment’s specified business objectives, whereby the position becomes a "revolving desk" lacking in continuity or operational momentum.
Additionally, companies with global ambitions have historically moved their employees (domestically) using several decentralised relocation departments, and they often face serious financial and regulatory risks unless they refit or re-educate organisation structures for cross-national transfers.
for exporting or importing their talent.
There are three reasons why a company might give an employee a global assignment: filling functional needs, developing the employee for upper management, and developing the company itself. Anne-Wil Harzing of the University of Melbourne
further categorises these employees as ‘bears,
bumblebees and spiders’. Those playing the role of bears are the long arm of headquarters control.
The bumblebees transfer (cross-pollinate)
their corporate culture.
Harzing’s spiders weave the
informal communication networks so important in connecting far-flung branches, subsidiaries
and
all strategic partners
.
types of corporations making global assignments
Moreover, recent advances in IT still cannot replace the importance of face-to-face contact with clients and competitors alike, according to Dr. Jonathan Beaverstock of the UK’s Loughborough University
. Beaverstock accurately predicted that expatriation will become more frequent, short-term and project-based.
Relocation cuts across many areas (both organisational and geographic), including travel, transportation, human resources and payroll. Corporate finance systems are usually not designed to track this seemingly unrelated cost data in concert. As a consequence, the decision-maker for any given
transfer will be weighing its business value using incomplete (‘perceived’) cost figures.
The employer’s case-by-case recognition of relocation costs means understanding the total cost of any given global assignment before it is originated. Then the finance and HR departments must track and report actual costs to budgets. This represents the smallest category of relocation cost drivers, but the way this ‘inexpensive’ work is carried out can reverberate, multiplying the size of the other, much larger, cost drivers.
During the relocation process, the people managing the relocations (internal or outsourced) must track, report and especially manage exceptions to the relocation policy. Tracking and reporting exceptions will usually reduce an employer’s overall relocation spend by 7 to 9 percent.
Responding to a 2005 Survey of global assignment management practices commissioned by a US-based third-party relocation management company, 31 percent of surveyed employers indicated that they track exceptions on a per-assignment basis for budgetary purposes, 23 percent track exception on an overall basis in order to identify policy components that need review, and 39 percent do not track the cost or type of exceptions granted. (Seven percent were not able to answer the question.)
Depending on the size and organisation of a company, different departments, such as finance or human resources, may administer the relocation programme. Some may lack any formal programmes while others have highly structured processes. Moreover, different operating units (who do not always communicate with each other properly) may administer different aspects of the programme.
Some may manage and execute all of their relocation processes in-house while others find value in co-sourcing or outsourcing them. This is done usually for the purposes of saving time, focusing internal resources on inherent company workforce strengths, or for providing better service to each transferee by assigning him or her with a highly responsive ‘single point of contact’.
Hiring an external service provider is sometimes generalised as an all-or-none proposition, connoting a process is conducted solely outside of the client organisation. Yet most outsourcing arrangements are actually a mix of internal handling and outsourcing activities.
Of the companies participating in the 2005 Survey of Global Assignment Management Practices, 43 percent indicated that they either outsource or co-source some assignment management services (staffing 1:58 assignees, 7 percent declined to answer).
Employers that intend to continue providing all assignment management services internally may consider centralising the internal relocation delivery groups. Among the survey participants who fit this category, 49 percent indicated that they deliver services in-house from a centralised group (staffing 1:31 assignees) and 26 percent deliver service in-house and decentralised by business unit (staffing 1:21 assignees), while 13 percent reported a combination of centralised and decentralised in-house assignment management services decentralised by region (staffing 1:18 assignees), and 12 percent reported a similar combination decentralised by business unit (staffing 1:12 assignees).
provide a forum for this type of process and most relocation providers offer policy creation and review as part of their service.
Between these reviews, while a policy is in place, the employer controls costs by judiciously enforcing it. Some companies can do this with ease, while some may face employee morale or internal political issues. For this reason, outsourced service providers enjoy a natural advantage for enforcing policies. When confronted with unreasonable requests from a transferee (who may be a very senior or well-connected executive), the outsourced provider can play the dispassionate gatekeeper and ensure that policies are consistently applied and that the programme is equitable for all employees.
While these costs will not necessarily increase for longer assignments, they may achieve muchless ROI when applied against shorter assignments. Longer assignments may help amortise the costs listed above, but they also carry larger time-sensitive costs:
The employee’s salary would be less relevant to the calculation if he or she could have been performing a similar function for the same business unit without transferring.
