Case 8: Report IMS April 2016 ABSTRACT. Mr. White, a 10-years employee, rising star of Techtonics International, has been in charge of

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1 Case 8: Report Jayden White: Should He Accept an Expat Assignment By Vy Nguyen, Matt Friske, Cailee Dresslar, Jeannette Umanzor, Kishore Balasubramanian, William Donovan, Ysabelle Andal IMS April 2016 ABSTRACT Mr. White, a 10-years employee, rising star of Techtonics International, has been in charge of 2100 sales personnel with the total sales $700 million. His boss recently offered him an opportunity to move to Shanghai, China, to lead the establishment of a new office for the East Asia regions. Mr. White welcomes the opportunity; He has been exposed to international

2 IMS : Case 8 Report 1 cultures through his college time internships. However, the decision could affect his wife, an accountant for a domestic firm, and his children, who are 5 and 8 years old. Mr. White needs to decide within a week and if he did so, he will be moved for 4-6 months. Should Jayden White, a 32 years old manager of Techtonics International, accept the offer? We recommend that Mr. White goes through with the move to China. After going through our research we have determined that not only would it be a good career move, it would also be a good educational move for the White family. The children, at 5 and 8, are not too young nor too old to have severely negative reactions to the move or be adversely affected by the educational differences. They are also not close to the age of applying to college for which location would significantly matter. Mrs. White could work out a deal with her accounting firm to work virtually or even find a job with a different firm s Chinese branch. While there is much to think about, the decision to become an expatriate is largely personal. Even the littlest change, such as internet restrictions, could be the determining factor for such a large undertaking. However, we see the benefits of working in China, and expanding Mr. White s skills, outweighing the negatives in this case. Why am I going? While being exposed to another culture in China through an expat assignment, you should consider the opportunity to gain an advantage over your domestic colleagues. A recent study has found that when it comes to C-level managers 7 out of 10 have held management jobs in foreign climes (Fisher). Thus you have the unique opportunity to gain an advantage in your career path over domestic managers for executive level promotions by taking an international assignment. The main drivers for accepting an international assignment are career growth,

3 IMS : Case 8 Report 2 personal development, and becoming a multi-cultural professional. According to The Expat Explorer Survey of 2015, 55% of expats in China say the country provides a better opportunity to learn new skills than their home does (Explorer Survey). The financial benefits that China offers to expats offsets some of the other factors like family accommodation, where China is lacking. A study has shown that of the expats in 39 countries, 65% are saving more than they do in their home country (Explorer Survey). If you are looking to gain an advantage financially I recommend that you take the international assignment. To assist in doing well while gaining foreign experience, I recommend following the three predictors of effectiveness in a foreign assignment (Global Mindset Institute). The three you should pay attention to are solid knowledge of international business, openness to different cultures, and the ability to influence people of different cultures. Since you already have been exposed to different cultures throughout vacations and your AIESEC internship, this opportunity is a platform for you to gain exposure to China s culture while expanding business operations for your company. Your company is not offering this position to punish you or push you out of your position by being sent out on foreign assignment to come back to your position filled. As your friend I believe the business opportunity of the international assignment aligns well with your personal goals and can increase the momentum of your career goals. Where am I going? While you contemplate about numerous considerations, having knowledge of the place where you are moving should be one of your major priorities. According to the International Talent magazine and China Society for Research on International Professional Personnel Exchange and Development, Shanghai is the top choice among the cities of China for expatriates to live and work (For expats...). Though housing in Shanghai varies from apartments, complexes, or renovated houses, it is vital to decide on the neighborhood where your family will live (Guide to living abroad). Consider factors like your commute to the workplace, your children's school, nearest market place, church, and leisure activities for your family. It is also better if your

4 IMS : Case 8 Report 3 company can arrange a house or apartment that is near a current expatriate community. This can help your family adjust faster and gain more knowledge about the day-to-day living in the city while providing some support from cultural shock. The freedom to drive, like that in the US, might be one of the major personal issues that you would need to adjust once settled in Shanghai as it is not recommended for expats to drive around the city. The driving restrictions are because of the road system and complex traffic laws (Living in Shanghai). However, plenty of inexpensive public transportation such as buses, subways, and taxis are available (Living in Shanghai). Make sure to mention to your employer if they are providing a company car and a hired driver for your family for your first few months of your stay. Make sure to be mindful about small factors like internet access or electric plug differences, because these things can add on to the stress that your family will face once in Shanghai. One simple way to start the process is by eating out at traditional Chinese restaurants while still in the US to help your family get accustomed to the taste of their food. Western restaurants and fast foods are available in Shanghai; however, a box of pizza might be a more expensive than what you would usually pay back home (The New Shanghai). Foreign-invested companies use English as their common language in the workplace. However, making the effort to learn the language of your host country can benefit you by building better connections with Chinese clients and make new business contacts. Also, locals would feel valued by your family when you try to talk and connect with them in their language. Culture shock is one of the major issues that expats and their family experience in a new place especially in a country like China. It ll be best to be openminded, and be knowledgeable and respectful of their traditions and cultural beliefs. How long will I be gone? Short Term Expatriate Assignment Employees in short term assignments work overseas for a fixed term, usually for a minimum of three months to a maximum of one year. This type of assignment is beneficial to both the company and the employee. Many companies are turning to short term expatriate assignments as an answer to cost and family issues. The benefit for the employee is that there is no need to

