Magazine 07 - Ernst & Young...our infographic provides an overview of today’s expatriates. 16 __ Upward and outwardly mobile Increasingly global business leaders need to be mobile

T M

agaz

ine

07 07Magazine

Tax insight for business leaders

Tax as a factorin employee relocation

The rise of the stateless employee

The challenges ofmanaging virtual teams

The globalexecutive

A new breed of managertakes center stage

ImprintPublisher:Ernst & Young EMEIA TaxMaagplatz 1, 8005 Zurich, Switzerland

Marketing Director: Alfred RaucheisenProgram Manager: Alexander LorimerProgram Support: Gabi WichmannContent Advisor: Monica KremerOnline Manager: Mikael Enoksson

Publishing House:Infel AG Militärstrasse 36, 8004 Zurich, Switzerland

Publishing Director: Elmar zur BonsenEditor-in-Chief: Rob MitchellEditor: James WatsonCreative Director: Guido Von DeschwandenArt Direction: Käthi DübiProject Manager: Michèle MeissnerPicture Editor: Diana Ulrich

Printer: Rüesch Druck AG9424 Rheineck, Switzerland

All rights reserved. Contents of this publication may not be reproducedwhole or in part without written consentof the copyright owner.

A part of this issue will be distributed as an insert in the Financial Times across Europe, Middle East, India and Africa in April 2012.

Ernst & Young Issue 07 T Magazine 3

By Stephan Kuhn Editorial

Dear Reader

Recruiting and retaining talent is a perennial challenge for any multinational business. In rapid-growth markets, there is already intense competition for relatively small numbers of highly skilled and experienced workers, especially within middle and upper management, despite hugenumbers of new graduates emerging each year. In developed markets, multinational businessesare grappling with other challenges: an aging workforce as a result of demographic change,and all too often a disconnect between the skills of the labour force and those that businessesneed to succeed.

Addressing these talent mismatches requires companies to think carefully about how theymanage their human capital on a global basis. For many, the greater use of overseas postings isan important tool for filling talent gaps and transferring best practice around the world.Gaining experience in other markets is also a crucial part of management development, helping high-potential employees to develop the international experience and cultural understandingthat will enable them to lead tomorrow’s global business. Can tomorrow’s CEO be someone without deep, first-hand knowledge of today’s rapid-growth markets?

In recent years, the pattern of international postings has evolved. Traditional expatriate models, whereby companies relied on the experience of managers from developed markets to establish operations in rapid-growth economies are now just one part of the mix. Today, there isa much more fluid, dynamic approach to the migration of talent, with executives also movingfrom rapid-growth to developed markets, and also from one rapid-growth market to another.

The emergence of a new generation of “global executives”, while beneficial for the business overall, presents companies with many challenges from a tax perspective. Different rates of incometax around the world can make it difficult for companies to create remuneration structures that equalize liabilities between jurisdictions. A related challenge here lies in crafting incentive structures that motivate global executives, without creating a mismatch between them and local workers. Beyond this, social security obligations and pension entitlements, complex enough in many jurisdictions, become even more challenging to manage for mobile employees. In addition, meeting the challenges of housing, schooling for children and potentially work assistance for spouses present complications. Obtaining appropriate residential and working permits are also critical steps in managing risks for both the firm and employees. Even employees who are notbased overseas can present problems because they may trigger local tax liabilities if they travel frequently enough.

In this issue of T Magazine, we look at the emergence of a new generation of “global executives”, either traveling frequently, or else shifting from one international posting to the next. Weconsider how companies are developing global talent management processes to build talent pipelines for the future, and explore the tax implications of this increasingly mobile workforce.

We hope that you find the publication valuable and stimulating.

Stephan Kuhn

The growing emergence of a “new global executive”

Stephan Kuhn is Area Tax Leader for the Europe, Middle East, India and Africa (EMEIA) region at Ernst & Young.

Stephan Kuhn

Your feedbackWe work hard to make T Magazine useful and informative for our readers. But we would value your views on what we could do better. Feedback can be provided via the feedback form in this publication or a brief online survey, available here: www.ey.com/tmagazine/survey

16

4 T Magazine Issue 07 Ernst & Young

Contents Credits: Jos Schmid, Digital Vision / Jeremy Woodhouse, Keystone / MaxPPP / Leemage; Cover: Keystone / EPA / Patrick Seeger

Discover more content, news and features on the T Magazine website at www.ey.com/tmagazine

Access the App Storeon your iPad to downloadthe free T Magazine app

Management30 __ Making relocation a successExpatriate postings all too often end in failure.So what can be done to help ensure a successful assignment?

34 __ Human capital on the moveThe traditional pattern of West to East migration is giving way to a new multipolar reality for expatriates.

36 __ Managing in a virtual worldEffectivly managing virtual, multinationalteams requires both new tools and different approaches.

40 __ Welcome back. Now – please don’t leave!Returning expatriates are far more likely to leave an organization than their compatriots.How can this be avoided?

44 __ Who’s next?An effective CEO succession planning strategy is crucial to the long-term success of any company. Why do so many corporate boards struggle?

Outlook48 __ Developing global leadersProfessor Manfred Kets de Vries, founder of INSEAD’s Global Leadership Centre, writes on future challenges and tomorrow’s global business leaders.

Cover T M

agaz

ine

07 07Magazine





The globalexecutive


Features8 __ From expat manager to global executiveA competitive, globalized marketplace is reshaping the nature and dynamics of the expatriate assignment. Is your organization meeting this challenge?

14 __ Assessing the global executiveAs the global map for today’s expartriate changes, our infographic provides an overview of today’s expatriates.

16 __ Upward and outwardly mobileIncreasingly global business leaders need to be mobile. This can have costs, both personal and financial, as well as presenting challenges for employers.

20 __ Preparing a new human ageT Magazine interviews Françoise Gri, Presidentof ManpowerGroup Southern Europe and one of Fortune’s Global 50 Most Powerful Women in Business.

Focus22 __ Living costsHow the relative costs of the world’s business cities are evolving in line with shifts in the global economy.

28 __ The stateless employeeManaging an increasingly mobile workforcepresents a new set of challenges to meet associated tax obligations for employee and employer alike.

368

“Our disadvantage as an economic zone is the coexistenceof 27 different national systems. Of course, variety can also be a bonus.But what we do need is a common framework and common rules,so that employees can move inside the EU without barriers.”Martin Schulz, President of the European Parliament, in an interview with T Magazine on free movement of labor (see page 13).


News

Global tax newsA roundup of recent developments from major governments and tax administrations

7

2

1

5

3

4

6

FranceFebruary 2012A proposal was submitted to parliament for the introduction of a tax on certain financial transactions, which would be introduced from 1 August 2012. It proposes taxes on the transaction of shares of publicly traded companies established in France, whose capital is valued at over€1b, at a rate of 0.1% of the value of the shares traded. High frequency and automated trading operations would be taxed at 0.01% on the amount of cancelled or modified orders above a ceiling.

United KingdomFebruary 2012The UK’s HM Revenue & Customs (HMRC) published draft updates to its VAT law and regulations, aimed at enabling businesses to make specific

communications with HMRC through an electronic system, part of efforts to streamline VAT procedures. These encompass applications to register for VAT, make returns, submit claims, and keep accounts, among other things.

South AfricaFebruary 2012South Africa will switch from its current secondary tax on companies to a dividend withholding tax, as of the first of April 2012. The new tax is essentially a tax on the shareholder, rather than the company, and is calculated at a 15% of the net amount ofthe dividend declared, up from the 10% initially proposed.

CanadaJanuary 2012 Effective January 1, 2012, the federal corporate tax rate was

FinlandJanuary 2012The Finnish government confirmed amendments toits corporate and individual taxation rules, as part of its 2012 budget. Within this,the corporate tax rate was reduced to 24.5%, whilethe special withholding tax on certain dividends was cutto 18.38%.

ChinaJanuary 2012China’s Ministry of Finance increased the tax thresholdof its windfall tax on theoil industry, from $40 per barrel to $55. Progressively high taxes are applied thereafter, with a maximum rate of 40% for any prices above $75. This applies toall oil companies operating in China effective from1 November 2011.

cut to 15%, from 16.5%. Certain accelerated tax depreciation incentives for manufacturing and processing equipment were extended through to 2013. During 2011, new legislation was introduced to curtail the use of partnerships to achieve a tax deferral and draft legislative proposals were released related to foreign affiliates.

PortugalJanuary 2012Portugal confirmed a range of tax amendments in January, affecting both corporate and income tax rates. Withholding taxes on investment income were increased, along with the tax rate applicable to capital gains on the sale of shares. The rate of autonomous taxation on profits distributed to entities wholly or partially exempt from corporation tax was also increased in certain cases.

2

1

3

5

4

6

7


News Credit: Getty / ChinaFotoPress

__ In recent decades large corporations have explored every corner of the worldin search of new growth. Between 1976 and 2007, the number of multinational companies expanded nearly eightfold, from 11,000 to 79,000, according to United Nations Conference on Trade and Development (UNCTAD). These businesses now compete at a global level to attract, retain and develop the best talent for their enterprises.

In 2011, the main motivation for sending an executive abroad was involvement in a specific project; anything from an engineer on a mining survey to a manager overseeing a merger. Close behind this were managerial assignments – often with specific leadership or strategic components aimed at filling skill gaps, spreading corporate procedures or developing local talent.

Naturally, with the economic turmoil of recent years, international expansion has slowed for many large companies. From 2008 to 2010 there was a steady decrease in employees on short-term assignments. However, in 2011 this trend reversed and today more companies are sending a larger percentages of employees on short-term international assignments. Interestingly, where long-term investments were concerned the global economic crisis did not have such a large effect. In other words, companies continued to see the need for long-term assignments throughout the economic downturn.

May 2004 Expansion of the European Union gives residents of 10 more countries the right to move freely within the EU.

September 2006 The G20 calls for international tax transparency tobe “vigorously addressed”.

February 2008 The UK begins phased introduction of points based immigration.

September 2008 The global financial crisis begins to slow the movement of workers.

June 2009 The first-ever High Level Policy Forum on Migration held at the OECD.

May 2009 The European Parliament backs the introduction of the ‘blue card’, an EU-wide work permit.

Tax reform in the spotlight

2006 2008 2009

The freedom to move

Share of labour force

Source: MARC M&A Maturity Index

% foreign % native

0%

37.5%46.9%

Canada

26.0%43.5%

20.7%38.9%

21.2%31.5%

30.0%29.3%

Ireland

United Kingdom

New Zealand

United States

20% 40% 60%

Net migrationTop 20 importers Top 20 exporters

Source: World BankSource: OECD, 2011

Country Net for 2007–2011

1 United States 4,954,9242 United Arab Emirates 3,076,6343 Spain 2,250,0054 Italy 1,998,9265 Russian Federation 1,135,7376 Australia 1,124,6397 Canada 1,098,4448 Saudi Arabia 1,055,5179 United Kingdom 1,020,211

10 Qatar 857,090

Country Net for 2007–2011

1 India 2,999,9982 Bangladesh 2,908,0153 Pakistan 1,999,9984 China 1,884,1025 Mexico 1,805,2386 Indonesia 1,293,0897 Philippines 1,233,3658 Zimbabwe 900,0009 Peru 724,999

10 Morocco 675,000


Credit: Getty / Bloomberg, Keystone / Laif / Thomas Grabka

Michael Noonan, Ireland’s Finance Minister, quoted in The Financial Times, February 2012, on his country’s new tax relief

measures being introduced to help attract highly skilled workers.

“This measure will reduce the cost to employers of assigning skilled individuals in

their companies from abroad to take up positions in Ireland . . . [This] will help us

compete for foreign investment.”

July 2010 Russia introduces measures to attract highly-skilled foreign workers, as part of efforts to modernize the economy.

November 2010 The UK announces a cap on the number of skilled workers from outside the European Economic Area.

March 2011 The UK unveils a new visa aimed at attracting foreign entrepreneurs and investors.

January 2012 The US Department of Homeland Security announces reforms aimed at attracting and retaining highly-skilled immigrants.

January 2012 Ireland offers new tax relief to attract highly paid foreign workers.

February 2012 Switzerland’s largest political party files a petition to cap immigration to the country.

Germany Despite widespread unemployment across the Euro area - averaging 10.4% overall, and as high as 22.9% in Spain - Germany has low unemployment of just 5.5% and a worsening skills shortage. Germany is in need of engineers, doctors and highly qualified IT professionals.

Skilled healthcare workers are especially difficult to find.

Photo: Germany’s Federal Minister of Labour and Social Affairs, Ursula von der Leyen.

ChinaNew legislation will force foreign workers in Chinato pay up to 11% of their salaries into five separate insurance funds, covering pensions, health care, unemployment, maternity and work-related injuries.In addition employers can be forced to contribute upto 37% of the employee’s salary. The move will makea foreign workforce more expensive for multinationals,as well as making China less attractive for global executives.

Inbounds = __ Over the next three years companies expect to increase the number of assignees to: India by 80%; Africa by75%; Brazil by 71%; Russia by 43%; and China by 23%. China currently has the highest number of inbound assignees per company, followed by Africa, then India.

Outbounds = __ Over the same period to 2014, outbound assignees will increase by: 80% from China; 67% from both Russia and Africa; 20% from Brazil; and 13% from India. However, India’s relatively low increase could be due to the fact that it currently has the highest volume of outbound assignees per company, followed by Africa and then China.

2012

Percentage of companies outsourcing the taxation for their international assignees given the complexity of global tax law, according to Spencer Stuart.

83%

The number of additionaljobs created by every100 foreign-born workers with an advanced US degree in a science or technology field, according to the American Enterprise Institute.

Percentage tax relief that Ireland will offer highly paid foreign executives,as part of a suite of measures aimed at attracting talentto the country.

262

30%

2010 2011


Feature The global executive Credit: Jos Schmid

SummaryThe traditional expatriate model is changing as companies get to grips with a changing global economy. Executives are not just flowing from West to East, but in all directions. Overseas postings can be a powerful tool to share expertise and build leadership talent, but there are many practical difficulties that can impede their success.

