MOBILITY challenges IN emerging markets The term emerging markets means different things to economists, diplomats, and product managers, but to relocation professionals it generally means locations where normal mobility policy and program dynamics break down in some way. The cause may be a lack of local talent, which forces corporations to import qualified employees. It may be a lack of local infrastructure, which makes customary housing, schooling, and other amenities scarce or even unavailable. It may involve transportation, security, or political instability. All contribute to a situation in which exceptions to policy, workarounds, and unbudgeted expense are to be expected an undesirable set of factors in any business model. Responding Corporations We received a total of 116 responses from corporations moving from tens to thousands of employees per year. Respondents were well distributed among major industry segments, representing a solid and diverse breadth of experience. Chart 1. Respondents by Industry While many publications and global institutions have developed their own widely varying lists and qualifiers for emerging markets, what matters to the relocation industry is not whether Argentina, Angola, and Azerbaijan have rapidly developing economies, but how well international assignment policies can be applied to the locations where their business needs to be. This led Cartus to develop a specific definition of relocation emerging markets as locations with infrastructure, talent, or administrative difficulties necessitating targeted strategies for meeting recruiting, housing, education, transportation, culture, language, security, and governmental challenges. Survey Background To establish a baseline for practices among major corporations dealing with these kinds of challenges, Cartus invited its global clients to answer a 13-question survey conducted in February- March 2011. The survey responded to a need expressed by a number of clients to help them not just react to current conditions but also to anticipate future trends. Although the recent political upheaval in Middle East and North African countries demonstrates how difficult this task might be in actual practice, the experience of major corporations and the insight resulting from our involvement with them can offer practical guidance in how to deal effectively with emerging market issues. 5% Banking, Finance 11% Chemicals, Agriculture, Food Processing 10% Construction, Engineering 12% Consumer Products, Retailing 4% Energy, Utilities, Mining, Forest Products 2% Insurance, Real Estate 2% Life Science 2% Machinery, Instruments, Aerospace, Defense 12% Manufacturing 2% Pharmaceutical, Health Care 6% Service, Hospitality, Travel, Transport 11% Technology (includes Computers, Electronics) 4% Telecommunications, Media 16% Other PAGE 1 OF 6
Defining Emerging Market Locations To provide a point of reference, we established a list of 37 locations, distributed around the globe, as a model for relocation emerging markets. Defining emerging markets more broadly than cities does present some key issues. An assignment in the city of Buenos Aires may involve no real need to adapt a corporation s model global policy, whereas supporting mineral exploration in the wilds of the pampas may require a totally customized approach. Good examples of this quandary are China and India, which are typically locations that are top of mind when many companies think of emerging markets. However, emerging market terminology does not apply well to these countries, which contain both highly developed and undeveloped locations. We therefore limited our definition to Tier II, III, and IV cities in these countries. Emerging Market Choices Surprisingly, 31 out of 37 destinations on our list appear at least once in the respondents list of top three emerging markets over the next two years. Then, given the opportunity to insert the names of locations they consider their top three emerging markets, respondents listed an additional 13 countries. The most frequently named locations were China, India, Russia, and Brazil, the oft-identified BRIC countries. In fact, more than half of all respondents (62 of 116) named China as one of their top three emerging markets and nearly half (52) named India. Despite the dominance of these four countries, a total of 44 locations (see Chart 2) were selected as key emerging markets, which shows how much of the world is comprised of challenging markets for multinationals. To underscore this challenge, consider that Saudi Arabia, Libya, Indonesia, Bahrain, Egypt, Turkey, Qatar, and Ivory Coast are all consensus emerging markets that saw political instability during the period that the survey was being conducted. Chart 2. Ranking of Top Emerging Market Destinations 1 China (Tier II-IV Cities) India (Tier II-IV Cities) Brazil Russia United Arab Emirates South Africa Mexico Malaysia Saudi Arabia Philippines Vietnam Argentina Czech Republic Indonesia Taiwan Turkey Bahrain Nigeria Poland Qatar South Korea Angola Chile Mozambique Panama Romania Thailand Colombia Egypt Hungary Ukraine 1 Ranking reflects locations identified as Top 3 destinations by respondents Additional Emerging Markets Mentioned (listed alphabetically) Bulgaria Cambodia Congo Costa Rica Ghana Guatemala Iraq Ivory Coast Kenya Liberia Peru Serbia Slovakia Of additional interest is the fact that six of the emerging markets listed in the survey questionnaire did not appear in any respondent s Top 3 choices, and thus do not appear in Chart 2. Those locations are: Azerbaijan, Equatorial Guinea, Libya, Morocco, Oman, and Kazakhstan. This does not necessarily mean that respondents had no volume into those locations, just that others were more important. PAGE 2 OF 6
