This article offers an overview of expatriate management in the region and in particular the increasingly blurred boundaries between local and expat remuneration approaches.
Macroeconomic and HR trends
Asia is a vast and extremely complex region, and each country – or cluster of countries –has its own discrete challenges. For example, Japan is a mature market with low inflation, but is experiencing slow growth. Hong Kong, Singapore, South Korea, and Taiwan are still growing, however, and are probably among the most attractive destinations in the region for young assignees thanks to their low tax (in the case of Hong Kong and Singapore), relatively modest inflation, and fairly competitive salaries. Emerging economies include Malaysia, the Philippines, Indonesia, and Vietnam where the growth is strong but they are regarded as hardship destinations, and thus require a more developed assignee compensation package.
India and China remain the two major players in Asia, but the path to continued success will not be easy for either. India’s GDP is expected to start growing faster than China’s in the short term but numerous difficult economic reforms and significant investments, especially in terms of infrastructures, will be necessary to enable India to challenge China as Asia’s powerhouse. China is very much in transition as growth slows and it attempts the challenging shift from manufacturing to a consumer economy. GDP figures are relatively high in comparison to inflation and salary increases are also healthy, meaning that employees have not only acquired considerable purchasing power, but also high expectations. These have certainly impacted local talent retention; turnover is in double digits.
Spotlight on locals and Asia-outbound assignees
Locals and Asian outbound assignees are playing an increasingly important role in the mobile workforce, especially as the greatest planned increase of assignments lie in those from and within Asia. A talent shortage means that competition is fierce for the best and brightest, and there is a premium on international experience and managerial skills.
Key career and reward drivers for Asian employees vary according to location. In performance-driven China, for instance, employees expect prompt salary and career progression and aren’t afraid to leave if disappointed. A more traditional structure still prevails in Japan and Korea: age, service, and level drive career structure and pay, but job grades are strictly defined and very much in the gift of the employer. Singapore plots a middling course: it is partly westernised in its philosophy – compensation structures are comparable to the US and Europe, and employees take responsibility for their career progression – but it also respects the local need for hierarchy. Competition for talent is fierce in India, where variable pay plays a critical role in managing performance and cost.
With these drivers in mind, how can multinational companies hire the best employees and (crucially) keep hold of them? Steps to success include:
- Increasing standard starting salaries, allowances, and welcome bonuses; local companies have deeper pockets and are more flexible. More frequent salary and performance reviews might also be necessary to catch up with employees’ expectations and fast rising salary rates.
- Improving brand recognition, participating in the local community, and adapting to its culture.
- Operating a speedy recruitment process that combines quick approvals and job offers with calculated risks.
- Showing employees a real future. Be sure to outline a typical development plan and career path, highlighting training and development opportunities and developmental international assignments, to give clear answers about future salary progression, and take action to tackle the “bamboo” ceiling that many local workers fear in multinationals (i.e. the top managerial jobs are perceived as monopolized by foreign expatriates). It is important they feel their voice will be heard and that they are as much part of the team as their Western colleagues.
- Remembering that, given high turnover rates, up to 30% of the workforce at any one time will have less than one year’s service. As a result, pressure on the HR staff responsible for rolling induction and/or cultural training programs will be intense, and headcount ratios will need to be adjusted accordingly.
It can be challenging for multinationals to offer the brisk career progression Asian workers demand. One simple way of facilitating frequent “promotions,” however, is to break up existing job grades (i.e. B1, B2, B3, C1, C2, and so on). Status is also very important in the region (particularly among older people), and title expansion is a common practice here. Some companies use one set of titles internally and another externally in order to address this issue.
While being internationally mobile is traditionally seen by Western high-fliers as vital to their long-term career, it may be harder to encourage Asian employees to go on assignment, at least initially. They may be concerned about missing out on promotion opportunities or by the prospect of losing touch with valuable networks. As a result, creating a robust repatriation “promise” that clearly outlines the benefits potential assignees can expect to gain from overseas projects is essential. Offering support for family issues, from the care of elderly parents to the education of school-age children, could also tip the balance.