Despatching old hands from head office to run the show in new territories has been a feature of international business. But a competitive, globalized marketplace is reshaping the nature and dynamics of the expatriate assignment.

From expat managerto global executive

ten (68%) expect to see a further rise in the next three years. Other studies back this up. A 2010 Economist Intelligence Unit (EIU) survey indicated that by far the most international transfers still originate from Western Europe and North America, with China and the rest of Asia the most common destinations. The key drivers for such assignments are strategic and managerial needs. In the EIU’s words, “The traditional expat model is alive and well”.

New patterns of postingsBut all this misses some significant changes. The most obvious is the evolving traffic patterns of executives. Philippe Waty, Group Head of Compensation and Benefits at Novartis, the Swiss-based global pharmaceutical company, has seen a “rapid change with respect to executives moving out of developing countries, with many people from India and China coming to developed countries over the last few years.” Others agree. Susan Steele, Global Chief Human Resources Officer at Millward Brown, a global brand insight consultancy, explains that, “In the past, it was one-way traffic from the United States and Europe to the rest of the world. Now, in sending people to Africa, we are taking folks from India and vice versa. It is becoming much more blended and less one-way. Going on assignment will be the norm for this current

• By Paul Kielstra

Viewed through a narrow lens, the traditional corporate expat seems alive and well. Cost

cutting during the recent downturn dented the enthusiasm of companies for sending people abroad, but now firms are stepping up the number of such assignments. Ernst & Young’s recent Global Mobility Effectiveness Survey found that, although the number of companies with at least 1% of

employees on a short-term international assignment declined precipitously from 48% in 2008 to just 20% in 2010, it bounced back up to 33% during 2011. Longer-term assignments, which are harder to cut rapidly, never went out of fashion: the proportion of businesses with more than 1% of employees on long-term postings rose steadily from 27% in 2008 to 46% in 2011.

In line with the rebalancing of the global economy toward high-growth emerging markets, these are the primary destinations for expatriate postings. About six in 10 (61%) of companies polled have seen an increase in the number of international transfers to emerging growth markets in the last three years. Nearly seven in


Credit: Xxxxxx / NameVorname GCR today Feature

Philippe Waty, Novartis__ As Group Head of Compensation and Benefits, Philippe Waty is responsiblefor developing Novartis’ pipeline of emerging global executives,a growing number of whom hail from markets such as India, China and Latin America.


Feature The global executive

generation, so they will become more global.” Ernst & Young’s research backs this up:

companies expect to increase the number of international transfers originating from China by 80% between 2010 and 2014, and those from Russia and Africa by 67%. India will see less growth (13%), but from a far higher baseline, given it has an average of three times as many outbound assignees as incoming ones.

This highly visible change reflects an even more fundamental one: if the expat executive model seems still to be thriving, it is because its very purpose has adapted to a more globalized business environment. “The idea of people being sent out from head office to colonize the world ended more than 10 years ago,” says Peter Ferrigno, the EMEIA Area Leader for Human Capital at Ernst & Young. This reflects the way in which many companies have moved away from a model in which a central head office, frequently with distinct characteristics shaped by the business’s country of origin, controlled what were essentially branch operations abroad. Instead, leading firms today are seeking to create more integrated, global operations.

Inevitably, this has affected the role of the global executive. At a broad level, executives going abroad no longer resemble high-ranking foreign dignitaries from the corporate center, but are increasingly arriving to work as equals with others. In line with this, the primary objectives in sending them have grown more complex. The main ones now include:

Filling vacancies/project supportThis objective has always been an important driver of international transfers and remains the most common reason for sending employees across borders. Globalization and modern technology, however, allow a greater use of international talent in this way and new forms of assignment for global executives. Indeed, Waty notes an increasingly common phenomenon, especially within Europe, of business travelers who spend weekdays in one country and return to their homes in another country for the weekend. Others companies are embracing “virtual” international assignments, notes Steele, with executives working as part of teams in another country while remaining in their own home countries. “It is not ideal but, with technology, it is increasingly feasible and increasingly being done,” she says. This also avoids many of the practical difficulties and costs of sending people to another country.

Knowledge transferThe benefits of bringing knowledge from one part of the company to another have also always been a driver in the use of international executives, but the direction of flow is no longer one-way. For example, Indian and Chinese executives often have more experience with the intricacies of outsourcing, says Waty. They can

bring such expertise along on placements in Europe or North America. Greg Schupp, Partner for Human Capital at Ernst & Young in the United States, sees this cross-fertilization as an important benefit of modern expatriate postings. “The more diverse and inclusive your teams can be, the more global and thought-provoking they become. The solutions they propose tend to be better for the organization.”

Developing executivesInternational transfers have also always been used for executive development, and as a benefit to retain talent. But in global companies, the scope of these opportunities has changed. These sorts of assignments – especially short-term ones – are happening earlier in careers, notes Steele. Her own company has found that, in emerging markets, taking new local hires and giving them international exposure is a fast and efficient way of growing talent. Ernst & Young’s Global Mobility Effectiveness Survey indicates that this practice is common in emerging markets with, for example, junior executives making up half of outbound assignees from India – in part to make up for the lack of experienced senior executives to provide mentorship. “If you find decent people in a small country, sometimes they outgrow the local market,” says Ferrigno. “You need to take people like that into the global talent pool.”

Creating the company’s future leadersInternational exposure is becoming ever more important for businesses seeking to train leadership prospects. The reason is simple. “If only 5% of your business is in the home country, and you’ve only worked there, how qualified are you to sit on the board?” asks Ferrigno. Novartis has institutionalized this in its leadership development processes. Once a year, its executive committee looks at people who have the potential to become future leaders of the company and then considers how international postings should figure in their development. “We are 150 countries,” explains Waty. “A successful global executive is someone who can hit the ground running, can pick up the nuances of the new location quickly, can spot the issues quickly and begin delivering on the issues in a very short space of time. They should also be able to bring an insight into how other markets operate and other ways of doing things.”

Getting the most out of international assignmentsIf these goals are met, sending executives across borders can create substantial value for companies, but at a cost. Although dependent on the location and position, Schupp estimates that the total expense may be as high as three to five times that of the base salary of an executive who stays at home. “The cost is such that you have to make sure there will be a benefit,” adds Steele.

80% The number of international transfers originating from China will increase by 80% between 2010 and 2014, according to Ernst & Young.

Main drivers for sendingpeople across borders

Project-based

Managerial and strategic

Developmental

Other

14%86%

16%84%

25%75%

50%50%

Employee-driven68%32%

Most common reasonLeast common reason

Source: Ernst & Young’s Global MobilityEffectiveness Survey 2011


Global executives The highly globalized operating environment of today is increasingly demanding leaders with a suitably international background and CV, in order to more effectively manage multinational teams and organizations. Executives such as Renault-Nissan’s Carlos Ghosn or Rio Tinto’s Zoë Yujnovich may once have been the outliers, but a growing number of companies are now actively working to develop new leaders with similarly global backgrounds.

Carlos Ghosn, the Brazilian-born Chairman and CEO of theRenault-Nissan Alliance splits his time between Tokyo and Paris. He holds both Brazilian and French citizenships.

Credit: Reuters / Handout, Iron Ore Company Canada

One difficulty facing companies, however, is that the goals outlined above are not complementary, and can even be contradictory. To give one example, a person sent primarily to learn about a foreign market may encounter a completely different set of tasks and responsibilities from one sent to plug knowledge gaps. To get the full benefit of such assignments, says Ms Steele, companies have to aim for global executives to do both teaching and learning. However, as she says, most businesses do neither. “Doing neither has a cost. Doing both is not difficult but it does require planning.”

Comprehensive planning, though, is too often absent when executives are sent abroad because very few companies approach such activity holistically. Instead, foreign placements are frequently driven by an ad hoc desire of an individual business unit. Ernst & Young research shows, for example, that human resources departments play little role in helping to decide who would benefit most from going abroad – for nearly 6 in 10 companies, global mobility professionals are not involved at all in candidate selection. “People aren’t always looking strategically. Instead they are looking tactically and short term,” says Ferrigno. “There is a massive difference between companies who treat transfers as a way to invest in people and those who see them as a way to fill positions.”

The first step, then, toward getting the most benefit out of international placements is for

companies to recognize the multiple objectives involved and to try and align the varying interests of distinct parts of the organization around meeting as many of them as possible. But the million-dollar question, says Schupp, is working out how to bring this together. This is especially true amid the tension between business units and HR in trying to align strategies. “You get pressure from business units to quickly fill the open positions. To maximize the value of an assignment, the best thing to do is to get the two groups to sit at the table together to begin to understand each other and collaborate on how to meet the multiple objectives they each have,” says Schupp. “It sounds simple, but many organizations have a difficult time doing that.”

One way that some companies have found to improve cooperation is to fund international postings jointly, especially of junior executives. In this model, the budget is split between the receiving business unit and corporate level training funds, as both parties have an interest in the assignment.

Such alignment allows a coherent approach to another crucial element of success: defining how each assignment will benefit the business and what is expected of the executive. Millward Brown’s Steele notes, “Every transfer is looked at individually and as part of a broader strategic plan.” Not only are executives properly prepared, but corporate expectations are made explicit.

Being very clear about why you are sending

Zoë Yujnovich, the Australian-born President and CEO of Rio Tinto’s Iron Ore Company of Canada, built her career in roles withinthe company’s operations in Australia, the UK, US and Brazil.


people on assignment is hugely important, agrees Ferrigno. “You see people go with the wrong expectation to markets, thinking they are there to show and tell when they should be there to listen and learn,” he says. Indeed, appropriate metrics are a central part of defining the assignment properly. Global executives should not be evaluated against traditional business measures such as revenue goals, but they should also be measured on how well they are adapting to their assignment. “From there you can quantify the return,” says Schupp.

A clearly defined assignment also helps significantly in finding the right person for the job. The ideal attributes of potential international executives is one of the most studied aspects of global transfers. But barring some obviously useful aspects – cultural sensitivity, ability to interact with others, and a desire to succeed – no definitive list exists. Inevitably, choosing a candidate is a balancing act between the talent available, the ability of candidates to thrive in a foreign environment, and the skills needed to do the particular job at hand. “There is no perfect test. Each case has to be looked at individually,” says Steele.

Practical issuesOnce the job is defined, and the correct person found, international assignments throw up a wide range of challenges for the sending company. Many of these have long been present - from the basic need for appropriate visa and working permits, to the more complex need to align assignment strategies with overall business goals - but several are worth noting here given how they are changing. All of these issues are discussed in greater detail in other articles throughout this issue of T Magazine. Nevertheless, as the list highlights, there are many practical complexities of using global executives.

The social networkAny transferring executive has a network of social connections at home that will be disturbed as a result. This is especially true of close family. “It is also increasingly difficult to move some employees on assignment when their spouses work,” says Waty. “We do provide spousal support to find work in the new location and support to complete further education. Very often we can ‘sell’ the assignment on the basis that it is a great experience for the whole family in terms of personal development.” A separate issue is that an increasing number of people may be together but not married, raising challenges over immigration rights. Addressing family issues is more than just a practical matter: it may define how well international executives fulfil their assignments. “Very often, if an executive has been successful, it is thanks to a spouse and family who have a global mindset,” says Waty. “Companies are not doing enough to assess how well the family can adapt.”

Compensation arrangementsAs the goals of international placements evolve, payment arrangements need to keep pace. “If you send people around as part of their development, you are going to need to look at how these costs get people to take on the right challenges without overly enriching them,” notes Ferrigno. It might be valuable, therefore, to tie compensation to metrics designed around those challenges. Another current trend is for companies to use “localization” packages, with executives receiving a lump sum up front to cover moving costs, but then being compensated in the same way as their new local peers, including in terms of eligibility for bonuses. Not only does this control costs, but it leads to executives being taken more seriously by their colleagues because they now have an obvious stake in local success.

Dealing with taxInternational employment has always brought income tax complications, but the current economic climate can make this even tougher. “Many countries are looking for additional sources of revenue, so revenue agencies are turning over rocks to make sure organizations are compliant on income or payroll tax,” notes Schupp. Over half of companies polled by Ernst & Young describe tax compliance as very challenging. Although the most pressing specific issues vary by jurisdiction, some tax issues have a growing profile internationally. For example, the payment of stock options to executives. Depending on where the executive is resident for tax purposes when these are earned and exercised, a variety of countries – which may or may not have relevant double taxation treaties – might wish to tax the proceeds. There is also the important need to adhere to social security obligations in all relevant jurisdictions.

Bringing them back again“Assigning a person abroad creates a retention issue. It is not always easy to bring back a former assignee,” says Waty. Indeed, Ernst & Young research indicates that just over 1 in 10 executives resign within two years of returning from foreign assignments. Given the significant investment made into the development of these executives, this can be a costly loss for any company.

The broader picture is that the expat has, in recent years, evolved into the global executive. Within this, the key factors of who is being sent, why they are going, and where they are headed to, are all changing as companies have transformed themselves from centrally run multinationals to globally diverse enterprises. In order to manage this new species, however, businesses have to keep up. In particular, different functions in the company need to work together in a way that too few are currently doing.

Percent of the total numberof employees are long-termassignees (>12 months)

2008

<1%1%—2%>2%

73%

21%

6%

2011

<1%1%—2%3%—7%>7%

64%18%

9%

9%


Feature The global executive


Credit: Keystone / EPA / Julien Warnand

One complication facing multinational organizations trying to relocate and develop more rounded global executives is the national barriers that inhibit the free movement of labor. Even within an integrated region such as the EU, this can prove difficult, not least due to differing social security schemes and tax regimes. T Magazine speaks to Martin Schulz, the new President of the European Parliament, about what is being done to create a more flexible labor market.

