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The World Stops Shrinking

January 1, 2000
Related Topics: Future Workplace, Expatriate Management, Featured Article
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Almost everyone was caught off-guard by the intensity of the conflict during the World Trade Organization (WTO) meeting in Seattle last month, but perhaps we shouldn t have been surprised. After all, the scale of the global economy is enormous.

Consider some facts:

  • According to the U.S. Bureau of Economic Analysis, direct investment abroad by the United States in 1997 was $865,531 million. In 1998, it was $980,565 million.
  • Foreign investment in the United States jumped from $693,207 million in 1997 to $811,756 million a year later.
  • The United Nations identifies 53,000 companies as multinationals; collectively, they have 450,000 affiliates worldwide. The top 100 global companies employ more than 6 million foreign nationals.
  • The Alliance for Converging Technologies projects that by 2005, there will be a billion people worldwide using the Internet.

Numbers like that are hard to ignore, and maybe harder to fully grasp. It s safe to say, though, that almost every facet of our lives is in some ways affected by globalization.

How we manage that reality is what's now at issue.

The concerns facing HR professionals with global responsibilities are less incendiary, but no less urgent. The issues have moved far beyond figuring out how to export American know-how, business practice, and business culture. They've even moved beyond how to get expatriates in and out of their destination countries as easily and inexpensively as possible.

Instead, HR professionals are dealing with what might be called "the maturation of global workforce management." That maturation includes refinements in compensation, expatriate assignments, corporate structure and more.

Companies are applying the lessons of global experience.
One focus of the maturation process is the effort to refine the return on investment (ROI) analysis for expatriate assignments.

Two seemingly contradictory pressures are honing the ROI process. On one hand, the ballooning costs of expat assignments have prompted companies to demand greater accountability from expats to keep expenses down and to fulfill specific objectives based on sound business practices. That pressure will intensify in the coming years as multinationals in other countries send more expats abroad and there is increased competition for the same business.

At the same time, however, there's greater pressure to spend more in other areas. Many organizations now have enough experience abroad to have documented that cultural sensitivity and global etiquette are crucial skills for all employees—not just those who work outside their home countries—since many of them have contact with international business clients.

The recognition that expats alone are not wholly responsible for the success of international business ventures is leading to increased spending on training. Ultimately, then, the ROI process will cease focusing on expat costs alone and begin to analyze the total costs of doing business abroad.

The maturation process also will bring changes in compensation design and delivery, driven by greater interaction between the company and the individual going on assignment.

HR professionals are dealing with what might be called "the maturation of global workforce management." That maturation includes refinements in compensation, expat assignments, corporate structure and more.

Gardiner Hempel, global practice leader of international employment solutions for New York City-based Arthur Andersen LLP, says that with increased pressure to get greater mileage from each dollar spent on expatriate assignments, organizations can differentiate themselves from their competition by giving expats options about how they want to receive the funds. Technology, in turn, makes the customization possible because variations from the norm are far easier to track.

"If the employer gives you a dollar, it's just a dollar," he says. "But if the company works with you to give you the money in the way you want it, versus how everyone else gets it, you'll perceive that you re getting $1.25. Given the confines of tax law and company policies, there will be much more interaction in this way."

For example, Hempel cites lump-sum payments to expats (versus funds designated for specific expenses). That happens in many areas, including travel back to the home country. Rather than require that the funds be spent on trips home in a specific way, expats are allowed to spend it on travel as they choose.

Ultimately, Hempel sees such flexibility as evidence that the large gap between how international and domestic job transfers have been handled will get much narrower. He sees that there will be less need to spend a lot on expats to sustain their standard of living as the cost of living becomes more similar around the world, access to familiar things becomes easier, and travel is more common.

HR's experience with globalization is also reflected in the way organizations are beginning to structure themselves more regionally. "Throughout the 1990s, organizations have been struggling with how to become global in their structure, with what it means to manage a global organization," says Michael S. Schell, CEO of New York City-based Windham International GMAC Global Relocation Services. "The ideas of ‘think globally, act locally became buzzwords managers tried to construct business strategies around."

Although these strategies were designed to meld the efficiencies gained through centralization with local expertise, doing so proved difficult in reality. "Strategically, acting locally was difficult because organizations had to create ways to localize global tactics, and if you tried to localize them into each of the potentially hundreds of localities, it destroyed a lot of the required economies global business would need to be successful," Schell says.

