In a country that depends highly on the skills of foreign talent, the recession has forced companies to localise foreign employees in order to save costs. By Mabel Tan
China – As the world continues to grapple with the current economic recession, many companies are being forced to reassess their business strategies. This is particularly true in a market like China, where a high level of dependency on foreign talent exists.
According to a spot survey conducted by PricewaterhouseCoopers International Assignment Services (PwC IAS), 26% of 70 China-based companies surveyed say have explored the option of deploying talent into and out of China on more cost effective packages such as “local plus” packages. Meanwhile, 24% have also indicated a reduction in cross-border deployments, especially moves from Hong Kong to China.
Other cost-cutting measures adopted include terminating current international projects (18%), revising assignment allowances downwards (13%) and exploring tax planning options (12%).
Chinese companies are also getting aggressive with the speed at which employees are localised. The report stated that the majority (63%) of localisation initiatives took place between the first three years of the assignment duration. This is a far cry from the past when localisation was implemented after the third or even fifth year of assignment.
Furthermore, survey results revealed that companies have been extending their localisation efforts to cover both middle (39%) and senior management (36%) positions, reflecting on their keen interest to contain costs.
But what was the main decision behind the push to localisation? While business needs were cited by half of respondents, 44% also cited “cost to company” as a reason. Only 6% said their decision was to achieve pay equity with local peers – a move which may pose as a challenge in the retention and motivation of local talents in the long run.
However, localisation packages remain the biggest obstacle to the localisation process, as cited by 38% of respondents. Not surprisingly, companies that offer “richer” expatriate packages have found it more difficult to localise as compared to other companies that employ foreign talent on “leaner” terms and conditions.
Other challenges cited include pension (15%), environmental/social factors (15%), career opportunities (12%), schooling (8%), spouse’s ability to work in host location (4%), housing (4%), and the assignee’s ability to adapt to local culture (4%).
However after much efforts of implementing such a challenging and sensitive issue as localisation, 47% of respondents said they were unable to quantify the cost savings generated, mostly likely because they do not have the tools to do so.
Nevertheless, 26% were confident of achieving between 20% to 50% of savings and 15% remained positive that savings would be realised after 12 months.
The survey was conducted on 70 China based companies across all industries.