What is being done from a political perspective, at both a national and European level,to eliminate the barriers to cross-border tax and social insurance legislation andfacilitate more flexibility on the international labor market?Martin Schulz: I must point out, unfortunately, that there are practically no borders for capital any longer, whereas in terms of labor mobility, the freedom of movement for workers, there are still considerable obstacles. However, many fiscal issues and, above all, decisions relating to the labor and social sector are still the national responsibility. I regret this since, in Europe, it means we are faced with fiscal and social competition between one another, usually with a downward tendency, which is damaging to the economy in many of our countries. This

Interview

Toward integration

complicates the desired convergence of our economies and ultimately does not lead to sustainable growth for the Member States. I see our social model as a key to the economic success of the European Union and it will play an essential role in overcoming the current crisis. All the same, the European Parliament will continue to press for decisions in important fiscal matters – whether toward the harmonization of corporate tax assessment bases or toward a financial transaction tax.

What are Germany and/or the EU doing to standardize the various pension regulations?Our disadvantage as an economic zone – compared, say, with the USA – is the coexistence of 27 different national systems. Of course, variety and difference can also be a bonus: I am against total standardization. But what we do need is a common framework and common rules, so that workers can move inside the EU without barriers. Yes, superannuation and pension schemes are a matter for Member States. But the European Parliament will support any steps aimed at helping enable workers to retain their retirement pension claims if they move from one Member State to another. However, in that process, there should be no need to weaken national social standards.

One of the key areas of harmonizationlies within the financial services sector.What else needs to be done here? As noted, capital nowadays can be transferred between countries almost instantaneously. But many financial centers are only inadequately regulated, a situation that can cause substantial damage to our economy. I firmly believe that politicians have to help to set clear guidelines here, which is why I wholeheartedly support measures taken within the G20 framework – it is in this area that we must take joint action. The European Parliament has already made an important contribution by limiting certain kinds of short selling in particular and by generally creating more transparency on the derivatives trading market.

Martin Schulz, President of the European Parliament

754The European Parliament is the only directly-electedEU body and one of the largest democratic assemblies inthe world. Its 754 Members are there to represent theEU’s 500 million citizens.

Martin Schulz is Member of the European Parliamentfor the Social Democratic Party of Germany,since 2004 leader ofthe Socialists in the European Parliament.In January 2012, the 56-year old politician was elected President of the Parliament.


Feature The expatriates

Source: HSBC Expat Explorer 2011, Atlas Corporate Relocation Survey 2011, Ernst & Young Global Mobility Effectiveness Survey 2011,EIU - Up or out: Next moves for the modern expatriate 2010 / Graphic: Käthi Dübi

US$200,000In Singapore, over half of expats earn at least US$200,000, making it one of the highest paid expat destinations globally.

Between two and five years — the length of time most senior expatriates are sent to a particular destination

46% of companies make periodic adjustmentsto expat compensation to manage exchange rate fluctuations

In 27% of companies declining the opportunity to relocate hinders your career

Most expatsare married menin their 40s

71% of expats report increased earnings since moving abroad, but also more complicated finances

74% of companies providecross-cultural preparation

Nigeria, India and Chinaare the top three postings most likely to qualify an expat for a hardship allowance.

80% believe an assignmentin a “major emerging” market aids career progression

Expats in South Africa, Mexico and the Philippinesare most likely to have luxuries like domestic staff, swimming pools and second properties.

The most importantattribute for a successfulexpat = cultural sensitivity

The most popular expat destinations

According to expats:

The countries with the highest ranking financial complexityfor expats

80%

20%

Australia

USA

Singapore

1 in 3 complain ofexcessive interferencefrom HQ

1 in 5 reportinsufficient involvement from HQ

3 out of 5 believe that their corporate HQ does not sufficiently grasp the nature of the local business environment

1 in 3 believe foreignsubsidiaries too oftenwork to their own rules

1 in 3 report that the corporate centre has excessive revenue expectations fromthe local market

12

34

5

The devil is in the detail when it comes to assignments abroad. Executives must work outhow taking — or not taking — an overseas role will affect their career, how their familywill cope and how effective they might be in another culture. There are also wide-ranging considerations of the net impact on their finances and lifestyle.

Assessing the global executive


The top threeexpatriate package benefits1 Housing allowance2 Regular paid trips home3 Relocation costs allowance

France (1st),the Netherlands (2nd)and Australia (3rd)are the top rankedcountries for raisingchildren abroad.

1. Luanda, Angola2. Tokyo, Japan3. N’Djamena, Chad4. Moscow, Russia5. Geneva, Switzerland

Don’t forget the family

Most expensive destinations/highest cost of living

80% of graduates want to work internationally

37%

63%

US$7,500The average annual cost of childcare for expatsis $7,500 and $11,500 for education

On repatriation 37% of assignees return to a new position and responsibilities which leverage their gained experience.

The top reasons for early return from assignment:ª Family concerns (34%)ª A new position at the company (22%) ª Early completion (21%)

By 2014, multinational companiesexpect to send:

more expats to India

more to Africa

more to Brazil

80%

75%

71%

Credit: Uwe Noelke

Global business leaders need to be mobile, but this brings real costs,not least in terms of potentially higher personal taxes. Employers also needto manage their risks from increased mobility.

Upward andoutwardly mobile

employ more people on assignments in more places around the world, there are no easy solutions to the problems it creates. “What it means for organizations is that they have to start thinking about different patterns of international work and to understand their individuals better, as well as the tensions in the whole process,” says Dickmann.

Chief among which obstacles is tax. Moving from a country with a high rate to one where they pay little or no tax may seem straightforward to an employee. But expecting executives to move between destinations with markedly different rates of tax, not to mention social security and other changes, can lead to strife, disillusion and, sometimes, even defections.

To overcome these problems, some 85% of multinational companies adopt what is known as tax equalization. This aims to create a level base, so that all mobile executives feel part of the same team. Chris Debner, Senior Manager for Human Capital at Ernst & Young in Zurich, explains: “If you go abroad with a company, the amount of tax you pay is equalized in such a way that you do not lose out. There is often something called a net promise which means that, as an employee, you do not suffer from a higher rate of tax and neither benefit from a lower one. Especially in financial services the amount of tax that needs to be paid is a factor in how mobile some executives are prepared to be.”

Taxing alternativesThere are two other main ways to manage an employee’s liability when on a foreign assignment, which are hardly used anymore. One is tax protection, under which the employee is subsidized if they pay more tax than at home, yet enjoys a windfall if the posting is to a destination with a lower rate. The second is laissez-faire, in

• By Nigel Gibson

Despite worries about the strength of the world economy the number of employees working in a foreign country

on a long-term contract has also remained buoyant. Indeed, it has hardly been affected by the dark days of 2008. What does this mean?

First, it suggests that companies realize the benefits of deploying people with the skills and experience required in promising, new markets. Second, it means that firms are more efficiently managing a number of considerations best coordinated centrally - from unequal rates of tax to domestic pensions and complicated systems of social security – which can deter executives from accepting an assignment, long or short, in another country.

Michael Dickmann, Professor of International Human Resource

Management at the UK’s Cranfield University, and the author of Global Careers, a new book on the subject, explains that global careers are becoming increasingly important. “This is because we all know that the world is becoming a smaller place in one sense. We all see the rising multinationals from developing countries. We know that they operate much more globally, but even small organizations nowadays have global issues to master.”

Assignment challengesHaving worked with many well-known multinationals, Dickmann and his co-author, Yehuda Baruch, are under no illusions about the need for change. Although more companies now

SummaryA growing numberof business executives are spending muchof their time in jobsaway from home, as business becomes more globalized. Employers need to address the tax and financial challenges this presents.

33% Percentage of companiesthat have at least onepercent of their workforceon an assignmentaway from home.

Feature Tax as a factor of executive mobility


Credit: Xxxxxx / NameVorname Estonia Feature


Matthew Ozburn__ Deutsche Bank’s US-born director of Human Resources Internationalhas spent many yearsliving in Europe, the USand Japan, helping him assess the challengesthat multinationalexecutives face.

Credit: Digital Vision / Jeremy WoodhouseFeature Tax as a factor of executive mobility


__ Does your company have more and more employees working in different parts of the world? Is the administration of masses of contracts, currencies and assignments causing a headache? Then the answer may be to set up what is known as a global employment organization (or GEO). Besides the above reasons, many companies find other valid business cases for changing the employment structure of their mobile employees. Such entities have long been popular among multinational companies in the oil and gas and mining industry. The idea is that a peripatetic executive is employed not by the company in their home country, nor by a subsidiary elsewhere, but centrally by a GEO. Not only does this reduce the number of country combinations and therefore complexity; it may also

enable all expatriates, wherever they happen to be, to be treated equitably and compliant with local legislation. The parent company may also find it easier to standardize the salaries, pensions and other benefits of those employed by the GEO. Indeed, many international firms look upon a GEO as a center of excellence that hosts and manages much of the company’s talent. There are drawbacks, of course. One is the effort that goes into the setup of such a structure. Another is that the employees have to change their existing terms of employment. Employees of the GEO could also find they are ineligible for social security at home unless their employer has a subsidiary registered there. For many international employers, however, the advantages are sufficiently convincing.

Alternative solutions to managing a global workforce

Going GEOpolitical

Singapore’s steady rise as a global hub for international expansion has been partly fuelled by its wide-ranging steps to attract expatriate workers. Today, nearly one in four people in the city-state are foreigners.

Migration mixDeutsche Bank now has 180 sets of country combinations between which employees migrate on a mixture of short- and long-term contracts, a growing number of which are located in emerging markets. Singapore has been one of its Asian expansion hubs, ever since setting up operations there in 1971/2. It now employs over 1,900 staff there.


which the employee is left to fend for themself. Unsurprisingly, the latter is an option that can prove tempting in countries where there is little or no tax to pay, but unpopular elsewhere. A further approach – known as “net to net” – adjusts the employee’s net income for the cost of living in the new country and may be used in conjunction with one of the other approaches.

As Peter Ferrigno, Leader of Ernst & Young’s Human Capital practice for EMEIA, points out, the aim of equalizing liabilities between destinations is to remove tax from the question of whether or nor to accept the assignment. “Large companies don’t want people to determine whether they move or not based on the rate of tax. Tax protection, on the other hand, to cover the cost of higher rates but giving someone the benefit of lower ones, becomes more and more difficult to justify on the grounds of fairness.”

A global approachSmall wonder therefore that a growing number of firms, particularly larger multinationals international, have chosen to set up what are known as “global employment organizations” (see box). These seek to lift executives clear of disagreements over the rate of tax, as well as problems over entitlements to pensions, by creating an international entity that hovers over all destinations.

Often domiciled in an offshore location, such organizations are popular with oil companies and firms that need to move skilled people from one site to another, often at short notice. Instead of providing a fresh contract each time an employee moves from one country to another, all those within the global employment organization are employed on similar terms. Such an approach may have its advantages but it does not suit all, not least because of the cost of managing offshoots. Take Deutsche Bank, a global financial services organization headquartered in Germany that has no fewer than 180 “country combinations” – sets of nations, in other words, between which employees migrate on a mixture of short- and longer-term contracts. With developing markets making much of the running within the world economy, many of the destinations are big cities in Asia.

“Five years ago,” says Matthew Ozburn, Deutsche Bank’s Director of Human Resources International, “the number of executives moving from job to job around the world was probably 1% of the workforce. Today it may be double that number, even allowing for a rise in the number of employees in Germany brought in by the acquisition of a domestic operation such as Postbank. “We use an approach which we call host-based”, says Ozburn. “We start from the premise that the executive has a pay package which looks like those of his or her peers. Then, considerations as to whether or not the employee

has a family, children and so a need for schooling, etc. are introduced on top.”

“Within each market, we must remain competitive. So an assignment in, say, Singapore will be different from one in Frankfurt. We do a calculation at the outset, which addresses whether there is an advantage or disadvantage for the employee. We look at the difference between what an executive would have received in their home country and what they stand to get in the new one. The result is a system of equalization that allows for the combinations of pay found in the financial services industry: a mixture of salary, bonus and deferred equity.”

Deutsche Bank also uses a system called “local to local”. Under this, an employee would complete an assignment on local terms in one place and then move to another on similar terms. That such an arrangement is used more and more reflects, among other things, the growth in banking in and around offshore and what are known as near-shore locations. Many such centers require the same kind of skills, experience and knowledge, so executives can move easily from one to another.

Pensions pose a problemWithin the European Union, of course, individuals assigned from one country to another can remain under their home state’s system of social security, subject to certain conditions. This can be done for up to five years. So, for a typical assignment, it may not become an obstacle to a job abroad.

By comparison, says Ferrigno, pensions remain an issue. In part, he says, this is because each country’s legislation is different, but also because of a philosophical difference between private vs. state, and employer vs. private provision, in different places. “Long term, the trend away from final salary systems in countries like the UK and the US will probably accelerate a simplification towards schemes based on defined contributions,” he explains.

Even so, the appetite for mobility among international executives will still pose difficulties for companies, not least because of the risk of getting it wrong. Firms are in danger not just of leaving employees disgruntled and so losing them altogether, but also of making mistakes that can undermine their reputation at home as well as abroad.

As Debner points out, out that there is a risk of an employee choosing to do it themselves, making a mistake and thereby failing to comply, and so causing trouble for their employer. “The risk of an investigation by the tax authorities has increased in recent years. This can damage a company’s reputation. The danger of being dragged into the headlines for alleged wrongdoing is one of the worst.” The secret, it seems, is to be aware of such risks from the outset and to manage them as they arise.

Percentage of employeesthat are short-termassignees (<12 months)

2010

<1%1%—3%

4%—8%>8%

80%

8%

6%6%

2011

<1%1%—2%

3%—7%>7%

67%18%

7%8%



Feature Working trends

T Magazine: In today’s increasingly global business environment, how important is it for managers to have international experience?Françoise Gri: Over the past decade or so, businesses have become more global. But what has changed more recently is the way in which we think about different markets. In the past, we assumed that the world was flat and we wanted managers who dealt with different markets in a similar way. Today, we no longer believe that the world is flat. We want business leaders who have an international perspective and who can respond to local differences.

Although we still need managers with international experience, we view this experience in a slightly different way than we did in the past. It’s no longer desirable to have a manager who has lived in five different countries for two years each because, although they have some experience of different cultures, they do not have a deep enough knowledge of any. Today, we need managers who are totally connected with the local culture but who can also build a bridge with the culture of the company. This will be a critical dimension of tomorrow’s leadership style.

