History has shown a strong correlation between global mobility and world economic development. Andrew Shaw, ECA’s Managing Director provides an overview of the context businesses are operating in today and the approaches adopted to keep global mobility practice relevant.
It’s no co-incidence that ECA International was established in the 1970s when the modern process of globalisation began. The trigger for more than four decades of rapid growth in global exports was Nixon’s abandonment of the Gold Exchange Standard thereby enabling gold to be traded at fluctuating market prices rather than the fixed price of $35 per ounce. The new world of free floating currencies allowed countries to be more competitive and international trade to soar.
Between then and now, economic and political events have had major impacts on the progress of globalisation as the chart below illustrates. While the energy crises of 1973 and 1979, the Asian currency crisis of 1997 and the worldwide recessions of 1979 and 2008 put the brakes on export growth, the fall of the Berlin Wall in 1989 and China joining the World Trade Organisation two years later gave export growth, and the worldwide economy, much needed boosts.
Today, growth hasn’t gone the way of predictions made a decade ago. The BRICs haven’t lived up to the hype and the GDP growth forecasts for those countries have been scaled back – as they have been for many others around the world. Long term consensus forecasts suggest that among the developed economies growth in the Eurozone and Japan will be limited to 1%-1.5% per annum over the next 10 years with slightly more bullish forecasts of 2%-2.5% for the UK and US.
In October 2014, the IMF announced that without radical policy shifts like labour market reforms, and big spending on education and infrastructure, the global economy would become entrenched in a ‘New Mediocre’ era of persistent low growth. Some long term forecasters say we are already there: growth is low and although prospects now appear reasonable for the UK and the US, it’s looking more like a lost decade for the Eurozone and possibly yet another lost decade for Japan. Despite six years of virtually zero per cent interest rates, billions injected via quantitative easing and the biggest state stimuli on record, today’s world is one in which there is weak domestic demand and a record number of countries with low inflation or deflation. Even in emerging markets where the future looks a little sunnier (China, India, the Middle East and Africa), there is no great surge in forecast growth.
Simultaneously, the population continues to get older. According to the UN, by 2050 the number of people over the age of 54 will be three times what it is today. Yet in many countries, there will be fewer people of working age to support this ever increasing number of dependants.
Those most affected will be in fast-growing Asian countries like China and South Korea; countries with high life expectancy and low birth rates, like Japan, and larger European countries, including Germany and Spain, which have some of the oldest populations already. On the other hand, countries in Africa and South Asia which have some of the youngest populations, such as Nigeria, Kenya, South Africa, India and Pakistan, will be in a better position. As will the US thanks to its large immigrant population.
The ageing population issue will have huge implications particularly in terms of social security, healthcare and pensions, all of which are already barely affordable for governments and all of which will have an impact on aspects of the remuneration packages you design for your expatriates.
Over the past four decades we have also seen the world’s population becoming increasingly urbanised. In 1970, only three cities in the world had a population over 10m. A further 14 had a population of between five and ten million. Today, those figures stand at 24 and 33 cities respectively and the urbanisation trend shows no sign of abating. However, the growth of the super-city isn’t evenly spread. It’s very biased towards the emerging markets of Asia where the population, GDP and living standards are rising far faster than elsewhere in the world.
In fact, by 2025, 400 of the world’s top 600 cities will be in emerging markets, according to the McKinsey Global Institute. These will provide a staggering one billion new consumers (60% of the total) and add $10 trillion per annum of new consumption, creating opportunities across the board: in construction, infrastructure, energy, healthcare, education as well as in fast moving and luxury consumer goods. No surprise then, perhaps, that McKinsey also predict that 45% of the Fortune Global 500 Companies will be based in emerging markets by 2025, compared to 5% at the turn of the century. This migration will prompt a massive redistribution of wealth and of course an even greater gravitational shift away from what were once the traditional expatriating countries.
These 21st century consumers will also be the employees – and international assignees – of the future. They’ll have 21st century attitudes, expecting to change employers several times in their careers and increasingly making mental trade-offs between what’s important today versus what they may want or need in the future.
Current sentiment within the IHR industry shows that more companies continue to forecast increases in long-term assignments than decreases. However, the slightly more alarming fact is that the percentage anticipating a decrease is almost as high now as it was after the early 2000 recession, which in turn was the highest it had been for 20 years. If we consider this, together with the fact that compared to a few years ago there is little growth to chase around the world, is mobility at a turning point?
The reality is that globalisation is a fact of life and international mobility is essential to keep up with it. Organisations need to have the right people, in the right place – wherever that might be – to manage their businesses in this decade and beyond.
To do this, companies recognise that they need to introduce more variety into their approach, including use of alternatives to the long term assignment model, so that they can meet the multiple and evolving needs of their business and their assignees. While the local business unit is primarily looking to fill a skills gap, corporate or group level HR may take a more holistic view of mobility and want to link it to career development and any talent management programmes. Meanwhile the prospective assignee will be thinking about the impact a move may have on their career and their family.
Many companies relocate staff today for a growing number of reasons, to a growing number of locations. They have, or are working on having, a suite of policies at their disposal. This enables them to map assignment policies to different assignment objectives: to transfer skills; complete a short-term project; develop a high potential employee, or transfer staff indefinitely – to name just a few. This also gives them additional flexibility to match the various profiles and motivations of their assignees whether they are single, in a partnership, with a family or nearing retirement, looking for international experience or seeking well-paid opportunities. Global mobility teams, aware how career concerns may prevent first choice employees from accepting an assignment, are increasingly looking to coordinate with other areas of the business to devise a joined-up approach to the company’s talent pipeline. And of course, regular policy reviews ensure the approach, whatever it is, remains relevant and efficient: are pay and delivery mechanisms still appropriate for the mixture of nationalities IHR are managing? Could local-plus remuneration now work better for some moves? Would adopting a different assignment type counter mobility barriers? Would a ‘core and flex’ approach to benefits be feasible, or even essential, in terms of attracting future assignees?
To make these decisions, organisations need ways of measuring the benefits and establishing where costs can and should be cut without destroying value. This has always been difficult. However, if some of the challenges facing global mobility professionals today are not remarkably different from those of the past, what has changed significantly over time are the assignment management tools and software now available to enable better analysis, overview and control.
The efficiencies, accuracy and consistency such tools bring should also help free up time for global mobility teams so they can take a step back from day-to-day assignment administration to plan for the future. Furthermore, the analytics that can be generated can enable them to be more proactive, presenting information of strategic relevance to the business, thereby raising the profile of IHR. All of us in the industry know that businesses should see the function as more than a standalone operational ‘moving someone’ role. If integrated with other teams in HR, talent management and across the broader business areas they support, IHR will have a real opportunity to add substantial strategic value to their organisation.