Employee benefit
Employee benefits and benefits in kind are various non-wage compensations provided to employees in addition to their normal wages or salaries...
s, these processes are usually administered by human resources
Human resources
Human resources is a term used to describe the individuals who make up the workforce of an organization, although it is also applied in labor economics to, for example, business sectors or even whole nations...
specialists within a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
and outsourced to different types of service providers. Relocation services are not synonymous with moving/relocation companies as not all of these companies offer "relocation services'".
Such business processes can include domestic residential services where an employee moves within a country or state as well as international relocation services which include planning for (diplomat
Diplomat
A diplomat is a person appointed by a state to conduct diplomacy with another state or international organization. The main functions of diplomats revolve around the representation and protection of the interests and nationals of the sending state, as well as the promotion of information and...
s, managers etc.) working abroad. An agency providing relocation services directs and manages the process of relocation including arranging necessary documents (visa
Visa (document)
A visa is a document showing that a person is authorized to enter the territory for which it was issued, subject to permission of an immigration official at the time of actual entry. The authorization may be a document, but more commonly it is a stamp endorsed in the applicant's passport...
, long-term stay permissions), finding a new house (accommodation
Lodging
Lodging is a type of residential accommodation. People who travel and stay away from home for more than a day need lodging for sleep, rest, safety, shelter from cold temperatures or rain, storage of luggage and access to common household functions.Lodgings may be self catering in which case no...
), finding a school
School
A school is an institution designed for the teaching of students under the direction of teachers. Most countries have systems of formal education, which is commonly compulsory. In these systems, students progress through a series of schools...
for children (education
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
), finding a job for the partner or "trailing spouse", arranging a teacher for the family (language
Language
Language may refer either to the specifically human capacity for acquiring and using complex systems of communication, or to a specific instance of such a system of complex communication...
teaching) and introducing fresh expats to the local culture.
Cost of international relocations for employers
Dating back to the Dutch East India CompanyDutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...
, sending an employee to work in another country (sometimes called a "global assignment" in current HR
Human resources
Human resources is a term used to describe the individuals who make up the workforce of an organization, although it is also applied in labor economics to, for example, business sectors or even whole nations...
jargon) has carried considerable costs while theoretically opening the potential for financial returns for the employer. However, companies contemplating increased expatriate placements, within their home countries (inbound) or overseas in host countries, are frequently penny-wise and pound-foolish with respect to real vs perceived costs.
Perceived relocation costs are easier to identify and therefore receive the most critical attention. Real costs are the sum of all direct and indirect expenses associated with the transfer. Compounding this challenge is the current state of many corporate finance systems, which are not designed to track relocation or to assign management cost data. Relocation cuts across many areas, including travel, transportation, human resources and payroll.
With tax equalization
Tax Equalization
When one is a taxpayer in one country, but works in another, one may be subject to different taxation from if one had worked in one's home country, or even to double taxation, even taking account of tax treaties between countries. Tax equalization is the offsetting of any such difference so that...
, housing allowance, cost-of-living adjustment and other benefits., the typical expatriate compensation package is two to three times the home-country base salary. For example, an expatriate with a €100,000 annual salary will cost the employer €200,000-300,000 per year incl. the relocation costs. Other factors influencing international service assignment cost are the host destination, the size of the family (for accompanied assignments where the family relocates with the expatriate to the host country), the expatriate benefits as per the employer's International Service policy, and home-host taxation.
Shorter term assignments have lower costs, especially when they avoid taxation thresholds, so the recent trend has been more short-term assignments and extended business trips. The savings pendulum will swing the other way, however, if expatriate employees are not given enough time to produce its host country to accomplish their assignment’s specified business objectives, whereby the position becomes a "revolving desk" lacking in continuity or operational momentum.
Additionally, companies with global ambitions have historically moved their employees (domestically) using several decentralised relocation departments, and they often face serious financial and regulatory risks unless they refit or re-educate organisation structures for cross-national transfers.
Different types of expatriate employers
As stated above, the average cost of a single global assignment is typically two or three times the employee’s annual salary. Much of the value or return an employer can expect from expensive global assignments comes from the networks the expatriates develop and the opportunity to exchange skills and knowledge both in and outside the workplace. As the table below illustrates, different types of corporations have different reasonsfor exporting or importing their talent.