ManpowerGroup has recently published research on the Human Age. Can you tell us what this is?We believe that we are entering what we call a

33%The proportion of some36,000 firms globally,polled by ManpowerGroup,that are struggling to fill positions due to localskills shortages.

Françoise Gri is President of ManpowerGroup Southern Europe and has been namedas one of Fortune’s Global 50 Most Powerful Women in Business for eight consecutive years. She talks to T Magazine about key trends in the world of work. Interview by Fergal Byrne

Preparing a new

human age


Credit: Philippe Schlienger

Human Age. This is a complex new era in which companies will have to embrace new work models, people practices and talent sources to ensure future success. In order to unleash their potential, companies will need to engage with their people on a deeper, human level. Individual needs will determine recruitment and development strategies. Companies will need to provide an environment suitable for collaboration and to anticipate more precisely the skills that they’ll need.

When we first discussed these ideas at the 2011 World Economic Forum in Davos, many felt that they were interesting. Since then, there has been continued social, political and economic turbulence. This year in Davos, we noticed that more and more companies are seeing the impact of these changes. Business leaders realize, for example, that there is a shortage of good people, that they don’t have the right people to develop the right strategy and that there is skill mismatch in key markets.

What does the future hold for expatriate managers?We see fewer and fewer companies today looking for expatriate managers. They are not sufficiently or deeply connected to the markets in which they operate. The old idea where managers from developed countries go in and show the locals what to do is finished. Increasingly, we see what we call the “reverse expat” phenomenon. This approach rotates a local manager, based in the emerging market, through functions outside the home market. The manager can then adapt the experiences gained from this to the local market upon their return.

The reverse expat approach is also a particularly powerful way to enhance retention of local talent because it allows employees in emerging markets to see that the company is truly global. If you are sitting in a business in Asia, for example, and you can see some Asian counterparts who have been promoted and are now running pieces of the business, it makes a big difference to the overall level of employee retention, particularly when it comes to key talent. Seeing that the top echelons of management are not just dominated by the parent country management team provides reassurance for ambitious local managers in these markets.

How can companies balance local responsiveness with global economies of scale?I think many companies struggle to get a balance between being aligned globally but also being sensitive to appropriate local interpretation. Companies need to have global collaboration but they also need to be anchored in the local market. Some company programs will be applied systematically in all markets; others can be adapted to the needs of the local environment. There is a lot of complexity here, and managers

have a new level of responsibility to implement this quickly, efficiently and in the right way.

At ManpowerGroup, we have developed frameworks to help the company find a balance between local and global. The framework has two major components to it: one fixed and one flexible. The fixed part consists of processes that are non-negotiable, whether you are in Istanbul or Buenos Aires. In those instances, the local company needs to operate according to this fixed template, no matter what. Then there’s a flexible component, where managers can localize the program to the needs of the local market. Creating those frameworks has increased our speed tremendously because it has taken a lot of the mystery out of who’s accountable for what.

Is technology changing the nature of work?It is difficult to understate the likely impact of technology on the workforce. Technological developments allow new ways of getting work done, which increase the importance of co-ordination and collaboration. Rapid communication via online networks, for example, is changing organizations’ choice of where, when and how work is performed. Social networks are pervasive, but research suggests that only 30 of executives understand the implications of this new, data-intensive, social network-intensive world. This is a big challenge. We have had waves of technology before, but I think the impact today is much more subtle, while no less important. It has therefore become crucial to understand the human dimension, to adapt and respond to this changing technology.

How important is diversity?I am a strong believer in diversity. It isn’t just about hiring on the basis of gender, religious persuasion or culture. Without genuine diversity of thought and representation, you’re not going to come up with the right answers. It’s just too complex to have a purely British team, for example, running a global company.

As part of that drive for diversity, we need to have more women involved in business, particularly given the talent supply challenges and talent mismatch problems we see. The female talent pool is still largely untapped. I think involving women more in the labor market and, in particular, at senior leadership level, will help companies to access the right talent to succeed. In addition, female executives can bring new and valuable perspectives to the leadership team.

This kind of change does not come about on its own, however. You have to fight for it. I think companies are slowly making progress on this front, but not enough. Much more still needs to be done. Looking to the future, I think the companies that will do best in the new and evolving workplace of tomorrow are those that have dealt with diversity for a long time and that have embedded it into their values and culture.

Rise of the reverse expatriateOne of the trends that Manpower’s Françoise Griis seeing in the marketis the rise of the “reverse expat”, in which a local manager from an emerging market is rotated through functions outside of their home market.


The cost of a liter of unleaded petrol in Caracas, Venezuela, the world’s cheapest.

US$ 0.02Most expensive cities Paris US$ 2.76Oslo US$ 2.62Istanbul US$ 2.52Amsterdam US$ 2.40Rome US$ 2.37

Cheapest citiesBahrain US$ 0.21Riyadh US$ 0.15Jeddah US$ 0.13Al Khobar US$ 0.13Caracas US$ 0.02

The Economist Intelligence Unit’s Worldwide Cost of Living survey ranks 140 major business cities in 93 countries by their cost of living,based on a wide-ranging basket of goods, such as the price of fuel, and other goods profiled here.

Focus Living costs Credit: Reuters / Chico Sanchez


Living costs

• By Nigel Holloway

Globalization is both a product of and a contributing factor of economic integration. As national markets become increasingly

connected, the demand among international employers for globally-minded executives has grown. For the jet-setting business traveler, many markets can seem fairly homogeneous, as they travel from hotel to hotel, their feet barely touching the ground.

Yet, despite the trend toward globalization, the cost of living varies almost as widely from city to city today as it did 20 years ago. This is a problem not only for expatriate business executives trying to maintain their living standard. It is also a headache for their employers that seek to keep their top talent happy, while deploying them around the world wherever the need is greatest.

With the expatriate in mind, the Economist Intelligence Unit (EIU) has collected price data from cities around the world for more than two decades, comparing costs such as home rental, private school tuition and the costs of domestic help. It then ranks the cities on an index, using New York as a constant baseline at 100. Today, the most expensive city in the world, Zurich, is at 170, meaning that costs there are 70% higher than New York’s. Twenty years ago, the most expensive, Tokyo, was at 171. The cheapest city today is Karachi at 46. In 1992, the cheapest was Mumbai at 32, which this year ranked just above Karachi.

Generally, cities in the developed markets of Europe and Japan are among the most expensive. Their individual rankings bounce up and down according to exchange rate movements, but they remain in the same richer group. By the same token, cities in the fast-growth regions of Asia and the Middle East are among the cheapest. But there are some notable exceptions. Singapore, for example, is now in the top 10 and 42% pricier than New York, thanks to soaring rents and a strong exchange rate. It is now far more expensive than rival Hong Kong (115 on the index) and neighboring Kuala Lumpur (83). Nor are all cities in other rapidly growing countries cheap.

Luanda, the oil-rich capital of Angola, was one of the most expensive cities in the world for expatriates in 2011. Two other African cities were also prominent on a the list, Ndjamena, Chad and Libreville, Gabon. Energy and mining companies have been lured there by the promise of natural resources. But the lack of infrastructure means that these firms must build their own housing and amenities, resulting in high costs for expatriates’ employers.

Cheapness, in and of itself, does not necessarily make a city attractive. But as the global economy tilts towards fast-growth markets, an increasing number of professionals are seeing cities in those markets both as a source of jobs and as places that offer a boost to their careers. Inevitably, as demand for fine housing grows, prices go up. Shanghai, on a par with Moscow, is now slightly more pricey than New York. São Paulo in Brazil is 12% more expensive than New York, and pricier than Rome and Berlin.

And the variations within countries are often as great as from one nation to another. Thanks to the weak US dollar, American cities are in the middle of the global rankings. But the gap between the top (Los Angeles at 102) and the cheapest (Cleveland at 73) is greater than between Shanghai (102) and Tianjin (79). In the US, high unemployment and falling rents have made the traditional manufacturing heartland a cheap region in which to do business.

Overall, though, the cities with the lowest expatriate costs tend to be in non-western countries. Mumbai, New Delhi, even Panama City (42% less expensive than New York) would seem to present enticing bargains to the expatriate. The question arises, though, as to how much longer such disparities will last. The foreign executive living in the lap of luxury on a foreign assignment, with domestic help covering the daily chores, may become a thing of the past, not least as cheap labour finds better-paying jobs in manufacturing or IT. Indeed, a popular complaint for wealthy households in São Paolo today is the soaring cost of domestic labor, as the pool of available nannies, cooks and cleaners dries up. Such changes will continue as the balance of power in the global economy shifts towards key growth markets.

The relative costs of the world’s business cities are evolvingin line with shifts in the global economy.


Focus Living costs Credit: Keystone / Laif / Frank Tophoven

Average cost of 4 theatre tickets to a good showat teatro real in Madrid, Spain.

US$ 1,182.86

Cost of living surveys are a key tool for corporate HR teams to compare costs of key locations around the world, as part of their calculationsin creating fair compensation policies for expatriate employees.

Most expensive citiesMadrid US$ 1,182.86Beijing US$ 1,022.26Caracas US$ 876.46Munich US$ 857.14Milan US$ 828.57

Cheapest citiesLexington US$ 130.0Amman US$ 126.76Istanbul US$ 120.0Nouméa US$ 82.75Nairobi US$ 47.81


Credit: Reuters / David Gray

HR teams can apply the cost of living index to an expatriate’s net income, to assess whether it provides a fair cost of living allowance for their overseas assignment.

Most expensive citiesFrankfurt US$ 377.14Bangkok US$ 340.51Houston US$ 325.00Chicago US$ 279.00Miami US$ 275.00

Cheapest citiesShenzhen US$ 12.54New Delhi US$ 12.01Colombo US$ 9.55Algiers US$ 6.86Dalian US$ 6.35

Average cost of a routine checkup at family doctor in Dalian, China.

US$ 6.35


Focus Living costs Credit: Keystone / Laif / Multhaupt

Average monthly rent of 2 bedroom furnished apartment in Tokyo, Japan.

US$ 12,331.21

Until recent years, the typically low costs of living in many emerging markets made expatriate assignments relatively luxurious.But living costs in many emerging market cities, from Luanda to Moscow to Shanghai, now outstrip New York, the usual baseline city.

Most expensive citiesTokyo US$ 1,2331.21Osaka US$ 8,006.60London US$ 7,741.94Hong Kong US$ 6,974.75New York US$ 6,333.33

Cheapest citiesKarachi US$ 718.24Cairo US$ 621.85New Delhi US$ 596.93Panama City US$ 291.67Kathmandu US$ 477.75


Credit: Reuters / Punit Paranjpe

Average cost of a tailored men’s business suitin New Dehli, India.

US$ 120.11Most expensive citiesVancouver US$ 2’022.11Tel Aviv US$ 1’952.91São Paulo US$ 1’917.79Milan US$ 1’866.67Brisbane US$ 1’840.07

Cheapest citiesDhaka US$ 331.75Ho Chi Minh City US$ 331.22Phnom Penh US$ 294.33Kathmandu US$ 227.50New Delhi US$ 120.11

The cost of living in a given city is a crucial factor in deciding an expatriate’s pay package, but other factors also matter, not least of which is the local rates of taxes, and or social security provisions.


A growing number of workers are nearly permanently on the roadas their employers expand globally. This in turn raises considerable challenges, not least of which in terms of finances and tax.

The statelessemployee

based in their home country, but which travel overseas frequently. Employees who are paid in their home country but do a lot of work overseas can trigger local tax liabilities, presenting a challenge to companies to find ways of tracking these individuals in order to be compliant. “We see more and more individuals who are on a domestic contract but overseeing a regional area with a lot of cross-border commuting that can expose them to local taxes,” says Nick Bacon, a Partner in EMEIA Financial Services-Human Capital at Ernst & Young.

It may also be unclear how to account for the mobile employee’s time and costs, particularly if they move frequently. “If you have someone sitting in a legal entity in India, going to work for an entity in the same group in London, what happens to the individuals’ costs – are they borne by London or Mumbai?” asks Bacon. “If there is a supply of staff, it can give rise to a VAT reverse charge, where the host country would have to charge itself VAT on the deemed import of services from the home country.”

There are also corporate tax risks for employers in the context of triggering a taxable presence (or permanent establishment) and impacts for their transfer pricing systems when high-value creating employees frequently travel and work abroad. “If you think about financial institutions sending project teams abroad to work on a large deal, they may be based abroad for weeks or months at a time. This could certainly attract the attention of local tax authorities during transfer pricing reviews or tax audits,” says Chris Price, the Head of Tax for Ernst & Young’s EMEIA Financial Services practice in London. Creating mobile retirement plans Pension arrangements also pose a major challenge to the mobile workforce. Employees

• By Andrea Chipman

An era of rapid globalization has produced a new generation of “stateless employees.” These executives may be

born in one country, live in another and spend a significant proportion of their working lives traveling from one continent to another, either as an expatriate on assignment or else simply as an executive constantly on the move. This nomadic workforce is increasingly valuable to companies, but can also pose headaches from a tax and benefits perspective.

This challenge isn’t for the companies alone. Expatriate employees that move intermittently from one geographic assignment to another can face considerable difficulties in managing their personal finances too. Those who spend a lot of time overseas can have more complex personal tax affairs, may need multiple bank accounts, and can have difficulties with moving pension arrangements when they relocate. In a survey for HSBC International, 71% of expatriate employees said that their finances had become more complex since relocating.1

Salary arrangements may need to be split between home and host country, causing significant reconciliation work when tax returns are filed, to determine how much time the executive spent in each location. Certain compensation structures can make tax affairs even more complex. For example, if an executive receives deferred compensation in the form of equity, rather than cash, this can have tax consequences if equity awards are granted for a particular business year but vested over a longer period during which the employee changes location several times.