The fact that many areas have recently experienced unrest highlights the relevance of a survey question on the measures corporations have implemented or considered to deal with geopolitical upheaval or instability in an emerging market. Security and travel restrictions led the responses, with evacuation not far behind, but increasing commuter or business travel options to avoid longer-term relocations placed third, with more corporations saying they are considering this than any other measure (see Chart 3). Chart 3. Measures implemented or considered to deal with geopolitical upheaval or instability in an emerging market region Factor Have Implemented Are Considering Total The Importance of Emerging Markets Multinational corporations are highly focused on the opportunities represented by the countries they consider emerging markets. More than half of respondents (51 percent) reported that emerging markets are currently more important than traditional markets (see Chart 4). Less than one-fifth of this number considered them less important. Chart 4. Importance to current overall business strategy, compared to traditional markets 51% More Important 34% About the Same 9% Less Important Reinforce existing or implement additional security procedures Impose travel restrictions 49% 13% 62% 38% 14% 52% 6% Don t Know Increase commuter or business travel options to avoid longer-term relocations Increase reliance on local employees 28% 21% 49% 34% 15% 49% Evacuate employees 28% 15% 43% Increase/allow telecommuting Place temporary holds/delays on new assignments 27% 9% 36% 20% 11% 31% Moreover, more than two out of three respondents (68 percent) said that emerging markets will be very important to their company s overall business strategy over the next two years (versus none reporting that they will be less important) (see Chart 5). Chart 5. Importance to overall business strategy over the next 2 years 68% More Important 26% About the Same 0% Less Important 6% Don t Know No additional actions 13% 9% 22% Other 4% 4% 8% PAGE 3 OF 6
Having established that corporations have a high need to succeed in emerging markets, it is interesting to see which assignment types they favor in these markets. Long-term assignments are used significantly more than any other type on a regular basis, although when responses for used regularly and used sometimes are combined, short-term assignments became essentially equal in frequency to long-term assignments. Extended business travel followed closely behind these two (see Chart 6). The current findings seem to counter the recent conventional wisdom that short-term assignments are increasingly replacing long-term assignments, primarily for reasons of cost. However, the use of long-term assignments in emerging markets may be an indication of the critical nature of these assignments to the corporation s business and the need to commit significant numbers of capable employees for an extended period of time and, as we note below, less of a focus on an ability to predict and control costs. Because long-term is generally the most expensive assignment type, corporations may view the higher cost of mobility programs in emerging markets as a fact of life in markets that lack local talent and resources. Nevertheless, as noted above, a considerable number of respondents indicated that they were looking to increase commuter or business travel options to avoid longer-term relocations. The root opinion thus appears to be that long-term assignments are a necessary, but not necessarily desirable, option for security and cost reasons, but that they can be supplanted readily when stability conditions are favorable. An interesting hybrid approach to underdeveloped markets has been described by various Cartus clients whereby assignees and their families are based in more established locations from which the assignee shuttles back and forth to the more remote area. This approach offers clear advantages, particularly in the case of extended assignments where family separation is a major disincentive. Exceptions and Policy Adjustments Policy exceptions are endemic to emerging markets and occur there much more frequently than in traditional markets. In fact, 41 percent of respondents said they use exceptions to attract or retain assignees more in emerging markets than in traditional markets, while only 5 percent use them less. By this standard, corporations are likely finding it more difficult to secure assignees for emerging markets without some additional inducement, even in the case where they have separate policies for emerging markets, which approximately one-third of respondents (31 percent) say they have. Chart 6. Assignment types used in emerging markets Assignment Types Regularly Sometimes Regularly + Sometimes Rarely Never Long-term 52% 30% 82% 12% 6% Extended Business Travel 33% 44% 77% 15% 8% Short-term 32% 51% 83% 13% 4% Developmental or Rotational 24% 36% 60% 20% 20% Commuter 12% 31% 43% 34% 23% Other 15% 19% 34% 8% 58% PAGE 4 OF 6