There are three reasons why a company might give an employee a global assignment: filling functional needs, developing the employee for upper management, and developing the company itself. Anne-Wil Harzing of the University of Melbourne
University of Melbourne
The University of Melbourne is a public university located in Melbourne, Victoria. Founded in 1853, it is the second oldest university in Australia and the oldest in Victoria...
further categorises these employees as ‘bears,
bumblebees and spiders’. Those playing the role of bears are the long arm of headquarters control.
The bumblebees transfer (cross-pollinate)
Organizational learning
Organizational learning is an area of knowledge within organizational theory that studies models and theories about the way an organization learns and adapts....
their corporate culture.
Organizational culture
Organizational culture is defined as “A pattern of shared basic assumptions invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration" that have worked well enough to be considered valid and therefore, to be taught to...
Harzing’s spiders weave the
informal communication networks so important in connecting far-flung branches, subsidiaries
Subsidiary
A subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a...
and
all strategic partners
Strategic partnership
A strategic partnership is a formal alliance between two commercial enterprises, usually formalized by one or more business contracts but falls short of forming a legal partnership or, agency, or corporate affiliate relationship....
.
types of corporations making global assignments
| ORGANIZATIONAL CHARACTERISTICS ↓ | Multinational corporations Multinational corporation A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation... |
Global corporations | Transnational corporations |
| CONFIGURATION OF ASSETS & CAPABILITIES | decentralised and nationally self-sufficient (Unilever Unilever Unilever is a British-Dutch multinational corporation that owns many of the world's consumer product brands in foods, beverages, cleaning agents and personal care products.... , Philips Philips Koninklijke Philips Electronics N.V. , more commonly known as Philips, is a multinational Dutch electronics company.... ) |
centralised and globally scaled, but trending to decentralised model. (automaker Automaker The automotive industry designs, develops, manufactures, markets, and sells motor vehicles, and is one of the world's most important economic sectors by revenue.... s, Japanese firms Keiretsu A is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. The keiretsu has maintained dominance over the Japanese economy for the greater half of the twentieth century.... ) |
dispersed, interdependent, and specialised (Matsushita, Siemens Siemens AG Siemens AG is a German multinational conglomerate company headquartered in Munich, Germany. It is the largest Europe-based electronics and electrical engineering company.... ) |
| ROLE OF OVERSEAS OPERATIONS | sensing and exploiting local opportunities | implementing parent company strategies | differentiated contributions by national units to integrated worldwide operations |
| TYPICAL EXPATRIATE ROLES | engineers, specialists as needed | senior managers (middle- and line-management are localised) | both: specialists and managers, depending on cultural climate |
| ARE THEY 'EXPORTING' BEARS, BEES or SPIDERS? | bees and spiders | bears, mostly | depends on the country or market: mostly bees & spiders |
Moreover, recent advances in IT still cannot replace the importance of face-to-face contact with clients and competitors alike, according to Dr. Jonathan Beaverstock of the UK’s Loughborough University
Loughborough University
Loughborough University is a research based campus university located in the market town of Loughborough, Leicestershire, in the East Midlands of England...
. Beaverstock accurately predicted that expatriation will become more frequent, short-term and project-based.
Addressing relocation programme cost drivers
Any strategic assessment of a corporate relocation policy’s cost drivers begins near the top with a self-recognition of how the company financially accounts for all relocation costs (‘real’), and where those costs are allotted. Applied tactically, a cost recognition function assembles all information on the cost of a transfer, in one place, for case-by-case review and approval.Relocation cuts across many areas (both organisational and geographic), including travel, transportation, human resources and payroll. Corporate finance systems are usually not designed to track this seemingly unrelated cost data in concert. As a consequence, the decision-maker for any given
transfer will be weighing its business value using incomplete (‘perceived’) cost figures.
The employer’s case-by-case recognition of relocation costs means understanding the total cost of any given global assignment before it is originated. Then the finance and HR departments must track and report actual costs to budgets. This represents the smallest category of relocation cost drivers, but the way this ‘inexpensive’ work is carried out can reverberate, multiplying the size of the other, much larger, cost drivers.
During the relocation process, the people managing the relocations (internal or outsourced) must track, report and especially manage exceptions to the relocation policy. Tracking and reporting exceptions will usually reduce an employer’s overall relocation spend by 7 to 9 percent.
Responding to a 2005 Survey of global assignment management practices commissioned by a US-based third-party relocation management company, 31 percent of surveyed employers indicated that they track exceptions on a per-assignment basis for budgetary purposes, 23 percent track exception on an overall basis in order to identify policy components that need review, and 39 percent do not track the cost or type of exceptions granted. (Seven percent were not able to answer the question.)