Such issues can also crop up for so-called “accidental expatriates”, which relates to the phenomenon of executives who are ostensibly

1 HSBC Expat Explorer Survey 2011

71% The proportion of expatriate workers who have experienced more complex finances since relocating abroad, according to HSBC.

Focus Finances and tax risks


The statelessemployee

who live in several countries throughout their career are likely to have multiple pension plans, each in a different currency. When the executive finally retires, reconciling these plans and moving money to where it can be accessed from one location can be a time-consuming process that holds currency and taxation risks.

“Pensions are the one thing people want tied to what they see as their home country,” says Sarah Dyce, Senior Manager for Global Mobility at Ernst & Young. “Portability is increasing slowly, but we’re a long way from people being able to move their pensions wherever they are in the world.” Matthew Ozburn, a director at HR International at Deutsche Bank, argues that it can be extremely complex to advise highly mobile executives to save for retirement in a tax-efficient way. “One of our biggest challenges is in the area of private company pension planning looking over the course of a person’s career,” he explains. “If most highly performing people will have careers taking place in different countries with different tax-related incentives, you will end up with this challenge of saving in a tax-efficient way to allow mobile people to live well in retirement.”

Tax policy on international pensions has been slow to develop. There are currently no tax relief regimes for international employee pensions, and no way to claim deductions on foreign assignments when plans vest. This means that employees can be exposed to tax liabilities, while employers may be taxed in multiple locations on the contributions. Domicile debates Remaining domiciled in one’s home country for pension purposes has been a particularly emotive issue for citizens of European countries, which have traditionally had strong welfare states and extremely generous health care and social security benefits. Increasingly, however, employers are less willing to keep global employees in their home country benefit plans.

Changes in the social contract between government and the population in these countries have also started to weaken this link: “Social security systems are no longer as secure as they were 20 years ago so people are more willing to work elsewhere because they have no idea where and when they are going to retire,” says Bernd Kirchner, Global Head of HR International at Deutsche Bank. “In the old days, it was a big selling point if you could tell someone you were sending them on an assignment but keeping them in the German social security system. Now that’s not seen as much of a benefit. The opportunity cost is lower today.”

More generally, employees who work overseas as expatriates are now less likely to receive the generous benefits that once went with the role. In part, this is because there is a view that international postings should now be seen as an attractive part of the career path, rather than a

hardship. This reduction in the financial incentives for expatriate postings can create a dilemma for some employees. While recognizing that the move is good for their own career, it may mean that their spouse – if they are also working – will not be able to work because of visa issues. This can mean that, in real terms, the employee’s total household income will fall, making the move less attractive.

Kirchner thinks that, in future, companies will need to do more to encourage mobility among their employees, particularly those below the C-suite who rely on incomes from both partners. “Companies need to find a smart way to make it an attractive package to both partners, even though you can only employ one,” he says. “For example, they can offer support for the spouse to apply for a job, visa sponsorship or an explanation of the labor market in the host country.”

As companies become more global and as talent flows increasingly in every direction, the stateless employee is likely to become a more important fixture in the workforce. Rather than being the preserve of the top echelons in a company, mobility is likely to be common at all levels, requiring companies to consider the needs of this section of the workforce whenever corporate decisions are made.

__ Keeping track of globally mobile employees is a major challenge for corporate compliance teams. Senior executives that live in one country, work largely in another, and regularly fly into several others can present a particular challenge from a tax tracking perspective, as can international expatriates. Some countries are even handing executives and their employers an income or social security tax bill when they stay too long in one place, or pass a time threshold after one-too-many short-term visits to a location.

But a new app called “Tracer” promises to help globetrotting executives avoid tax traps. Created by Ernst & Young, the app provides a mobile calendar service which, when activated, records the location of an employee and tracks their movements using the phone’s GPS. This generates a report that allows employers to analyze the travel

data—which automatically excludes holidays and other exceptions, as well as any personal information—and provides alerts when an individual is close to triggering a tax alert in a location.

According to Tim Stansel, an Executive Director in the Human Capital practice at Ernst & Young in New York, the app targets two kinds of executives. One is the frequent traveller who works outside of his or her home tax jurisdiction and is at risk for triggering a taxable event; the other is an expatriate on assignment and who needs to track their travel for income tax purposes. “It helps mitigate the potential risks associated with cross border tax and immigration,” he says. “At the same time, it allows employees to focus on their job responsibilities by eliminating the need for users to log into a web-based calendar to keep track of their travel.”

Tracking compliance

Tax track and trace for global executives


Ellen Shipley__Ellen Shipley, the Head of Mobility and International Assignments at BT, the telecommunications company, works to ensure the successful overseas placement of executives and their families.


Credit: Muir Vidler Expatriate postings Management

Despite their obvious benefits for any executive pursuing a global career, expatriate postings all too often end in failure. So what can be doneto help ensure a successful assignment?

Making relocationa success

SummaryDespite the obvious benefits to both employees and the firms they work for, a significant proportion of foreign placements end in failure. But various measures can help ensure a greater likelihood of success, from better initial planning through to better support for the expatriate’s family.

• By David Balchover

Anecdotal evidence strongly suggests that a significant proportion of expatriate placements end in failure, with workers

returning earlier than planned to their home country, thus giving their company an organizational headache and creating further costs. So what causes these placements to end in disappointment for both worker and employer? And, more practically, what can be done to help expatriates overcome these difficulties and thrive in their new role in a distant land?

Many expatriate postings might actually be doomed to failure before they have even begun,

simply because the particular employee is poorly suited to living and working abroad. Nearly three-quarters (73%) of respondents (all of them current or recent expatriates, or those who had overall responsibility for assignments) to a 2010 Economist Intelligence Unit survey cited “cultural sensitivity” as the most important attribute in a

successful expatriate. If you don’t have the ability to perceive cultural differences, you are destined to struggle in both the workplace and your wider social life in a foreign environment.

“Managers who struggle are the ones who aren’t sufficiently flexible to adjust their management style; what has been successful in their home country for years suddenly doesn't work any more, and they find it difficult to adapt to the new situation,” says Thomas Efkemann, an Executive Director for Assignment Services at Ernst & Young. “You need to have different managerial approaches available, and then you select the best one according to the circumstances.”

Several management thinkers, most notably Geert Hofstede and Fons Trompenaars, have sought to measure cultural differences in the workplace, comparing attitudes across the world to various concepts such as teamwork, hierarchy and risk. Any expatriate who ignores the intricate subtleties of national culture will soon pay the penalty.

To avoid potential conflict or failure, companies need to test for cultural sensitivity 35%

The proportion of spouses working during an assignment, down from 89% that were working prior to the placement, according to the Permits Foundation.


__ No strategy can guarantee the success of an expatriate placement.However, companies can certainly adopt measures to facilitate their employee’s transition, and thus increase the likelihood that he orshe will excel in a foreign environment.

1. Choose the right individualThe key issue of selection is toooften downplayed, with companies often believing that domestic star performers will automaticallyreach a similar standard within a completely alien culture. Robust selection procedures which ensure that the individual is flexible and sensitive enough to recognize and adapt to cultural differences are essential.

2. Offer cultural and language trainingProvided that prospective expatriates possess this necessary openness, cultural training will educate them about the key differences in approach and behavior that they are likelyto encounter in their new country. Language training can teach the basics, and thus help to showa welcome interest in the host culture.

3. Allow the family time to commit wholeheartedlyRushed decisions to spend several years away from family, friends anda familiar setting can quickly be regretted. Companies should insist that the whole family contemplates all the personal repercussions of the placement before consenting toit. A paid-for “look-and-see” tripwill aid this decision-making process.

4. Support the entire familyFamily discontent frequently undermines the success of an expatriate placement. Companies can help to integrate spouses by introducing them to others in a similar situation, or by assisting them to find work that is appropriate for someone of their level. (According to the Permits Foundation, 82% of expatriate spouses or partners have a university degree.)

5. Appoint a good destination service providerOnce ensconced in their new country, a destination service provider can teach the family all the necessary practicalities, such as how to pay utility bills and where to go shopping for various items.

Management Expatriate postings Credit: Getty / Sean Sexton

“I once went to a meeting with a fellow Westerner in Japan,” recalls Ellen Shipley, Head of Mobility and International Assignments at BT, a major telecommunications company. “He took a business card from our Japanese hosts, didn’t look at it, and flipped it on the table. You just can’t do that there. There are a lot of little rules you simply have to pick up on, wherever you go.”

Getting the right personBecause many workers are just unsuited to conditions abroad, careful selection of the expatriate is vital. To avoid potential conflict and the resulting failure of the placement, companies routinely test for cultural sensitivity in prospective expatriates. But all too often, company headquarters will play down the importance of the test’s findings, and go ahead in selecting candidates purely on their performance on home territory. "I have seen

people who were superstars in their own country," recalls Efkemann. "And based on this record, their management assumes they will perform just as well in a different country.But then they fall flat on their faces because their approach didn't fit the local market at all."

Cultural training, prior to departure, can teach some of the essential dos and don’ts and help reduce the risk of major clashes. Large companies also routinely offer language training to ease the transition. Although no one will become fluent in a language after a short course, a basic grounding can demonstrate respect for the local culture, and a willingness to learn more about it.

Indeed, language ability, or at least the desire to learn, doubtless correlates strongly with the cultural sensitivity that is so essential to expatriate success. After all, it must be difficult to be sensitive to a culture when you have very little idea what is being said around you. The Economist Intelligence Unit survey seems to confirm this link. Former expatriates were much more likely to crave another posting if they found dealing with a foreign language to be “highly attractive.”

Despite the apparent benefits of cultural and language training, the current economic climate is prompting some companies to cut back on it. “There is a real lack of understanding within the corporate world about what it actually means to pack up and move to another country,” says Shipley. “Consequently, when times are hard, heads of departments can see the investments that have traditionally been made to help an expatriate settle as dispensable items.”

Language ability, or at least the desire to learn, can be a key factor in helping expatriates settle in

5 key measures that can help boost the success of a placement

Improving the odds

Relocations on the riseInternational relocations, especially among service firms, have risen steadily for three years in a row, rebuilding since a 2009 low. In 2011, 28% of firms globally expected an increase in the number of relocations abroad, according to Atlas' 2011 Corporate Relocations Survey.


on their job search, but only 11% believed they received adequate support in this regard.

Taking matters into their own hands, expatriates and their partners have established informal networks throughout the world, including clubs to meet each other face-to-face and websites for sharing ideas, anxieties and local recommendations. Most partners’ websites and blogs are set up by women (according to a 2010 survey by Brookfield Global Relocation Services, 83% of expatriates are men), but there are signs that support groups for male partners are emerging, such as the Brussels-based STUDS (Spouses Trailing Under Duress Successfully).

Careful considerationThomas Efkemann of Ernst & Young recommends that expatriates should discuss the potential international assignment in depth with their partner and family prior to accepting the offer. “Company managers should allow them the time to consider all the implications,” he says. “Sometimes, after the initial wave of

enthusiasm for this exciting opportunity to work abroad, problems begin to arise. Where will they live? What about schooling and health care? Is the partner able to work abroad as well? By the time worker and partner both realize they don't really want to go, they may have already made a commitment.”

A “look-and-see” trip to the relevant destination, often paid for by the company, can give the family the knowledge they need to make an informed decision, prior to formal acceptance. If they then do decide to take the plunge, a good destination service provider who can assist with the practicalities of the move is also invaluable. “Having someone there to help you find the right property to live in, sort out your bank account, get you a driving license or show you the local grocery store, can greatly ease the stress involved in the transition to a new country,” says Shipley. “Cutting back on this service is a false economy for companies. They need their expatriates to hit the ground running, not spend their days worrying about how to pay an electricity bill.”

For any potential expatriate family, an open and curious mind, and the motivation to make the assignment work, along with the initial assistance an employer might provide, will make for a good start to what can be a fulfilling and successful venture. But those who are inflexible by nature, or are accompanied by a family member dragged to the foreign destination against their will, are unlikely to get successfully through the long days, weeks and years that lie ahead, even with the most expert tax advice or instructive cultural training course in the world.

Companies need to intervene to ensure that executives are not placed at a financial disadvantage

Most common issuesaffecting internationalassignments

Family- or spouse-related issues

Compensation package

Repatriation

Location or cultural issues

49%

47%

36%

32%

Others14%

Position-related issues(e.g., unsatisfactory position)

*multiple responses possible

9%

Source: Ernst & Young's Global Mobility Effectiveness Survey 2011

The importance of family integrationThe adjustment for the expatriate may be difficult enough, but many believe that assignments more often than not fail because the worker’s partner and children don’t acclimatize well to their new surroundings. “Family issues are the biggest obstacle to expatriate success,” says Yvonne McNulty, an academic specialising in global mobility at Monash University in Australia. “If the organization is focusing only on the expat and not on the family, problems can quickly surface.”

When you look at the available evidence, it’s not hard to understand why. According to an extensive 2008 survey by the Permits Foundation, interviewing more than 3,000 expatriate spouses and partners of 122 nationalities, 89% of spouses were working prior to the assignment, but only 35% during the assignment itself.

Three-quarters of those not working said they wanted to work, inevitably leading to frustration, disillusionment and boredom. Eight in 10 working spouses reported a positive adjustment to their adopted country, compared with only 32% of non-working spouses. “The location may have changed, but the expat worker’s routine of getting up and going to work hasn’t,” says Shipley. “But the partner doesn’t know a soul – he or she’s not working and, unlike the expat, has no ready-made networks to tap into. Three or four months down the line, you’re both fed up, and we’re talking about bringing you home.”

Many companies, including BT, try to help partners (also known as, “the trailing spouse”), by offering them a few thousand pounds to be used for anything that might help them to integrate, be it a vocational training course, language classes or club membership.

However, McNulty says that the amount of corporate attention devoted to helping the spouse and other family members is simply insufficient, given the impact of their potential unhappiness on the success of the overall assignment. “HR departments have a hugely difficult time getting sufficient funding for something that doesn’t have a clearly

measurable return on investment,” she says. “Family support has rarely been seen as an essential part of expatriate management. Maybe companies shy away from it because the issue is too challenging, or perhaps they are wary of crossing a line and interfering in their employees’ personal lives.”