When asked which policy elements they were most likely to add or adjust, more than half of the respondents (52 percent) mentioned hardship allowances, with an additional 27 percent including assignment incentives or foreign service premiums (see Chart 7). While the Cartus Global Policy & Practices surveys in 2003, 2007, and 2010 (https://www.cartusmoves.com/ research/) document a reduction in these kinds of payments for assignees in general, these benefit enhancers clearly continue to have value in emerging markets. Various forms of leave are also used, but to a lesser extent. Chart 7. Policy elements most likely to be added or adjusted, compared to standard global assignment policy Hardship Allowance 52% other factors were mentioned by more than 40 percent of respondents. These were evenly divided between increased levels of administrative involvement and homefinding/settlingin/adjustment. Because a lack of infrastructure is a common thread in emerging markets, the focus tends to be on establishing basic support systems as soon as possible. This effort can divert attention away from the erosive effects of culture shock, which can be equally overpowering. Assistance in this aspect of supporting the assignee and family, through intercultural and language training, was not mentioned by respondents but is an issue Cartus clients often mention as a lingering barrier to productivity and assignment success. Security Home Leave Assignment Incentive/ Foreign Service Premium Rest & Relaxation Leave Split Family Non-accompanying Dependent Visit Other 14% 42% 31% 27% 26% 20% 20% Business Drivers A basic consideration in emerging markets mobility is why corporations are sending employees on assignment. Like long-term assignments overall (as measured in the Cartus 2010 Global Policy & Practices Survey) the main business driver for emerging markets is to provide local leadership (68 percent of responses). The second-ranking response (at 64 percent, only four points lower) was to provide project-based expertise, which is a tactical driver that is much more strongly associated with short-term assignments (see Chart 9). In addition, corporations were asked to specify other elements they were most likely to add or adjust. Some of the responses are included below (see Chart 8). Chart 8. Policy elements most likely to be added or adjusted (Other) Provide an expat-lite policy to control cost Housing and car drivers Increased housing budgets Guaranteeing balance sheet net remuneration Chart 9. Key business drivers for sending employees on assignments to emerging market countries Key Drivers Frequency Provide local leadership 68% Provide project-based expertise 64% Perform specific skill-based tasks 47% Train local employees 46% Lifestyle allowance Higher allowances Enable employee skill or career development 25% Goods & services differentials Timing on visas Accommodate employees who request the assignment 3% Housing allowances Adjusted COLAs Other 3% Managing Emerging Market Assignments Corporations report that emerging markets require additional time and resources in order to support assignments. Immigration was the leading activity (at 55 percent), but six Even so, the prominence of project-based expertise, and of performing specific skill-based tasks, is indicative of the different nature of many emerging markets assignments and the premium attributed to skill and self-sufficiency in assignees. PAGE 5 OF 6
Challenges for the Future Finally, more than half of respondents (51 percent) said that attracting candidates with the required technical/business skills is one of the most significant challenges related to emerging markets. Despite this practical focus, however, respondents recognize how important working effectively in a strange environment can be. For this reason, the #2 challenge was employee s ability to adapt successfully to the locations and the #4 challenge was attracting candidates with the required language and intercultural skills (see Chart 10). A key finding in this question is the fact that financial issues (the ability to predict and control costs) ranked fifth in the list of challenges. This suggests that emerging markets are so critical to future business success that the actual costs fall in priority below other considerations related to getting the job done. Clearly, there is a dynamic balance between controlling costs and assignment success that mobility professionals are continually managing. It is an issue that elevates the importance of making good decisions in assignment policy development, program design, and employee selection to a higher level than in traditional international assignments. Chart 10. Most significant assignment challenges in emerging markets Key Drivers Frequency Attracting candidates with the required technical/business skills 51% Employee s ability to adapt successfully to the location 42% Lack of adequate local business and living infrastructure 41% Attracting candidates with the required language and intercultural skills 34% Lack of ability to project or control costs 21% Employee s ability to complete the assignment 16% Other 2% PAGE 6 OF 6