Class Notes 13 Takeaways

Expatriates

Momo Deretic
Sauder School of Business
 Expatriate Advantage
Expert in company products and processes
Personal connections to HQ managers
Global view
Cross-country coordination
Especially 3rd country nationals
Larger talent pool to draw from
Track record from previous assignments
Performance in smaller subs as testing ground
 Local Advantage
Expertise on culture of local workers and
customers (less cultural separation).
Well-connected to local suppliers, buyers,
officials (less relational separation).
Much cheaper than expats
$30,000 vs $300,000 in China
Lower failure rates than expats
20-50% failure rate for U.S. firms
Placing locals at top of management structure
provides career track incentives for entry-level
local managers.
 Why are expats so expensive?
Base pay determined by home base, not local
pay standards
so no savings from cheap host country wages
COLA: Cost of living allowance (0-80%)
Foreign service premium (0-20%)
Hardship premium (0-25%):
extraordinarily difficult living conditions, excessive
physical hardship, or notably unhealthful conditions
affecting the majority of employees
 Cost and Hardship allowances
(as determined by US State Dept.)
City Cost allowance Hardship pay
(excl housing) differential
Tokyo 70 0
Paris 60 0
Hong Kong 50 5
Rio de Janeiro 0 10
Mexico City 0 15
Beijing 10 20
Lagos 25 25
 Expat expenses (contd)
Housing allowances
Child Education allowances
Relocation allowances
Interpretors
Drivers
Language and cultural training
TAXES
 Taxation of Expats
Tax protection vs Tax equalization
Protection: Firm pays any extra taxes
associated with foreign assignment
(manager benefits from lower taxes)
Equalization: Firm pays extra taxes but makes
a deduction to offset any tax savings
(manager does not benefit from low taxes)