Localisation policy and practice

The term ‘localisation’ is widely used but has several meanings, each with practical implications for relocation professionals. Sue Shortland explains the terminology, reports on policy trends, and provides advice on implementation.

The term ‘localisation’ is widely used but has several meanings, each with practical implications for relocation professionals. Sue Shortland explains the terminology, reports on policy trends, and provides advice on implementation.To professionalise capabilities in an increasingly international environment, actions may include recruiting experienced executives locally in host countries where the organisation has identified a need, investing in recruitment and training in an international context through the provision of international relocation (expatriation and inpatriation), and ensuring the board of directors has truly global membership.Understanding localisation Localisation is becoming an increasingly important phenomenon within international resourcing. Yet the term can be misunderstood easily, as it can refer to:
  • Employing an increasing proportion of HCNs (as an alternative, or in addition, to PCN/TCN expatriation)
  • Using ex-HCNs to manage subsidiary operations (as an alternative, or in addition, to PCNs and TCNs)
  • Localising PCN and TCN expatriates by phasing out/removing their expatriate terms, conditions and benefits, thereby transferring them to local terms and conditions
  • Employing PCN and TCN expatriates on local terms directly when they are sent out on assignment
HCNs and ex-HCNs While there are arguments for employing host-country nationals on cost and local-morale grounds, they may lack the mindset that multinationals require, for example, within international joint-venture and merger arrangements. As a result, international mobility for training and development (to the headquarters as inpatriates, or to another organisational location as expatriates) may be a necessary prerequisite to their capability development. Consideration must be given to the relocation policy applicable to such transfers. Generally, these assignments involve the mobility of individuals for relatively short periods, so short-term assignment policies (usually on unaccompanied status) apply. The assignees’ home-country salaries may provide insufficient compensation on relocation, as they may often be required to move from countries with relatively low incomes to more affluent and higher cost-of-living destinations. Thus, provision is needed to ensure When these individuals return home, they effectivelybecome ex-HCNs. Consideration is now required in relation to the terms and conditions which will be applied to them on their return. Their experience and training set them apart from local people (and thus they will expect higher compensation levels), but their societal and cultural roots align them with their local counterparts. An expatriatestyle package is, therefore, inappropriate, and would be overly costly for employers. It is also likely to distort compensation differentials locally.   Yet local pay potentially appears unattractive. Care needs to be taken to ensure that returning ex-HCNs do not take their newly (and expensively) gained competencies elsewhere. For example, if their home-country pay levels are set too low and do not recognise their development and international experience, they may switch allegiance to another local employer. Hence, compensation applied must be seen to be competitive and motivational, but it must not distort local pay structures. PCNs and TCNs Long-term expatriates remaining in country for lengthy periods may be ‘localised’ – their expatriate employment terms are removed in the assignment location. In effect, this means applying local terms and conditions to emphasise assignees’ loss of mobility. The key to localising expatriates lies in communication of organisational policy. It is critical to ensure that information on which elements of the assignment package will be phased out (and the timescales for this), and which will stop after a defined period, together with when changes will take place, are made clear beforethe assignment is undertaken.  PCNs and TCNs may be deployed on assignment on local terms to begin with. Of course, local terms may prove unattractive in low-pay countries and overly enticing in high-pay countries – with a knock-on effect on mobility (either assignees will not take up posts if the pay is too low, or will not come back, or will move on, if it is too high). If local terms and conditions are going to be applied under a host-based compensation package, it is important to consider net-to-net comparisons, to ensure that the distorting influence of tax and social security on take-home pay is taken into account. Localisation also requires consideration of the impact on family members. For example, while it may be theoretically possible to apply host pay, housing, and so on, the hostcountry school system may not be appropriate, and international schools may be a requirement for family mobility, or for them to remain longer-term in the destination country.  Consideration, therefore, needs to be given to the level of school fees that will be met, the length of time for which this will continue (for example, until a break in critical stages ofeducation), how any phasing-out might take place, and ensuring excellent communication with families. Schooling is a particularly emotive issue within localisation, and can prove to be a make-or-break factor in successful policy implementation. Expatriate localisation policy trends It would be expected that the increasing interest in localisation of expatriates would be reflected in a rising proportion of employers with localisation policies. Yet, surprisingly, Brookfield’s Global Relocation Trends 2012 Survey Report shows that this is not the case. Just 35 per cent of organisations were reported as having localisation policies in 2012. However, 36 per cent reported that they were considering developing and implementing localisation policies in the future. In contrast, the Cartus 2012 Trends in Global Relocationsurvey finds 47 per cent of participants with a localisation policy in place. The key drivers of localisation have traditionally related to formalising loss of mobility after a set number of years, and cost-reduction considerations. Interestingly, Brookfield notes that only 24 per cent of organisations localise after a predefined number of years (no change on 2011). Only 13 per cent localise on cost grounds. Localisation in response to the employee’s desire to stay in the home country was reported by 25 per cent, and no position on repatriation home by 10 per cent of the survey’s participants. All these reasons have declined since 2011. Instead, 28 per cent cite a variety of other reasons driving localisation (up from 14per cent); business strategy/needs and career paths were frequently mentioned. Both Brookfield and Cartus report that policy concerning the transition period to local benefits varies widely. While Brookfield reports 18 per cent transitioned immediately, Cartus notes 39 per cent did so. Brookfield states that 11 per cent transitioned during a one-year period; 9 per cent in two years; 19 per cent in three years; 3 per cent in four years; 11 per cent in five years plus; and 17 per cent on a case-by-case basis. Cartus reports 22 per cent transitioning over a one- to two-year period; 20 per cent over a three- to five-year period; 7 per cent country by country; and 12 per cent on some other basis. It is important, though, to take into account that different policy elements may be phased out, or removed, at different periods. Housing and education support typically are phased out, while benefits such as cost of living and home leave may be removed immediately. The country is also an important factor – for instance, Cartus reports localisation most likely to take place in the USA, Singapore and Switzerland.Localisation becomes more feasible in high-pay/standard of-living countries than in developing nations.  Localisation is a complex and challenging subject for relocation professionals, as it involves not only relatively short-term relocation-policy considerations, but also longer-term issues, such as tax, pensions and social security. The decision to localise an expatriate and family, transitioning to local terms and conditions, therefore, needs to take into account a wide spectrum of employment issues. Flexibility in policy design and implementation will probably be required to address business drivers and employee career and family circumstances.

