Businesses expanding into foreign markets must weigh the pros and cons of hiring locally versus deploying expatriates. However, it is almost inevitable that an international business will deploy expatriate employees to foreign countries. Therefore, it’s important to properly assess your business needs and decide if hiring a global expat is right for you.
What Is An Expat?
An expat is a local employee who a company sends to work in a foreign market. Essentially, an expat is an individual living and working in a country other than their country of citizenship, and it’s usually temporarily. For example, when you send workers from your local headquarters to a foreign country, they are considered an expat for the period of time in which they live and work there.
Contrarily, employees sent on trips to international locations to explore business opportunities on a short-term basis are simply taking business trips. Expatriate workers live in their new country, often moving the entire family with them.
Expats Maintain Consistency
There are many reasons why a company might send an expat rather than hire someone locally. An expatriate worker can bring the culture and processes of the local office to the new one. Most expatriates have worked in one of their company’s local offices, so they will understand how the business works. This may be especially important when establishing a new office. You want your international offices to be able to work seamlessly with your local ones, and an expatriate can help to ensure the same culture and processes you use at home exist abroad.
Expats and Talent Shortages
Expatriates can also be beneficial when the local talent pool is limited. One of the advantages of moving your company into a developing market is low labor costs. With low labor costs, however, often comes a lack of highly-skilled workers. According to The Manpower Group’s talent shortage survey, 40% of global employers report a talent shortage. If you have a highly-skilled employee, it may be worth the cost and effort to send them overseas.
Expatriate employees have also proven themselves in the workplace. Typically, you will send skilled employees who show a strong work ethic, are highly motivated, and have the required skills and expertise you need. This combination can make the expat a highly effective worker in an overseas market.
High Costs of Global Expats
Hiring an expatriate can be two or three times more expensive than hiring a foreign worker. This may be a surprise to some, especially if the country to which an expat goes has a lower cost of living than the home country. This is why performing a cost of living analysis before sending an employee overseas is important. In addition to salaries, most companies extend a number of benefits to expatriates, including:
- Relocation costs
- Housing benefits and allowances
- Family benefits such as schooling and childcare
- Language training
- Cultural training and continued counseling
In addition to higher salary and expat employee benefits, most companies use tax equalization to ensure that both their local and expat employees have the same tax burden. When a company uses tax equalization, they calculate what the employee’s tax burden would have been at home, and deduct that money from the employee’s paycheck at regular intervals. The company then pays the employee’s actual tax burden in the country in which the employee resides.
In countries where the tax burden is lower than the home country, the company may save some money. However, tax equalization programs can create a compliance problem, and their complexities can also increase labor costs at home.
Expat vs Immigrant: What’s the Difference?
The largest difference between an expat and immigrant is largely a semantic one. The term “immigrant” presumes a permanent residence while “expat” is more unclear on how long a person plans to reside and work in another country.
Pros and Cons of Hiring an Expat
Weighing the advantages and disadvantages of hiring an expat is the first step in ensuring you’re making an appropriate business decision when it comes to expanding overseas. The following lists the pros and cons for hiring an expat for international assignments:
- Capable of bringing current company culture to new workplace
- Proven, dedicated work ethic exhibited
- More attractive option when local talent pool is limited
- Hiring an expat can be 2-3 times more expensive than a locally-based employee
- Overseas assignments can put a strain on the personal lives of expat workers
- Expats generally require more support from employers, leading to more time-consuming activities such as procuring work visas and financial support for living costs
Utilizing global expats can be a great way to expand into new markets by carrying over your current culture, knowledge, and processes. To learn more about compliant expat hiring or how Velocity Global’s International PEO (Professional Employer Organization) solution can help you expand into more than 185 countries, reach out to us today.