Further statistics from the Permits Foundation appear to verify these views. About three-quarters (76%) of expat partners, for example, would have welcomed some guidance or advice

Insufficient corporate attention is devoted to helping the expatriate's family members


Management The reverse brain drain

Another notable trend is the movement of skilled workers within Europe due to varying economic conditions, says Michael Liley of Ernst & Young’s Human Capital practice in London and former Global HR Director of Ernst & Young. As a result, Spain, Italy and Greece now host a generation of highly-educated people in their mid-20s to mid-30s who cannot find good work. “So EU countries that are doing better economically, like Germany, have had quite a significant intake of qualified talent from those other countries,” he says.

These trends are quite different to the established ones, which are characterized by the movement of talented workers from less developed to more developed countries. But a striking reversal may be looming, with various talent consultancies arguing that within several decades, many vacancies for senior roles in countries such as India will be filled not only by returning Indians, but also by Americans and Europeans seeking better prospects.

Push and pull“The labor market is a major driver of talent migration,” says David Rooney, Executive Director of Global Mobility in Ernst & Young’s Human Capital practice, but he notes that it is only one of many factors, often categorized as either “push” or “pull.” Push factors might include lack of career or salary growth, or immigration policies that discourage permanent residence after training. “Pull factors,” he says, “may include higher wages or opportunity for career advancement, but there are others. Cultural affinity and family ties can also pull people back home, as well as pride around supporting growth in the home country, and sometimes simply quality of life.”

According to a 2011 study sponsored by the Kaufmann Foundation in the US, which interviewed Indian and Chinese professionals who had been educated in America about their reasons for returning home, the top three

• By Gerri Chanel

People have been moving in search of better opportunities since the dawn of humanity. Back then, hunters migrated to stalk

bigger herds. Today, it is intellectual capital on the move. Just a few years ago, talented engineers or scientists from such countries as India or China would make their way to countries such as the UK or the US. Today, those individuals are increasingly returning to their country of origin after obtaining education and experience – a phenomenon sometimes called “reverse brain drain.” Of course, one country’s brain drain is another’s gain, presenting challenges and opportunities for the countries – and companies – on both shores.

China, India – and beyondHai gui is the Mandarin term for sea turtle, a creature that is born on land, but grows up in the ocean before returning. It is also the informal term for the ever-growing number of Chinese graduates and professionals abroad who are increasingly returning home. China is not alone in this phenomenon: according to a 2011 study by recruitment consulting firm Kelly Services, an estimated 300,000 Indian professionals now working overseas are expected to return to India by 2015. Elsewhere, skilled expat workers from African countries such as Nigeria, Kenya, Ghana and Angola are also returning in notable numbers to their countries of origin, not least due to a slowdown in many richer economies.

Joseph Pagop Noupoue, Ernst & Young’s Managing Partner for Cameroon, is one example. He recently relocated back to Africa after being educated and working in France for 23 years, and is far from alone. “We are receiving applications from so many young and talented Africans who are ready to make the trip back and bring their contribution to the development of the continent,” he says.

SummaryFor the past century, the flow of talent has been largely from emerging to developed markets. But a more multipolar world is triggering new flows of skilled workers. This is sparking global competition for talent.

The magnetic pull of skilled professionals and students from developingto developed markets is giving way to a more multipolar world, where countries increasingly compete for talent.

Human capitalon the move


¥1mThe one-time, tax-free cash allowance that one of China’s initiatives – The Thousand Talents Program – offers to top researchers to come home, amounting to about US$159,000.

70% The approximate percentageof expatriates, as a proportion of the total population, in the United Arab Emirates, the highest such ratio in the world.

factors were economic opportunities, access to local markets and family ties.

For highly skilled scientists and technology workers, there are yet other factors. According to a 2008 OECD publication, The Global Competition for Talent: Mobility of the Highly Skilled, these workers also seek better research funding and research infrastructure, the opportunity to work with “star” scientists and more freedom to debate.

Government programs and policiesGovernments across the world continue to create a wide repertoire of programs to help draw highly skilled expats home. China’s list alone is huge. To encourage students to return, the Government there has set up educational bureaux in its embassies and consulates as well as several thousand student associations. Universities and government-funded research organizations actively recruit returnees. One initiative, The Thousand Talents Program, offers incentives to top researchers to come home, including a one-time, tax-free cash allowance of ¥1 million (US$159,000), and a residency permit in whichever city they choose, among other benefits. Some cities have created “enterprise incubators” for returnees.

The United Arab Emirates has made its expat workers aware of employment opportunities back home by creating an online platform called Return2Home. The initiative targets Emirati jobseekers in the US, UK, Canada, India and South East Asia, as well as employers seeking non-resident Emiratis with international experience and expertise.

With many skilled expats being increasingly “pulled” home, the countries currently hosting these expats have an equally large stake in encouraging them to stay. According to Liley, “How well a country integrates its talent will have a high impact on whether that talent comes to consider the host society home. For example,” he says, “countries such as Sweden and other Nordic countries have provided language training for numerous years, which is the key to connecting with the local population and integrating into the society.

In some cases, immigration policies create barriers to workers who might otherwise wish to stay in a host country. For example, the US is experiencing an exodus of skilled foreign workers, particularly in crucial fields of science, technology, engineering and mathematics. “Many of these people are leaving simply because they cannot get permanent visas to stay in the US after their student or training visas expire,” says Rooney. Another approach is to ease immigration policies that prevent needed talent from entering. Like the US, the UK faces shortages of skilled workers, particularly in certain sectors. The British Business Secretary Vince Cable stated in 2011 that the UK’s aerospace industry faces a serious, chronic

shortage of engineers; he believes certain immigration caps are partly to blame.

Governments can also change immigration rules to make it easier for expats to return. For example, in Canada, a pilot program was launched in 2011 to encourage Canadian expats in certain sectors facing significant shortages, such as health care and academic research, to return home by easing immigration restrictions on non-Canadian spouses.

Education is also on the moveWorking professionals are one facet, but students are also crucial here. Vast numbers of students in developing economies leave home each year to attend Western institutions of higher education. That fact has not been lost on Western business schools. INSEAD, a top European business school, has a campus in Singapore, and other schools, such as the University of Pennsylvania’s Wharton School, have established campuses abroad for their executive-MBA programs. Local business schools in countries such as India and China are also appearing at a rapid pace.

Science and technology research institutions are globalizing more slowly. However, a new publication, OECD Science, Technology and Industry Scoreboard 2011: Innovation and Growth in Knowledge Economies, indicates that there is evidence that some universities in Asia are emerging as leading research institutions. With non-OECD economies accounting for a growing share of the world’s R&D (measured in terms of both number of researchers and R&D expenditures), it is reasonable to expect that, over time, additional research institutions in these regions will continue to emerge and grow; these will further support shifting brain flows.

Talent at stake Employers face somewhat different concerns in managing talent flows from an HR point of view. But whether the issue at hand is retaining valuable immigrant employees or encouraging people to come home, “companies need to focus on the opportunities they create for employees,” says Michael Dickmann, Professor of International HRM at the UK’s Cranfield School of Management and co-author of Global Careers. “This goes far beyond monetary issues. I believe it is about the very clear development of employees and the way companies manage their talent. We consistently see that, in the range of drivers for people who work globally, these are the strongest.”

In his book, Dickmann notes that what was once a clear brain drain, where the talent flow was one-way, is now changing to what he terms “brain circulation,” with mutual sharing of talent and learning. In an increasingly interconnected world, this circulation will only continue to increase. And those capturing the top minds, regardless of their origin, will benefit most.


Management Leading virtual teams Credit: Keystone / MaxPPP / Leemage

A globalized economy is allowing companies to tap into talentfrom around the world. But effectively managing such virtual, multinational teams requires both new tools and different approaches.

Managing in a virtual world


Videoconferencing, as it wasenvisioned in 1910, one of a seriesof prints commissioned in Franceto imagine the world in the year 2000.


• By Kim Thomas

The days when a team consisted of a group of people who arrived at the same office at 9:00 a.m. each day are long gone.

Knowledge workers now often work from home, and may live in different parts of the country or even across several countries and time zones.

This change has been driven by a combination of factors: a recognition that staff may need to balance work with family commitments; an awareness that the ability to work offsite is a useful option during epidemics, riots or bad weather; a desire to save on travel and office costs, especially during difficult economic conditions; increasingly capable and cost-effective technology that can help make collaboration far easier and more effective; and ongoing globalization, which makes cross-border global teams a now common and essential part of doing business. In her recent book, The Shift, London Business School Professor Lynda Gratton argues that virtual working will largely become the norm for most office workers in the coming decade.

There are some clear benefits to this approach, not least of which is the opportunity to bring together different experiences and perspectives. But it also brings obvious challenges for managers: in a team of people who rarely see each other, individual members can feel isolated, and may lack the opportunity to share ideas or engage in casual conversation that can spark a fruitful idea. While research shows that people who work from home tend to be more productive than those working in an office, the opposite is the case for virtual teams, according to a recent study from The Society for Human Resource Management. As Richard Edwards, Principal Analyst at Ovum, points out, even in co-located teams, managers need to accommodate the fact that people have different styles of working. “It can exacerbate and challenge team-working more if you are separated,” he says.

Rethinking virtual managementSo what is the secret to managing a virtual team successfully? INSEAD Professor José Santos has found that teams where each member has a clearly defined role and focus work better than ones where roles are loosely defined. The measurement of performance also needs to adapt – toward a system where team members are measured on outputs. “You have to focus on performance rather than on how people are behaving with you,” says Bill Shedden, Director of the Centre for Customised Executive Development at Cranfield School of Management.

Other things can help. Although it’s not always feasible, teams that have had a chance to meet before they start working virtually tend to be more effective. Without this, team meetings can

be challenging, especially for a team that spans multiple cultures. Some may wish to speak but find it difficult to interrupt a conversation in mid-flow and so will opt to stay silent.

Until recently, videoconferencing has remained an imperfect alternative, often with out-of-sync audio and video, or an inability to see participants clearly. This is quickly changing. Sales of telepresence videoconference technology, which uses multiple screens and high-quality audio to simulate people sitting at the same table, have increased rapidly. In 2010, the market grew 18%, totaling US$2.2 billion, and analyst firm Frost & Sullivan expects it to more than double to US$4.7 billion by 2014. Already, as costs reduce, such systems are becoming more widespread. Accenture is just one example of a multinational that is rolling out a significant number of telepresence systems globally; it already had over 50 in place by early 2010. In an internal poll, 97% of Accenture employees said that the technology was a good substitute for face-to-face meetings. “To see people’s faces makes the discussion just more productive,” says Thomas Efkemann, an Executive Director for Assignment Services at Ernst & Young. “You see, for example, when someone doesn’t agree with your comments – how someone is shaking their head or trying to get into a call.”

Technology isn’t the only answerBut technology alone is not the answer; management practices have to adapt too. “One consideration is to reduce the number of meetings,” says Efkemann, “but to make sure that those you do hold have very clearly defined aims.” Shedden agrees, not least due to often challenging time zone considerations. “You’ve got to pay a lot of attention to the managing of the team in terms of who’s going to be there, what’s the purpose of the meeting, what are the outcomes we expect, because for some people it will be at an unsocial time. You also want to ensure that you stick to time, because a person might be waiting to go home – he might be waiting till eight o’clock at night because he’s in a different time zone to you.” To grapple with this, some teams opt to rotate the times of meetings.

Managers also need to ensure that everyone has a chance to speak, particularly when there isn’t a common first language. With meetings typically defaulting to English, some team members may need more thinking time, rather than being rushed into a response. One way of helping this along is to give team members in different locations a turn at chairing meetings, so it’s not always the same manager who chairs. Another common solution is to record a teleconference and make it available later for those who were unable to take part, allowing them to add written comments.

A further consideration relates to cultural differences. Team members in different countries will be used to different meeting styles. In an

$2.2b The estimated size of the telepresence videoconferencing market at end 2010, which is expected to more than double to US$4.7 billion by 2014.

97% Percentage of Accenture employees in an internal poll who agreed that new videoconferencing technology was a good substitute for face-to-face meetings.

SummaryThe rise ofglobalization and technology has seen an increase in the use of virtual teams. Despite this, relatively littleis yet known about the best practices ofhow to manage such teams, from the tools required to alternative management practices.

Management Leading virtual teams


article for Forbes magazine, INSEAD Professor Erin Meyer identified that Swedish teams, for example, make decisions through lengthy consensus building, while in Japan, decisions tend to be made in informal one-on-one discussions before larger meetings. “Trying to force these different styles into a single mold can be tricky – but can also be seen as an opportunity to do things differently,” says Efkemann. “Sometimes it’s good to learn how the different ways are successful, because you may want to apply them to one of your future projects.”

Going socialOf course, meetings are only one part of keeping the team running smoothly. What happens between meetings can be even more important. While email and phone are tried-and-tested ways of staying in touch, they can suffer from being overly formal and stilted. In recent years, however, a range of new enterprise social networking software tools, such as Yammer or IBM Connections, have emerged. These mimic consumer applications like Facebook and Twitter as a more effective way of holding informal discussions, sharing tips and ideas or getting a group conversation started. Edwards describes such tools as a “glue to provide the connectiveness that we have lost as we become more distributed in our working locations.” These methods of working enable those who find

it difficult to speak up in meetings to express themselves in their own time, thinking through their response. They can also be a valuable way of sharing personal and organizational insights, which a number of multinational companies are now adopting as part of a suite of collaboration tools. Gratton argues that such tools are even helping to deformalize organizational structures, replacing traditional hierarchies with a more meritocratic structure. Furthermore, many are realizing the potential for such social-style tools to help cut email overload, freeing up workers to collaborate more effectively.

As part of this, Efkemann also suggests using what he calls a “virtual coffee corner” – a web space where team members can just chat, whether it’s about personal issues or work issues, without the pressure of an agenda. Others make much use of instant messaging tools, which can be a useful replacement for either the phone or email for quick, informal communication. This is especially popular among younger employees who have grown up with the technology.