5 IMS : Case 8 Report 4 uproot the entire family and relocate them overseas. The company makes considerable savings from the absence of costs associated with relocation like school fees, shipping of goods, vehicle transportation and furniture storage. In order for this type of assignment to be effective, HR needs to manage the assignment to make it a successful undertaking on both sides. Long term Expatriate Assignments Long term Assignments are usually from a minimum of three to a maximum of five years. These types of assignments require the employee and their family members to relocate to a host country for the duration of the assignment. Therefore, this requires company support and payments for the housing situation in the host and home countries, school allowances, dual career support or spousal assistance, shipment of goods, storage of belongings, relocation service provisions, tax assistance, cost-of-living adjustment and expatriate allowances. However, in many ways the expense of sending an employee on a long term assignment is compensated by the increase in sales, connections, and productivity. The downside of this system is that, many surveys indicate that families feel the company HR adopt an out of sight, out of mind attitude to its expatriate staff. What does my family think? Most people believe that an international assignment with a multinational corporation footing the bill is highly sought-after amongst corporate executives. However, this is far from the truth. Americans turn down expat posts at a rate of 94%, with 70% of these refusals due to a spouse s refusal to give up their job or career. Therefore, in an increasingly competitive global economy, multi-nationals have a vested interest that solutions are found to what in global mobility jargon is referred to as the dual-career challenge. According to the Permits Foundation, 90% of spouses are employed before an international move with only 35% employed afterwards, even though ¾ of these spouses wish to work. While the most obvious obstacle for accompanying spouses in finding a job abroad is

6 IMS : Case 8 Report 5 obtaining a work permit, the work permit question is always a catch-22 situation. One cannot get a work permit without a job offer, but one cannot get a job offer without a work permit. Unfortunately, the work-permit issue is only the first of many obstacles the trailing spouse faces in her or his efforts to find a job or maintain a career abroad. These expats lack professional networks, face language and cultural barriers, possess job qualifications and/or licenses which are not recognized in the host country and very few local companies are willing to hire trailing spouses who might be forced to move from the host country at a moment s notice. The good news is that developments on the Internet in the past five years have opened up many new opportunities for the accompanying spouse. Virtual jobs are an increasing possibility, as well as online learning. And, for those who possess an entrepreneurial spirit, networking on the Internet has opened up a whole new world of opportunities. Furthermore, for those looking for a traditional corporate job, several job search websites targeting expat populations have been created in the past few years. One such company is Expat Network, a UK-based organization for expats seeking work and assistance overseas, whose services cover from showcasing the best jobs across the globe to sending the mother-in-law on a spa weekend. Other such websites are Expat Exchange, a job search and networking site which boast a growing community of hundreds of thousands of expats across the globe; Expat Careers which addresses the genuine needs of employers and recruiters who required a single site to advertise managerial, executive and expatriate positions from all industries and locations within a single job search platform; and Overseas Jobs which has been working for well over a decade to provide employers easy access to a wide, targeted audience of job seekers. In addition, when it comes to moving abroad, expat families say a welcoming environment for their children is at the top of the list of must-haves. Moving abroad can be both exciting and scary for children, but is often balanced out by the unparalleled exposure to new cultures for the entire family, said Kate Berger, a psychologist in Amsterdam who specialises in expat children. Children living abroad develop skills that make them more adaptable than their counterparts living at home.

7 IMS : Case 8 Report 6 The elementary age is a great time to move to a foreign country. At this age kids are not yet so settled into their friendships as to create a catastrophe by leaving them, and still of an age to pick up a second language with amazing speed. As long as you are moving to a major city, the children will have plenty of great school choices, public and private. As far as packing for this age, there are a few things that are hard to find in China. If you d like to have your own educational materials, whether for home-schooling or for supplements to regular school, for this age are hard to find in any subject. What support is available? When considering moving to a foreign country for work, it is also important to look into the support available not only for you, but also for your family. While you have a career to focus on and help you with the transition, your spouse and children are leaving everything behind. This concept can be extremely difficult to adjust to. Therefore, before committing to any overseas position, you should negotiate with your company on what they are willing to offer to assist in making the transition for your family as smooth and painless as possible. For example, will there be any kind of education of the country s culture and language available to the family? Often, there will be some sort of seminar the employee can attend, but they are brief and usually not enough. Additionally, these seminars aren t often offered to the family members. Another major factor in the decision is what will happen to your family in their day-today lives. As far as your wife, how difficult will it be for her to find new employment in China? Will she have to do it all on her own, or will your company be able to assist her in a job search or provide her with networking opportunities? In addition, even if she is able to find a job, there could be a gap in her knowledge and readiness, as accounting practices are likely very different in China than they are in the United States. In that case, will there be any assistance available to help her understand and prepare for these changes? Additionally, your children and the education they will be receiving needs to be taken into consideration. It is important to look into the quality of the schools in the host country.