In response, organizations are creating regional service centers. These centers allow companies to establish standard practices, maintain quality, and amortize costs.

Says Schell, "In international assignment services activities, you need to have standardized services that can be defined by line and HR managers for expats going anywhere. You need to have a uniformity of quality of services. However, you don't have to replicate that in every country. You can do it regionally and aim at global efficiencies with the personal, local touch of the region. It allows you to maintain quality throughout the world."

The nature of expat assignments is changing.
In addition to changing how traditional expat assignments are managed and serviced, global organizations are reexamining the assignments themselves.

"There's a continuing trend toward shorter assignments," says Sue Evens, senior manager of international human resources consulting at New York City-based KPMG. "We see this in two ways. One is shortening the average length of a long-term assignment; the other is the enormous increase in the use of short-term assignments."

Evens data comes from an ongoing, interactive, online survey developed by KPMG with the College of Business Administration at the University of Houston. "We see 50 percent of participants stating that their average long-term assignment is two to three years. That's a lot shorter than we ve seen in past years, when people were going out three to five years." Evens says only four percent of assignments are as long as five years.

"My company pays me not for knowing answers to all their questions about legalities and customs in 40 countries, but for being able to access the solutions in those countries," says Lance Richards of Teleglobe.

The survey also shows that 50 percent of respondents report an increase in the number of short-term assignments, defined as those lasting less than one year. "People are less willing to move their families," Evens says. "They don't want to disrupt their spouse s career, so they're either choosing to go for shorter periods of time or they're going on single-status for short assignments."

Also, technology serves as a helpful change agent in this area. One thing companies like Hewlett-Packard are doing to cut costs is taking advantage of virtual transfers—work over telephone and over the Internet.

There are potential benefits beyond cost cutting, too. Identifying people who are willing to accept international assignments has become more difficult and is expected to become more difficult still. Virtual assignments alleviate that pressure.

"Because of the general prosperity in the U.S., people are more likely to opt out of an expat stint," says Hempel. "The strain on the family and the spouse, and the uncertainty regarding one's own career, may get people to say, ‘I make enough money, I have a house larger than I ever dreamed, I have stock options, my husband or wife also works, and I value my comfort as opposed to adventure. "

Technology will enhance global reach.
Obviously, none of these options would be possible without the ever-liberating, cost-reducing technological advances that improve communication and productivity. The KPMG survey finds that 83 percent of participating organizations have corporate intranets and 98 percent of HR administrators have access to those intranets.

But technology has the potential to have greatest impact on strategy.

"Technology allows me to sort through global HR issues in the Czech Republic, Budapest, United Arab Emirates, Tokyo—and I don't have time to go to these places. I can take care of all of these things via voice-mail and e-mail," says Lance Richards, director, of international human resources at Reston, Virginia-based Teleglobe International. "I'm capable of driving recruitment, worldwide, [over] the Internet."

Using some of the general resources that are available now, such as Internet recruitment sites Monster.com and CareerBuilder.com, Richards and other global managers are able to recruit from locales they d never dreamed possible.

He posts jobs for Tokyo or the UAE and lets them sit to see what responses they generate. A candidate in Kuala Lumpur is just three clicks away from finding the job—and one click away from doing research about the company.

Then, the question becomes whether the company really needs these individuals working in the United States; it may be better to set up shop in Singapore.

"I have to understand the cultural and political issues of 40 to 50 countries, and my ability to deal effectively with all these interrelationships is critical," he says. "As a global manager, I have to develop a worldwide network where I can ask other HR folks questions about their countries. More and more my company pays me not for knowing specific answers to all the questions about legalities and customs in 40 countries, but for being able to access the solutions and resources in those 40 countries. If I can't put my finger on a solution for Zurich in a phone call or two, they re paying too much for me."

A global HR manager is going to be measured, in large part, by the reach of his or her global network. As the world gets more and more complex and interrelated, tough questions will be part of the daily work routing. It s impossible to know every nuance, but global HR managers need to be able to access the information, know the trends and what s on the horizon, and anticipate challenges for the workforce.

Workforce, January 2000, Vol. 79, No. 1, pp. 48-51.

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