Even with all this, some of the basics of management remain the same: focus on what the team has to achieve, keep lines of communication open between meetings and make sure issues are brought out in the open and dealt with swiftly. “You can’t just go into the corridor and shout three people in for a meeting,” says Shedden.

Credit: Cisco Pics

Virtually thereTechnology vendors such now provide dramatically more capable videoconferencing systems, known as telepresence, to better facilitate virtual meetings for teams scattered around the world. As costs have fallen, corporate uptake of such systems has increased markedly, not least as travel budgets come under pressure.

Virtual technology is shrinking the business world by connecting team members from across the globe.


Gareth Williams__ is Human Resources Director of Diageo, a premium drinks business that employs 25,000 people around the world. Over the past decade, the firm has steadily expanded its business geographically and now sells its products in most countries around the world, providing a range of assignment opportunities for its workforce.


The reintegration process Management

Departure rates among executives returning to their home country following an offshore secondment are well above average. Stemming these losses requires careful planning and constant communication.

Welcome back.Now – please don’t leave!

immediate 12–24 months after repatriation. Over the years, countless surveys have shown that expatriates who have recently returned from a secondment are much more likely to leave the company than those who have not been away.

This sounds counterintuitive. After all, if a company is willing to invest time and money to build the international experience and knowledge of its high-potential managers, surely those executives would be more likely to remain loyal. In fact, the opposite is true. One of the main reasons for this is that, on return, expatriates find that the dynamics and management teams in their home country have changed, leaving them without their original sponsors or mentors. “They can return to a sort of vacuum, with no job and no one looking out for them,” says Marion Festing, Professor at the Berlin campus of the ESCP Europe Business School.

A weak economy exacerbates this problem. In the current environment, many executives are

• By Bill Millar

International experience is becoming increasingly valuable in a world where globalization continues to deepen. To succeed

at a senior level, executives need an understanding and awareness of different cultures. And perhaps the best way of developing this experience is through a series of temporary foreign assignments or secondments.

Moving executives around the globe can be a valuable way of developing the managerial skills and knowledge that are necessary for an international business, but it can be challenging to get right. One of the biggest problems is the regular departure of executives after the completion of a foreign assignment, especially in the

SummarySecondments abroad represent a valuable opportunity for employers andemployees alike. But companies need to take steps to make sure that employees still feel valued once they return.

Credit: Diageo / Tim Bishop


Management The reintegration process Credit: Corbis / Xinhua Press / Zhang Jinqiao

Diageo’s global expansion into many new global markets has been supported by its detailed expatriate management programme.

Sometimes an expatriate, away for a long assignment, no longer feels at home upon return. They have established strong connections with the country they have just left. In addition, they may realize that their skills or abilities, no matter how well developed during an offshore assignment, no longer align with the organization’s needs. In these situations, it is unsurprising that these executives will actively

seek a way to return to their former standing or location. “They want what they’ve lost and, if the parent company can’t provide such an opportunity, they begin to look elsewhere,” says Rooney.

Stemming the loss Addressing the problem starts with the selection process. Companies need to set expectations carefully and ensure that expatriates are aware that there is no guarantee of promotion on return. There should be a similar discussion about compensation. Although an executive may be well

returning to a company where there are fewer senior positions to fill. “Companies send managers on expatriate assignments with the expectation that they will fill another more senior position upon their return,” says Festing. “But with many companies either downsizing or cutting back on expansion plans, there’s often no position available.”

Another common problem is that returning executives experience a sense of loss or diminishment. As David Rooney, an Executive Director in Human Resources at Ernst & Young in Frankfurt explains: “Expatriates on assignment away from the headquarters are treated almost regally. The company will often attend to – and pay for – many of their needs, from housing and transportation to their children’s education. Their total reward will typically be higher than in their home country.”

Returning executives can feel deflated because there may be a perception that they have less influence than they had overseas. “Expatriates are often big fish in a small pond,” says Rooney. “When they come back, they return to a big pond. They may be a bigger fish than when they departed but, overall, they are often left feeling as though they’ve been demoted.”

There are other potential problems.

Global growthDiageo now trades in approximately 180 markets globally, employing a workforce of almost 20,000 people, with dedicated offices in 80 countries.

Returning executives may feel deflated, perceiving less influence than when abroad


can benefit the company. These are high-potential individuals in whom we’ve chosen to invest because we believe in them.”

Executives on secondment at Diageo remain closely connected with head office via a series of formal processes. This involves ongoing discussions about performance in the position, personal growth, challenges and training requirements. “Wherever they are, they are still tracked within our global talent processes,” says Williams. The company also thinks ahead to ensure that the expatriate’s next steps are carefully considered. “Even though the current assignment might not be over for another 12–18 months, we’re already making plans for the next one,” says Williams.

But of all the mechanisms that optimize talent development and minimize attrition rates, perhaps the most valuable, according to Williams, is the initial selection process. This requires detailed up-front conversations about every aspect of the candidate’s personality, including their family situation and aspirations.

“You need to get an idea of how they might get on in a more developing, as opposed to more developed, country,” says Williams.

Finally, it is also very important to nail down the particulars. “We have a conversation where we say: “Here’s your base package. Here’s your expatriate package. Here’s who you will work for and report to. Here’s what we’ll take care of for you and these other areas will be your responsibility,” says Williams.

More taxing matters Given current economic conditions, it is not surprising that host nations are becoming more aggressive in their pursuit of expatriate tax revenues. This highlights the importance of being clear with expatriates about responsibilities for different aspects of tax compliance. “Administrations are paying closer attention to due dates – and they’re tougher when deadlines are missed,” says Williams.“We devote a good deal of effort anddiscipline to make sure our very considerable expatriate programs are meeting their tax obligations.”

An investment in talent Executives returning from an international assignment are typically much more valuable than when they left. Yet despite this, there is a high risk of them leaving the company. By being more proactive and, in particular, by applying formal processes, companies can reduce the rate of attrition and thereby improve returns on their investments in human capital.

paid while on assignment, they need to understand that the same level of pay is not likely to continue when they return. “It’s vital not to overpromise,” says Festing. “Be honest and explain that this is valuable experience, but it’s only an assignment and there are no guarantees.”

By setting expectations in this way, companies are more likely to select the right person for a position. As Rooney explains, the ideal candidate is someone who goes into the assignment for all the right reasons. “If they’re looking for something you can’t provide, they’re not right for the posting.”

Companies should ensure that there is a strong channel of communication between their home country office and expatriate. Often, a formal mentoring relationship can be a good way of ensuring that managers do not feel cut off from corporate headquarters. This relationship should be tracked formally and included as an element of performance evaluation for both the mentor and the expatriate.

Finally, there should be a formal process that prepares for the expatriate’s return. Preparations should be made well in advance to ensure that the transition is smooth. “You don’t want to wait until they are back before you make plans for their next job or their next assignment,” says Rooney.

Many executives returning from secondment complain that their new skills and experience are not sufficiently valued. Companies can avoid this problem by ensuring that the executive’s new role makes use of these new capabilities and experience. It can be a good idea to arrange one or more seminars or talks where the returning expatriate can share their experiences and lessons with others in the company. This not only spreads knowledge, but also gives the executive a sense of accomplishment.

The embodiment International experience is crucial for the drinks manufacturer Diageo, which owns a range of globally recognized brands, including Guinness, Smirnoff and Johnnie Walker. At any one time, it has around 400 managers in its “expatriate pool,” who are all gaining overseas experience in order to develop their skills and build long-term careers with the company.

This pool includes executives from a wide range of positions. Some are short-term pragmatic assignments, such as bringing specific brewing experience to get a new operation up and running. But most are long-term assignments, lasting two or three years, which tend to be occupied by managers and senior executives who have been selected especially for the role.

These assignments have two primary objectives in mind. “One is that we want these executives to get the job done,” says Gareth Williams, Director of Human Resources at Diageo. “But the second objective is to provide these executives with valuable experience that

Effectiveness of theorganization's repatriationprocess

GoodSatisfactoryScope for improvement

20%

31%

49%

Source: Ernst & Young’s Global Mobility Effectiveness Survey 2011

400 The number of managersthat Diageo keeps withinits “expatriate pool”at any given time,as part of its skills andcareers development.

Plan ahead 12–18 months; certainly before the current assignment is over


Management Succession planning

An effective CEO succession planning strategy is crucialto the long-term success of any company. Yet all too often this is somethingthat corporate boards fail to plan for effectively.

Who’s next?

Given such benefits, why has succession been poorly dealt with for so long? One reason is that the outgoing CEO often manages the process. And as Sacha Sadan, Director of Corporate Governance at Legal & General Investment Management (LGIM) notes, chief executives often don’t want to hand over power. “Historically, I think CEOs overstaying their welcome has been a problem in the UK,” he says. “When CEOs stay on too long, they get tend to get stale, or overconfident, or too dominant. And the company ends up losing key people, as talented employees give up trying to be the CEO.”

Rakesh Khurana, Marvin Bower Professor of Leadership Development at Harvard Business School, and author of Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs, believes that the real legacy of a CEO should not only be measured by their own performance, but the performance of their successor. “In many ways, I think that’s ultimately the real judge of the quality of the CEO,” he says.

More succession attentionIn the UK, Sadan has noticed a substantial improvement over the past decade in the professionalism of approach to succession, with a positive impact from better stewardship and corporate governance codes in particular. “It is much more professional now than it used to be,” he says. “It’s not perfect, but I see much more evidence that CEOs are thinking about their support staff, thinking about who is going to get the job, and good CEOs are moving their lieutenants around the business to try and get them the skills that may be needed next.”

Gorbanovskaya also notes that succession is an increasing focus of many companies, not least to support talent retention. “Our research suggests that development and retention is the number one issue on the agenda of HR managers at the moment, especially bearing in mind the overall increase in personnel mobility, which we have noticed during 2010–11.”

• By Fergal Byrne

In an increasingly competitive business environment, the role of the chief executive is more demanding than ever. As a result, the

average length of CEO tenure is shrinking, while failure rates are climbing. All this makes effective succession planning crucial to a company’s long-term success. For those that don’t, the risks are high: badly planned succession processes can become prone to internal politics, with firms risking the loss of their best talent, and, increasingly, bad publicity. Bank of America’s long and circuitous search for a chief executive is just one example of this, taking two-and-a-half-months to complete, amidst constant media and industry speculation.

This global phenomenon can be even more of a challenge in emerging markets that don’t have strength in depth at higher executive levels. Yet despite all this, the overwhelming majority of companies do not plan for succession. According to a December 2010 Korn/Ferry survey, only 35% of global companies have a succession plan in place and are ready to deal with a CEO’s departure. In his book The CEO Within, Joseph L. Bower suggests a figure of about 40%.

Olga Gorbanovskaya, Head of Human Capital at Ernst & Young Ukraine, believes that firms cannot underestimate the importance of good planning. “Having the right people, in the right place, at the right time, particularly when it comes to the CEO, is a pre-requisite for long-term resilience and success,” she says. “This is especially true as current demographic trends suggest that a shortage of the appropriate talent is becoming a major issue for businesses."

Companies with a well-planned, fair and objective succession process not only have better chances of securing the best leaders, but also find it easier to attract and retain key talent. A sideline benefit is less internal politics, with a tighter focus on achieving the organization’s goals.

Credit: Muir Vidler

35% Proportion of global companies that have a succession plan in place and are ready to deal with a CEO's departure, according to Korn/Ferry.


Sacha Sadan__ Director of Corporate Governance at Legal & General Investment Management, argues that the past decade has seen substantial improvements in corporate governance, which in turn has pushed corporate boards totake succession issues more seriously.


magnify the strengths of outsider candidates, while discounting weaknesses, argues Khurana. This helps explain why many companies turn to external CEOs, which can be risky. A study by AT Kearney on S&P 500 companies in the US, between 1988 and 2007, identified 36 high-performing companies and argued that much of their success was due to “home grown” talent.

Gorbanovskaya notes that one of the main CEO succession challenges concerns the reluctance of current leaders to create a strong pool of candidates to replace them. To counter this, she recommends creating a blend of material and non-material incentives for current leaders to put succession planning on their agenda. To ensure this is embedded, it can be formalized within a management scorecard and linked to a significant part of an executive’s bonus (in certain cases, up to 30% of the total).

3. Give HR a seat at the tableSomewhat surprisingly, HR is all too often excluded from the process, and merely treated as a support function. Khurana notes that the best companies respect the importance of HR and invest very deeply in their internal development process. “If you look at successful companies HR is seen as key to the company’s success. They spend a lot of time and attention on developing people,” he says.

Companies that realize the importance of talent give HR a major role. “The head of HR is usually treated as equivalent to functions like chief financial officer. In these companies, HR is given a seat at the table in succession discussions and is integral to the process,” he says.

4. Define the role of external recruiters External consultants and recruiters often play an important role in sourcing a new CEO. But some worry that companies expect too much from the executive search firms. Khurana believes that the roles of the search committee and external recruiters need to be clearly distinguished. A good search committee needs people with a deep understanding of the context and the functional backgrounds and requirements for senior positions, and who are cognizant of their own biases. For example, one bias to overcome is that of the stereotype CEO, to ensure a broader variety of candidates is attracted. “There’s a dangerous ’ideal form’ as to what a CEO should look like,” says Khurana. “It’s typically a male who’s over six feet tall and of European descent. In the global world, those biases will kill you.”

One thing is certain. Given the changing balance of the global economy, the future stereotype of a CEO is sure to include an executive with considerable experience in rapid growth markets. Being able to demonstrate an understanding of the diversity between different cultures and a global mindset will be essential for tomorrow’s CEOs.

There are a number of factors that are driving companies to take succession more seriously. Increased competition is one. “It’s simply become harder for companies to succeed, in virtually every industry,” says Sadan. “It is imperative that companies recruit the best people. At the same time, they can’t afford to lose the best people.”

Another factor is greater engagement at board level, which Sadan believes is largely due to the UK’s 2003 Higgs Report on the role and effectiveness of non-executive directors. Similarly, more chairmen are taking the issue seriously. “I think many of the new chairmen coming through now are much more proactive. They’ve all been CEOs in the past, or most of these new chairmen have been, and they understand this is crucial.”