Internal delivery costs and outsourced supplier service fees
The second smallest relocation cost driver is the process of carrying out the relocation programme, whether it is internal payroll and administrative costs or fees paid to a relocation management service provider.Depending on the size and organisation of a company, different departments, such as finance or human resources, may administer the relocation programme. Some may lack any formal programmes while others have highly structured processes. Moreover, different operating units (who do not always communicate with each other properly) may administer different aspects of the programme.
Some may manage and execute all of their relocation processes in-house while others find value in co-sourcing or outsourcing them. This is done usually for the purposes of saving time, focusing internal resources on inherent company workforce strengths, or for providing better service to each transferee by assigning him or her with a highly responsive ‘single point of contact’.
Hiring an external service provider is sometimes generalised as an all-or-none proposition, connoting a process is conducted solely outside of the client organisation. Yet most outsourcing arrangements are actually a mix of internal handling and outsourcing activities.
Of the companies participating in the 2005 Survey of Global Assignment Management Practices, 43 percent indicated that they either outsource or co-source some assignment management services (staffing 1:58 assignees, 7 percent declined to answer).
Employers that intend to continue providing all assignment management services internally may consider centralising the internal relocation delivery groups. Among the survey participants who fit this category, 49 percent indicated that they deliver services in-house from a centralised group (staffing 1:31 assignees) and 26 percent deliver service in-house and decentralised by business unit (staffing 1:21 assignees), while 13 percent reported a combination of centralised and decentralised in-house assignment management services decentralised by region (staffing 1:18 assignees), and 12 percent reported a similar combination decentralised by business unit (staffing 1:12 assignees).
Measuring (and revising) the relocation benefits
The second largest relocation cost driver is the nature of the relocation benefits themselves, also known as ‘policy design’. The entire relocation benefit policy ought to be reviewed once every two years by all stakeholders. This process normally involves benchmarking the policy against those of competitors or companies in similar industries. Relocation associations such as Worldwide ERCWorldwide ERC
Worldwide ERC is a relocation services industry trade group. Its membership of 12,000 relocation professionals--or global workforce mobility specialists--are concerned with current issues and management practices for the movement of employees within the United States and between all other...
provide a forum for this type of process and most relocation providers offer policy creation and review as part of their service.
Between these reviews, while a policy is in place, the employer controls costs by judiciously enforcing it. Some companies can do this with ease, while some may face employee morale or internal political issues. For this reason, outsourced service providers enjoy a natural advantage for enforcing policies. When confronted with unreasonable requests from a transferee (who may be a very senior or well-connected executive), the outsourced provider can play the dispassionate gatekeeper and ensure that policies are consistently applied and that the programme is equitable for all employees.
Underlying supplier costs
The cost of removals, home finding, language training, immigration and other services or processes comprise the largest and most tangible part of the global assignment cost pyramid. These costs also tend to be the least flexible —– unless the ‘flexing’ is upward, given the housing and transport sectors. There are two reliable methods for managing these costs. One is to react tactically and reduce the number of suppliers to gain volume price reductions. The second is to think strategically in the way costs are allocated and choose suppliers of these services who demonstrate the best overall value, not necessarily the lowest prices. That ‘overall value’ is not normally expressed down here in the base of the pyramid, but rather how the suppliers can interact or comply with the work being done in the upper tiers.Length of assignment: cost impacts
Shorter assignments tend to cost less, but a number of cost items remain constant regardless of length of stay since they are typically incurred at the beginning and end of the assignment:- Transfer bonus or allowance
- Cultural training
- Language lessons
- Spousal assistance
- Home finding
- Travel to destination
- Air shipment of household goods
- Surface shipment (delivery to destination residence)
While these costs will not necessarily increase for longer assignments, they may achieve muchless ROI when applied against shorter assignments. Longer assignments may help amortise the costs listed above, but they also carry larger time-sensitive costs:
- SalarySalaryA salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis....
- Goods & services allowance
- Property management at origin
- Housing expense
- Home leave or return trips
- Dependent education
- Tax preparation
- Taxes
The employee’s salary would be less relevant to the calculation if he or she could have been performing a similar function for the same business unit without transferring.
See also
- Worldwide ERC (Employee Relocation Council)
- Human resources
- Moving companyMoving companyA moving company, removalist, or van line is a company that helps people and businesses relocate their goods from one place to another. Typically they use moving vans, but for international moves or where storage is required, they may use special containerised vans or shipping containers.National...
- :Category:Moving companies
- :Relocation Journal (Relocation Blog)