The Real Cost of Expatriate Assignment Failure

The Real Cost of Expatriate Assignment Failure

5 Sep 2017

Rob Chipman, President of FIDI, and CEO of Asian Tiger in Hong Kong. Rob is a global mobility expert with many years of experience, during which time he has learned how to ensure that global assignments work – and has a better idea than most of how much it costs when they don’t. 

A failed international relocation is likely to have a devastating impact on the employee, the employee’s family and to the employer itself. While none of these parties will want to dwell on the reasons for failure, it is particularly important that companies understand the financial (and non- financial) costs of failure, in order to assess the overall return on investment, the viability of their global assignment program – and to help plan more successful assignments in the future.

Expatriate costs: let’s do the math

The cost of a failed assignment depends on the salary level of the transferee, the size of his family and the destination country. In addition, there are the non-financial costs such as lack of productivity, and the mental and emotional toll on the employee and on the family. Let’s delve into both of these aspects: 

The financial aspect, falling primarily on the employer, includes transportation costs such as several international flights, short-term accommodation, rental on long-term housing, at least two household goods shipments (to and from the destination) school fees, and miscellaneous ancillary charges. The cumulative cost can mount up quickly. The following is a typical set of numbers for a family of four with two school-aged children, assuming the assignment is terminated within the first year:

• Salary and benefits, fully loaded, $250,000/pa
• Air Fare $5,000 x 2 for look-see trip
• Air Fare $5,000 x 4 at beginning of assignment
• Air Fare $5,000 x 4 at end of assignment
• School fees (tuition for 2 @ US$20,000/year)
• Household goods shipment US $15,000 to the destination
• Household goods shipment US $15,000 back to origin
• Ancillary charges $30,000
• Total hard costs = $400,000

It’s worth noting that salary costs account for just over 60% of the total cost of the year-long assignment. This is a cost that would have been incurred if the assignee had stayed in his or her previous role – but the company of course has to place a value on the contribution the assignee made to the organisation during that period. Since the assignment was cut short, it is unlikely that any objectives were met. The other costs – which account for 37.5% of the total – deliver nothing to the organization… 

It’s not all about the money 

Now let’s turn to the non-financial aspects. A recent study claimed that eight to ten work days are lost when an employee relocates within his country, and up to 20 days for some international relocations. In addition, a disenchanted employee may not fit in back at his origin country and, if so, they are likely to have far lower productivity. There are often issues with low self-esteem, lack of motivation, family problems, and even depression. 

What are the causes of failed relocations and what can be done to minimize the risks? The most often cited cause of a failed relocation is the family’s inability adjust to the destination country environment. This far outweighs pure job performance. The typical adjustment problems include a spouse that doesn’t fit in, doesn’t create a social network, and becomes disengaged. Less often, but still of major concern, are kids that do not adjust well among their peers. Families often cannot find the support services they require for special-needs children. It all boils down to an overall inability to fit in and assimilate with the local culture and language.

So what can you do to minimize this risk?

A first step would be better screening to assure the candidate, and his family, are well suited to the new location. Another key is to provide appropriate, professional relocation support services for the relocating family’s personal needs. Cross-cultural and often language training are likely to be major components. Finding the right school for the children can be a tremendous challenge and take up considerable time to determine the right fit. Finally, the family’s attitude such as learning about the new country’s customs, culture, food, and etiquette also have to be factored in. 

Each of these pieces constitute a complete puzzle that, when assembled properly, can lead to a positive experience for the transferee, their family, and the employer. 

See also FIDI