The Pros and Cons of Hiring Expats
If you’re planning on opening an international office, or relocating members of your team to run your company’s operations in a foreign country, there are a few things you should know. Yes, sending expats overseas is expensive as you will need to take into account immigration requirements, tax equalizations, allowances, insurance and other payments, but, most of the times, it’s worth the investment.
In most situations, an expat assignment will cost you two, maybe three times, the price of a local employee. However, having a person you can trust running your business and training new employees, or hiring a knowledgeable expat for your business, may result in better long-term results. Today we would like to take a closer look at international recruitment and weigh the pros and cons of hiring expats.
Pros of Hiring Expats for your International Business
1. Quality over Quantity
From my experience, hiring locals can be extremely difficult, especially if you’re trying to open an international office. That’s because most local candidates will not understand your company’s practices. On the other hand, sending someone who knows the ropes of your company will make it easier to train local workers.
This means that one talented & hard-working individual may actually be worth three newcomers to the practices of the trade. Hiring locals may seem like a cheaper short-term solution, but the initial savings may be undermined by poor results on the long-term.
Of course, this decision may vary from one situation to another. For example, some companies work with a combination of expats and local workers
2. The Target Country has a Limited Local Talent Pool
Another reason to invest in expats would be a limited local talent pool in your industry. In this scenario, the costs of hiring knowledgeable local employees can be prohibitively high. Bear in mind that the ability to work with certain software or computerized technologies specific to your industry is a vital skillset possessed by very few individuals.
3. Your Operation Must Conform to the Standards of your Home Market
This is one of the situations when sending in a team of expats makes the most sense. Many manufacturing companies choose bright individuals to represent their international operation and train local employees. He/she will act as GM, oversee operations and ensure that all business efforts are compliant with the regulations of your domestic office.
Cons of Hiring Expats for your International Business
There are many cons of hiring expats. Here are some of the most common ones:
1. Expats are Expensive & Problematic
The expats themselves aren’t problematic, but making sure that all travel expenses, visa issues, host or home-country tax differentials and relocation allowances are covered will be. You should expect to pay two to five times more on an expat than you would on a local employee. In any case, you have to decide if this significantly higher cost is worth it.
2. High Burnout Rate
Studies have shown that expats, especially those performing extremely demanding jobs, have a high burnout rate. It seems that 25% of them are called home early because they take on too much stress. This problem is the result of several factors including language barriers, being away from friends and family, having to deal with an entirely new culture, and the feeling of isolation.
3. Legal Risks
Some companies ended up being fined or barred from operating in a certain country because they didn’t respect its immigration requirements and permit obligations. For the expat the situation can become even more sever. For example, continuing work in a country passed your permit’s expiration date may lead to imprisonment. A Global Mobility Effectiveness Study concluded that roughly 64% of international businesses suffered avoidable non-compliance penalties when sending expats.
If you’re still struggling to decide whether or not to send expats to oversee your international operations you should consider the following pointers:
- Exceptional employees, with company knowledge and superior management skills, who can also work well with limited resources are worth their weight in gold.
- Never make a decision without fully understanding all the underlying costs, regulations and implications of assigning an expat overseas. I’m talking about housing, moving, expat packages, tax & social security obligations, and support programs for families.
- The expat will need some time and training to become adjusted with a whole new culture and language, so don’t expect everything to work-out overnight.
(Based on my (Martin P. Laird) experience of working in South Africa)