8 IMS : Case 8 Report 7 Ideally, the best placement for them would probably be an international school. However, sometimes the company may be willing to pay for them to receive an elite education from a private school. Once you and your family return home, the question of if your children be able to switch back over to the U.S. school system easily will come up. Although these are some of the most important, a few more issues to look into as far as support during the transition are the quality of healthcare in the host country, the opportunity for you and your family to continue your hobbies, and whether or not you will be able to keep in touch with people from home via the Internet. One of the primary reason expatriates return home earlier than planned is because either they or their family cannot adjust to their new country because they do not feel at home. What should my package look like? Deciding a compensation package for potential expatriates can be very difficult as the one size fits all approach is not realistic nor does it facilitate adjustments for each situation. An unfair compensation package could lead to a bad return on investment for the company, as well as lack of motivation to perform or join the program at all for the employee. Most companies choose to follow the balance sheet approach; where the expatriate is paid a base salary equal to that of the domestic counterpart. This solidifies the idea that no one should be worse off for accepting foreign employment. However, this is difficult for companies to arrange particularly for employees that have several titles across nations and regions. Additionally, this doesn t account for significantly higher level of additional cost when compared to the home country, such as cost of living. Other options include the expatriate receiving a higher salary and benefits package with some of the extra benefits being phased out over time; the expatriate may receive a lump-sum in which they are compensated their homecountry-based salary and then receive an addition sum that the expatriate can choose how to allocated, therefore the company does not pay for things the expat does not value; a modification of the lump-sum approach known as the cafeteria approach may also be available, where the expatriate has option they can choose from, such as a company car or company-paid tuition.

9 IMS : Case 8 Report 8 Allowances are also a part of the compensation payment added to the base salary of an expatriate; the most common being housing, cost of living, tax differentials, education, and moving. Housing allowances are given by companies as a way to minimize hurdles for the expat. Paying this allowance minimizes situations where employees have to sell or rent their homes in order to afford housing abroad. Cost-of-living allowances are based on differences in prices paid for food, utilities, transportation, entertainment, clothing, personal services, and medical expenses compared with the prices paid for the items in the city of the headquarters. International companies also pay the difference when taxes are higher in the host country than that of the home country. The objective of this allowance is to ensure that the expatriates will not have less after-tax take-home pay in the host country that they would at home. As education expenses can be substantial for children of expats, up to $100,000 per child for some private schools in China, the company s willingness to cover this expense is a deciding factor in an employee s accepting an expatriate posting. Finally, companies generally pay the total cost of transferring their employee s overseas. These cost include transporting the family, moving household items, and maintain the entire family in a hotel on a full expense account until their household items arrive. This allowance is very important as it has been found that moving into a house sooner raises the employee s morale. Finally, bonuses are also paid in addition to base salary and allowances to make up for hardship, inconvenience, or danger that expatriates and their families might encounter. Bonuses include overseas premiums, contract termination payments, and home leave reimbursement. Overseas premiums are additional payment to expats and generally are a percentage of their base salary, typically ranging from 10 to 25 percent. If the living conditions are particularly difficult, companies may choose to pay a higher overseas premium. Incentives for the employee to finish out their contract overseas is given in the form of contract termination payment. This payment is made at the end of a contract period. Finally, many companies pay for the expatriate and their families to go back to their home country often so that the employees and their companies do not

10 IMS : Case 8 Report 9 lose touch with the home country and its culture, the employee can renew relationship with headquarters staff, and to provide a break from a host-country location. The expatriate s compensation is given in the host-country s form of currency, but is established in the terms of the home-country s currency. In countries where their currency is freely converted, this does not pose a problem; however, difficult problems must be solved when the expatriate is moving to a country that has exchange controls and nonconvertible currencies. Establishing a currency base rate is essential to achieving a comparable compensation. References Expat Explorer Survey - Compare countries: United States, China : HSBC Expat. (n.d.). Retrieved April 08, 2016, from For expats, Shanghai tops list for desirability again. (n.d.). Retrieved April 10, 2016, from Guide to living abroad: Shanghai. (n.d.). Retrieved April 07, 2016, from Living in Shanghai. (n.d.). Retrieved April 07, 2016, from Maurer, R. (2013, August 22). International Assignments: Who's Going Where and Why?. Retrieved April 08, 2016, from The New Shanghai. (n.d.). Retrieved April 09, 2016, from

11 IMS : Case 8 Report 10 Types of Expatriate Assignment. (n.d.). Retrieved April 10, 2016, from