From an employer perspective, talent segmentation is another hot topic. Once assignees have experienced a different lifestyle and compensation package, it can be extremely difficult to repatriate them. At this point they move out of the regional talent pool into the global pool, which could have implications for the business. Determining early on who is destined to join the international talent pool and who should remain in the regional one is therefore important.
Spotlight on Asia-inbound assignees
Many assignees to Asia could be still described as traditional expatriates, and while there have been fears that this category would slowly disappear, these traditional expatriates still have an important role to play. Today, they are usually brought in to set up operations in new locations, facilitate skills transfers, or as developmental moves. The majority is employed on a home balance sheet approach but local and local plus packages are increasingly common (see panel below). Aligning assignee location preferences with employer need is increasingly difficult. However, while many expats would relish a stint in Singapore or Shanghai, the reality is that they are most needed in less attractive tier 2 cities. The legitimacy of the traditional expatriates in the eyes of their local peers and of management lies in their willingness to go to these more challenging locations, their capacity to transfer much-needed skills, and more generally provide added value to the organizations receiving them. Increasingly, a strong business case is required to justify these expensive assignments.
Other important assignee groups include:
- Locally hired foreigners. Typically skilled and experienced internationally mobile workers are normally employed on local terms and conditions, and have been one of the drivers behind the growth of this approach. The fast growth of base salaries for high qualified positions in the region has facilitated the employment of foreigners on local or local plus packages.
- Returnees. A growing number of Western-educated professionals are coming home to mainland China, where they compete for jobs with locals and other expats. The group is diverse and comprises both experienced staff who can command a market premium and young graduates who have been away for just a few years but expect a healthy salary regardless. However, companies are less and less inclined to pay a premium for the second category.
Local plus packages in Asia
Local or local plus packages are becoming the go-to choice for multinationals when they recruit in Asia. But how are they calculated? A number of variations can come into play. For example, a brand-new “local” base salary can be either pure local, an inflated local for foreigners, or a local for returnees. Alternatively, a net to gross conversion can be made if an employee’s existing salary is taken into account, adjusted as necessary for differences in tax, purchasing power, and housing costs.
The “plus” component comprises various allowances, which vary by country. Cost of living assistance is rare, but housing allowances are common and paid in cash for a certain period, usually as a percentage of the level offered in “full” expatriate packages. Education, medical, and home leave allowances are also relatively standard. Housing in particular is a major challenge in the region – a two-bedroom unfurnished apartment in Hong Kong costs more than $10,000 per month.¹ (Note that many employers have been achieving cost-saving opportunities by moving away from luxury accommodation to more standard housing for assignees, while others now link housing allowance with hardship levels, paying more in hazardous locations where workers’ safety is at risk.)
Spotlight on hardship
While conditions have improved steadily in recent years in China and India and hardship payments are generally decreasing, there remains a considerable gap between tier 1 cities and those in tiers 2 and 3. Pollution is still a considerable worry, although most employers focus on practical support, in the form of air filters, masks, extra recreation leave etc, rather than extra pay. Assignees are understandably reluctant to bring their families to badly affected cities such as Beijing and Shanghai, however, and while more frequent home leave and shorter assignments are now more customary businesses will need to be creative and flexible if they are to move the right talent at the right time in these locations.
Food for thought
“Traditional expatriates” are still an important component of a mobile workforce in Asia but their legitimacy can be under scrutiny.
The clear cut between expatriates and locals is disappearing fast. Expatriation policies need to accommodate multiple employee categories and assignment scenarios.
Defining the right mix of compensation approaches including balance sheet and the different forms of local and local plus is becoming a must for many companies: Asia is one of the regions where the process is the most advanced.
Employers need to change pace to keep up with high turnover, salary increases, and expectations when managing locals and Asia outbound expatriates.
Contact the author, Olivier Meier, on LinkedIn.
1. Source: Mercer’s housing costs survey, September 2016. Table 3 Moderate areas.