COVID-19 has brought global economic instability at varying degrees. Singapore’s government announced that the nation’s economy is expected to shrink to more than 7 percent in 2020. The economic downturn has also affected international business expansion plans. Not only that, many business leaders are expected to make hard decisions when it comes to managing overseas assignees and the overall global and regional movement of talent.
With this in mind, HR in Asia sits with Lee Quane, Regional Director – Asia at ECA International, to discuss business expansion plans and how to better manage overseas asigness in unprecedented times.
I believe that for many employees working overseas, the pandemic has brought increased feelings of insecurity; insecurity about their employer’s operations in the host location and job prospects in their home location if their assignment overseas is ended prematurely. The nature of the current economic downturn and its impact on people’s ability to see close family and friends in their home countries has also negatively impacted many employees who work outside of their country of origin.
People working outside of their home countries often have complex situations associated with their financial commitments: while they may work in one country, they may also have ongoing commitments such as housing commitments, family financial commitments and long-term savings commitments elsewhere (most often in their home country). This means that they may often have to allocate their salary towards meeting both financial commitments in the location where they work as well as commitments back home. As such, they will be impacted by currency fluctuations (changes in the value of the currency or currencies in which their salary is paid) and will need to manage these.
The combination of the Covid-19 pandemic and volatility in oil prices has caused much volatility in exchange rates in 2020, with even major currencies such as the US Dollar being affected. To attract employees to live outside of their home country, companies need to ensure that the employee is incentivised to do so. This includes ensuring that the employee feels that they will not be adversely affected by the impact of currency volatility when they choose to work overseas.
Overseas expansions can be costly and involve risk on the part of companies. There are significant costs associated with expansion into a new territory which include the costs associated with planning and preparation (such as undertaking market research, formulating business plans and estimating the viability of the host market and navigating the regulatory requirements associated with setting up an operation in a new country). Once a decision has been made to enter, there are often costs associated with securing a premise, purchasing the machinery/technology needed to be able to operate and staffing the operation.
Most companies will try and mitigate this risk by testing the waters first, trying and entering a market remotely in the first instance by coordinating expansion from operations based elsewhere. This could involve working with a local partner as an agent or representative in the first instance while the company’s personnel will undertake multiple business trips to see clients and partners. If the company sees potential to set up a more established presence in the host country, it will then do so.
The pandemic has made it more difficult for companies to operate internationally. Most economies are in a recession so both businesses and consumers are conservative with their budgets. This makes it difficult for anyone to execute a plan for expansion unless they operate in an industry which has been positively affected by the pandemic. Border restrictions, quarantine requirements and cut-backs to international flights have also made it much more difficult for company personnel to visit a country to evaluate the feasibility of the market. As such, I expect that many companies are shelving their plans and taking a wait-and-see view unless they are fully convinced that their planned expansion will result in an increase in income despite the current situation.
As travel restrictions begin to ease, organisations should still be mindful of some key considerations regarding business travel.
Companies have already begun to shift their approach to prioritising employee wellbeing, through the provision of personal protective equipment (PPE), rather than employee retention through cash rewards.
Aside from the additional provisions, companies have also recognised that many of their employees who have had to remain in the host location have been unable to utilise their home leave during the pandemic – albeit for health concerns, quarantine restrictions or the inability to travel back to their home location. In light of this, some companies offered to encash this, accepting the fact that employees may not be able to use it during the allocated period. Alternatively, companies have also allowed employees to roll over their remaining leave to next year. Both options have their merits, but any decision should account for the impact that these choices may have on the taxable nature of the benefit.
Overall, ensuring clear and regular communication on the situation and measures being implemented can help provide employees with much-needed mental and emotional reassurance. Being empathetic to the personal circumstances of individuals is also vital in ensuring the workforce remains positive, supported and healthy in difficult times.
The best way for companies to do this is to deliver the employee’s salary in a mixture of home and host country currencies. This follows on from my response to question #3 above. Once the employee’s assignment salary is calculated, it is split into a portion to be delivered in home country currency and host country currency. The former portion is delivered into the employee’s home country bank account and enables the employee to meet home country commitments. The latter is delivered in the employee’s host country bank account to enable them to meet day to day commitments there. These amounts are fixed so the employee is therefore protected against the impact of currency volatility during the assignment.
The frequency with which employees undertake business travel is likely to reduce as a result of the pandemic. Companies have adapted their working practices and have proven themselves to be able to conduct cross-border business using alternative methods.
However, business travel remains an essential element of an organisation’s international operations. The resumption of cross-border mobility is a positive sign for organisations that rely on business travel as it signals a recovery in the global economy.
Many companies are still planning new assignments for when global travel restrictions are lifted, and many countries around the world have already begun the process of reopening. However, organisations must be wary of the new challenges associated with travelling such as reduced frequency of flights, longer wait times at customs and immigration, health screenings and potential quarantine requirements both upon arrival in the host location and upon return.
With global travel still far from returning to normal, shorter and easier to initiate assignment types are most likely to have been postponed indefinitely. When we polled companies in June, most companies expected a return to pre-pandemic levels of assignments within 12 months. However, this is likely to be optimistic and a return to pre-pandemic levels of employee mobility will be dependent on the creation of a vaccine or the eradication of the virus.
In addition to travel restrictions, a need to cut costs will undoubtedly reduce mobility further. The main exception to this is virtual assignments, where assignees carry out their role remotely from the home country. This type of assignment would be largely free from travel restrictions and could prove significantly cheaper than other assignment types, although it would be subject to practical limitations of working across time zones, as well as the tax and immigration issues mentioned previously.
About Lee Quane:
Quane began his career with ECA International in 2003 and has been assisting multiple companies in managing and rewarding their international staff effectively for over 14 years. Apart from assisting and working on international staff, Quane also invests in data and software as he believes that businesses should leverage technology as a means to ensure talent and mobility strategies are not operated in silos.
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