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Cutting Costs by Training Local Talent

Nationals understand the culture and language better than expats, and they cost a lot less, according to CH2M Hill.

September 18, 2003
Related Topics: Finance/Taxes, Expatriate Management
Location: DENVER
Employees: 11,000

Of the more than 1,000 employees that CH2M Hill has working in 20-oddcountries, only 4 percent are U.S. expatriates. "It wasn’t always that way,"says John de Leon, vice president of international human resources. "Thenumber of expatriates in proportion to the size of the company has gone downdramatically in the past five years." For example, in 1998, they had 10non-Spaniards in their Spain office. Today there are none.

    The drop is intentional and it happened for several reasons, he says. "We’vehad resounding success developing local talent to run our businesses," whichhas always been a goal. "Nationals understand the culture and language betterthan expatriates, and they cost a lot less."

    Expatriate salaries are usually higher than those in the host country, andthe extra costs that go along with foreign assignments drive up the pay-packageprice considerably. That’s not to say de Leon won’t send a U.S. employeeabroad. "The first challenge in filling a job is always to find the bestperson." If the talent can only be found in the United States, his goal is tofind someone who can work well cross-culturally and transfer the skill set tothe local workforce.

    Once someone has been assigned, there are three major cost categories inaddition to the base salary that de Leon has to manage. Taxation is the firstand typically most expensive. In most cases, CH2M Hill offers expatriates taxequalization to sweeten the deal. It adds a lot to the cost of the assignmentbut makes the transition easier, de Leon says. For example, expatriates inGermany may incur twice the income tax they would in the United States, and theyare taxed on their housing and cost-of-living allowances as well. Even the taxpayment becomes taxable when the company covers it, he says, which adds to thecomplexity and growing costs. "This financial snowball effect is a greatincentive to make sure we really need to fill the position with an expatriate,"he says.

    He uses a tax firm that specializes in handling expatriate assignments tomanage these issues, and says that the most important thing to look for in a taxservices provider is customer service. He finds that shopping around for serviceproviders and building relationships with multiple vendors gives him a sense ofcomparison and competition. "It’s easy to determine if a tax firm hasexpertise and access in the host country," he says. The differentiator, hesays, is whether they are accessible and communicate well with your employees,explaining the tax situation in terms they understand. "Foreign taxation is socomplicated that the level of communication is critical. You want someone whohas an empathetic attitude, who can understand the human side of the taxsituation as well as the technical aspects of it," de Leon says. "Whenemployees have someone like that to help them, they will be more productive andthey will see that the company cares about them."

    After taxes, housing and education add the most expense to an expatriateassignment. U.S. employees will expect to replicate their housing situation inthe host country, de Leon says. Depending on the country they are going to andthe city they left, that can get unrealistic. "If someone has a half-acrewooded lot in Texas, they are not going to find that in Tokyo."

    De Leon relies on strong relationships with destination service providers tomanage housing costs while keeping expatriates happy. They greet the newlyarrived family and show them housing that meets their requirements and isreasonably priced instead of immediately showing them accommodations that addthousands to the projected housing costs, he says. "Without a goodrelationship, you are at the mercy of your housing service."

    Finally, when expatriates take their families overseas, they expect to sendtheir kids to private English-speaking schools, he says. The tuition adds$12,000 to $15,000 per child per year of taxable income.

    Overall, CH2M Hill spends three times the base pay of its expatriates peryear, which is on the low end of average for a U.S. expatriate assignment. "Ifyou do your homework, you can find important opportunities for savings," deLeon says.

Workforce, June 2003, pp. 102-103 -- Subscribe Now!

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