Expatriate terms

Expatriates/international assignees may be described as ‘parent-country nationals’ (PCNs), or sometimes as ‘home-country nationals’ – they are sent from the headquarters base and are of the same nationality as the parent organisation – or ‘third-country nationals’ (TCNs), being of another nationality and being sent to live and work abroad, typically from another base of origin. ‘Host-country nationals’ (HCNs), also called ‘local nationals’, working locally in their home country, are not expatriates. However, they may be brought to the headquarters, typically for training purposes, being referred to as ‘inpatriates’. Inpatriation may also refer to the transfer of TCNs to the headquarters location. An inpatriate staffing strategy may be used on a temporary or permanent basis, combined with trips between the home and host locations to share and transfer knowledge. This is particularly prevalent as a resourcing strategy within foreign operations setting up in emerging markets. Local nationals who have studied or worked abroad, but who then return to their home countries with foreign experience to join the local workforce, are known as ‘ex-host-country nationals’ (ex-HCNs).   © 2013. This article first appeared in the Spring 2013 edition of Re:locate magazine, published by Profile Locations, Spray Hill, Hastings Road, Lamberhurst, Kent TN3 8JB. All rights reserved. This publication (or any part thereof) may not be reproduced in any form without the prior written permission of Profile Locations. Profile Locations accepts no liability for the accuracy of the contents or any opinions expressed herein. Back issues of Re:locate magazine can be viewed here.