The increasing involvement of stakeholders is a further factor: investors do not like uncertainty, and CEO succession is receiving unprecedented scrutiny. In 2009, the US SEC, for example, proposed more transparency and shareholder disclosure about succession risk.

While more companies are looking at succession more closely, many of those that do engage in succession planning are unhappy with the quality of their planning. Korn/Ferry’s research suggests that less than 1 in 10 UK business leaders, for example, rate their own company’s succession planning practices as ”excellent.” So what elements constitute best practice here?

1. Start the succession process earlyThe first element is that succession planning can’t be started too early. “The succession process is never-ending,” says Gorbanovskaya. “The best companies view this as an ongoing, real-time process. Companies should try and create a self-renewing succession culture that develops leaders at all levels.”

Khurana points out that succession is not a punctuated event. “Succession is a process that should be part of board-level discussions throughout the year. Leadership development is not a decision to be made in weeks, but something to be made over years,” he says. “In really good companies, it’s something that boards get involved in years in advance of the tenure of the CEO.”

2. Focus on strategy, not personalitiesAny well-planned succession should start with a thorough review of the business strategy, says Gorbanovskaya. Unfortunately, this rarely happens. Khurana’s research suggests that boards often start thinking about the people first: “Too often it ends up being a contest of personalities,” he says. “Companies should first think about the company’s strategic direction, and only then think about the necessary skills and backgrounds of the leadership team, not only the CEO, that are going to be needed to meet those challenges.”

Furthermore, moving away from a focus on skills – assessing people against the strategy and the skills that you’re looking for – can unduly

<10% According to Korn/Ferry,less than 1 in 10 UK business leaders rate their own company’s succession planning practices as ”excellent.”

Management Succession planning


Kraft Foods Ukraine (KFU) faced a major succession challenge in 2011, when the company’s veteran Ukrainian-American CEO George Logush left to work for local poultry producer MHP. Logush had played an integral role in the company’s growth and success over the prior 16 years, so this was a hard blow for the company. During his tenure, Kraft’s sales in Ukraine had grown more than 100-fold to some US$500 million in 2011, helping to make the Ukraine one of the US food giant’s 10 priority emerging markets.

The succession challenge was exacerbated by the fact that three other KFU senior managers were moving on to other internal roles at the same time, while several changes were also taking place in the company’s board. All this came after a full decade with zero turnover in KFU’s top management. “This was not something we could have expected to happen simultaneously, but when the opportunities arise, and when you have the talent in the pipeline, you have to be able to respond to these opportunities,” says Oksana Semenyuk, the company’s HR Director.

In the end, the transition process for the top job went smoothly, which Semenyuk credits to the attention that senior management pays to succession planning in the business, with Taras Lukachuk, a Ukrainian national who had worked for Kraft for more than 10 years, taking the helm. “The whole succession had been preceded by years of preparation, so there were no conflict or arguments,” she says. “Everything was

Case study

Kraft Foods Ukraine’s succession successPlanning aheadThe departure of aveteran CEO, along with a management reshuffle, helped prove the resilienceof the firm’s in-depth transition planning.

planned ahead, with a deep bench of senior management talent developed over years, and Mr Lukachuk knew several years in advance that he was the preferred successor, so underwent a period of targeted training.”

As part of the succession management process, and to provide him with the necessary managerial experience, Lukachuk had been appointed several years earlier as the General Manager of the subdivision in charge of all 11 markets under KFU’s control. He also worked intensively with a management coach to prepare for the role. Today, he represents the first of a new generation of local managers playing a senior role in running the multinational’s local operations in the Ukraine.

One of the direct benefits of the firm’s long-running career development program is its ability to help with talent retention. This is a key focus within KFU. “Being able to offer long-term career development, particularly with an international dimension, undoubtedly helps with our management retention,” says Semenyuk. “KFU has about 3% employee turnover compared with a figure of five or six times that for the Ukrainian economy as whole.” This is helped by the ability of local business units to develop customized employee development programs and tools, including programs to help address work-life balance issues of employees.

Succession is seen as a key part of this integrated talent management process, and is directly linked to performance management, leadership development, reward and recognition. “Talent management is about getting the right people, with the right skills, into the right jobs,” says Semenyuk. “It starts with the definition of the goal and strategy of the business. We have our main financial target, brand strategies and the overall strategies. We need to translate all these business objectives into people management strategies to help the organization to achieve its overall objective. The foundation of KFU’s success is our people strategies.”

HR plays a major role in this too, along with senior management, as part of a program that works on developing successors for all key positions in the company. “All employees have their own three- to five-year career path development plan, divided into stages with specific goals. And it is essential to meet these goals if managers wish to progress in the company,” says Semenyuk.

Indeed, KFU’s track record on management development has been excellent. Over the previous decade, it has developed a number of top managers for Kraft’s headquarters and other regional branches of the company, including vice presidents in Central and Eastern Europe, directors who used to work in South Africa and middle managers who worked in assignments in their worldwide head offices in Chicago, USA.

Kraft Foods Ukraine has been one of the company’s top performing divisions globally.

Credit: Keystone / Ria Novosti / Ruslan Krivobok

Outlook Global leaders Credit: Philippe Aubry


Manfred Kets de Vries


Developing global leaders

Manfred Kets de Vries,Professor of leadership and organizational change at INSEAD

BiographyA clinical professor of leadership and organizational change, Manfred Kets de Vries holds the Raoul de Vitry d’Avaucourt Chair of Leadership Development at INSEAD, France, Singapore and Abu Dhabi. He is the Founder of INSEAD’s Global Leadership Centre and the program director of INSEAD’s top management seminar: “The Challenge of Leadership: Creating Reflective Leaders.” His most recent book is The Hedgehog Effect: The Secrets of Building High Performance Teams (John Wiley & Sons, 2012).

dealing with new cultures and different perspectives. They are able take into account contextual factors and have a measure of flexibility. In addition, leaders must be resilient because they can be subjected to an enormous amount of stress.

I also like to emphasize that the most effective leaders are emotionally aware. They have a high degree of empathy that enables them to get along

well with people from diverse backgrounds and cultures. They know how to listen to other people’s stories, and can integrate these stories into the organization’s narrative.

How do you help leaders to become better global leaders? I have learned from experience that one of the best ways to build trust is to get leaders together in a workshop situation to share and learn about each other. We are, after all, a story-telling species!

I have found that this group leadership coaching is a very effective intervention method to help organizations to become more agile. The impact of group coaching can be even stronger – and more beneficial for the organization – if the intervention method is applied to “natural” working groups, in particular top executive teams. To jump-start the process, an in-depth leadership audit will precede the intervention to collect material that can be shared. Critical insights are requested from a wide variety of people, not only individuals at work but also friends and family members. This material is then used for participants to deepen their understanding of themselves and each other.

This kind of leadership coaching has proven to be highly effective in breaking down barriers and preventing silos. By building trust, which is essential for successful teamwork, and enabling leaders to understand themselves more deeply, it can help to create “boundary-less” organizations. The process also helps executives to deal with lingering “elephants in the room” – conflicts that should have been dealt with years ago but that continue to create major problems.

What’s more, this intervention method also helps leaders to become more authentic. A good example of this is Nelson Mandela, who remains the world’s most respected living leader because he lived according to his ideals and his values. His authenticity provides an inspiring lesson for leaders today.

There are few greater challenges than leading a large organization in today’s fast changing and competitive world. Leaders face a baffling

array of questions: How do you create high-performance organizations? How can you design effective teams? How do you hold virtual and cross-cultural teams together, working for a common purpose, in complex, matrix-like structures?

As the pace of economic globalization continues, senior leadership teams are becoming increasingly diverse. And with the growing importance of the developing world, this trend is only going to continue. Although most large corporations try and create all encompassing homogenous global corporate cultures — that only goes so far. To succeed, CEOs and senior leaders need more than ever to understand the international dimension of leadership – to learn how to work with a diverse group of leaders from different countries and cultures. Present-day leaders need to be savvy in building networks in these organizations through co-creation. They need to know how to tap the brains of an increasingly diverse workforce.

Managing a diverse team is challenging because people tend to like the familiar, what they know well and understand. Executives

feel most comfortable working in teams where team members share the same background, values and experience: in such instances, they know what to expect. But executives can be challenged when faced with the unknown, when they have to deal with individuals whose culture or mind-set is unfamiliar to them. And in some cases this can trigger certain defensive psychological behaviours and fears — not least as our evolutionary history has programmed us to expect the worst when we do not understand something, which can lead to seemingly paranoid reactions. This potential has become exacerbated in recent years because we now live in an age of virtual teams, where members need to work at a distance.

To be successful, leaders must learn to overcome and to manage these responses. They must understand that they do not always make decisions rationally and that they may have blind spots in their decision-making processes. My work with CEOs focuses on helping them to become self-aware, to sensitize them to how and why they make decisions, to help them become more authentic, reflective leaders; to help them engage in the delicate balancing act between “doing” and “being.”

The best global leaders are open to new experiences. They are able to suspend disbelief when

Tax Policy and Controversy Briefing

Issue 10 | April 2012

ReportingReportingReportingReportingReportingReportingIt’s more than the numbers ISSUE TWO | SPRING 2012

Out of the shadowsThe growing drive to report on human capital

On the roadHow to prepare a compelling investor roadshow for different parts of the world

Efficiency driveAn effective finance function has become a source of competitive advantage for global companies

Early adaptersWhy it’s important to take

a strategic approach to sustainability-related risks

Thspitaqu iduntiatem. Ferupit aliquas imillen dempor sim archit, sam es peditatus erumquae pre quia percitam, soluptate inihil ipic totas ulparum accusam, cus.Ut quis etur simus a aut eossimuscia dolorror re volupta dolutemquis maximus que officae pore laut volupitia dolupti cus que nus maio. Nem remporporro

See More | Growth

Onsendis ad quia ium voluptae simus,

sita comnis raepedit, niminve rnatem

volupta tiamus aut voluptae ipsam

© 2

011

EYG

M L

imit

ed. A

ll R

ight

s R

eser

ved.

12012 Europe, Middle East, India and Africa (EMEIA) Tax Policy & Controversy Outlook

Photo: Stone archway, Italy

Tax Policy and Controversy OutlookEurope, Middle East, India and Africa (EMEIA) 2012


Publications

PreviewIn issue 8 of T Magazine, which will also be published as an insert in the Financial Times, we will focus on the changing landscape of global indirect taxes. Topics covered will include:

• The outlook for indirect tax

• The role of technology in compliance

• Indirect tax in Africa

• The rise of customs unions in regional trading blocs

• Taking on board indirect tax within M&A

Global Tax Policy and Controversy BriefingErnst & Young’s quarterly briefing is aimed at helping companies keep pace with a rapidly evolving tax policy environment. It provides detailed and practical advice on current tax issues, as well as viewpoints on topical themes and proposed changes.

ReportingReporting magazine addresses the broad issues around reporting and governance. Not limited to technical and financial reporting, the magazine contains a mixture of business, regulatory and investor issues and reflects the divergent views of different stakeholders and international businesses.

EMEIA TP&C Outlook 2012 This report introduces the key trends and themes that ourTax Policy & Controversy network has observed in EMEIA. In addition, it provides readers with some leading practices to consider in the areas of tax policy and managing globaltax controversy.

Connect with T Magazine

WebsiteStay ahead with international tax news, the latest tax insights and web features on www.ey.com/tmagazine

eNewsletter The latest news and insights from the T Magazine website delivered to your inbox. Submit your subscription on www.ey.com/tmagazine/enewsletter

Twitter Follow T Magazine on twitter.com/eytmagazine

iPad appDownload the app for tax insights on www.ey.com/tmagazine/app

T M

agaz

ine

07 07Magazine





The globalexecutive


Ernst & Young Rapid-Growth Markets Forecast Spring edition — April 2012

Rapid-growthmarkets

Rapid-growth marketsWhile rapid-growth markets are proving resilient to the fragile global economy, more divergences are emerging between them. In this issue, you will discover why over the medium term Rapid Growth Markets will be an increasing source of global growth and trade flows.

Now on

iPad too


Contacts

Contact for subscription:

[email protected]

CommentsIf you would like to contact the editorial team of T Magazine, please send an email to [email protected]

Ernst & YoungAssurance | Tax | Transactions | Advisory

About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality.We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms ofErnst & Young Global Limited, each of which is a separate legal entity.Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

About Ernst & Young’s Tax services Your business will only achieve its true potential if you build it on strong foundations and grow it in a sustainable way. At Ernst & Young, we believe that managing your tax obligations responsibly and proactively can make a critical difference. Our global teams of talented people bring you technical knowledge, business experience and consistent methodologies, all built on our unwavering commitment to quality service — wherever you are and whatever tax services you need.

Effective compliance and open, transparent reporting are the foundations of a successful tax function. Tax strategies that align with the needs of your business and recognize the potential of change are crucial to sustainable growth. So we create highly networked teams who can advise on planning, compliance and reporting and

maintain effective tax authority relationships — wherever you operate. You can access our technical networks across the globe to work with you to reduce inefficiencies, mitigate risk and improve opportunity. Our 25,000 tax people, in over 135 countries, are committed to giving you the quality, consistency and customization you need to support your tax function. It’s how Ernst & Young makes a difference.

© 2012 EYGM Limited. All Rights Reserved.EYG no. DL0554

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

The opinions of third parties set out in this publication are not necessarily the opinions of the global Ernst & Young organization or its member firms. Moreover, they should be viewed in the context of the time they were expressed.

www.ey.com Expiry date: 18 July 2012

Take charge with tax insights, now on your iPad Insights that elevate tax to a strategic level and add value to you and your organization are now available through the T Magazine iPad edition.

www.ey.com/tmagazine/app

T M

agaz

ine

07

Documents

Magazine 07 - Ernst & Young...our infographic provides an overview of today’s expatriates. 16 __ Upward and outwardly mobile Increasingly global business leaders need to be mobile