ITX Insights - August 2024
In focus: How a GEC can help you manage costs
Managing an international workforce involves overcoming a multitude of challenges. Balancing cost control with compliance, operational efficiency, and service delivery to employees, are all critical concerns that require careful consideration.? Each GEC should be designed to meet the specific needs and priorities of the organization it serves. While cost control is often a critical consideration, it is important to recognize that it may not always be the top priority. In fact, a recent study by ITX revealed that, for many organizations, factors such as compliance, governance, and operational efficiencies often take precedence over cost considerations. In some instances, the primary objective of establishing a GEC is to improve service delivery to assignees and the business, or to increase the consistency and confidentiality of expatriate packages.
When cost management is the key driver, a GEC can be a powerful tool in achieving this goal. The key lies in understanding how to structure and utilize the GEC effectively to manage and control costs, while simultaneously addressing other organizational priorities.
The centralization inherent in a GEC provides full visibility of the costs associated with international assignments, including compensation, benefits, and third-party vendor expenses, as well as the cost of exceptions. In addition, the cost associated with the administration of the Global Mobility programs is also easier to quantify, thanks to a more centralized model, as opposed to an arrangement where the responsibilities for Global Mobility are distributed across several stakeholders in multiple locations. This clear visibility, plus the availability of accurate data in a single location, offer opportunities for optimizing policies, processes, and vendor services. With better data analysis, organizations can make informed investment decisions based on concrete facts and figures. According to a survey conducted by ITX in 2023, 79% of responding organizations confirmed that the GEC model helped them achieve, or partially achieve, better visibility of global mobility costs.
The aggregation of headcount into a single legal entity through a GEC can also facilitate volume discounts and better rates when negotiating insurance premiums, third-party vendor fees, and other services. Vendors are often willing to offer discounts or more competitive rates to secure a large and consistent client base, especially if the organization uses a centralized model, which creates efficiencies for the vendors too. Additionally, the centralized management of vendor relationships through a GEC allows for better oversight and control of third-party expenses, ensuring that services are delivered efficiently and cost-effectively. This proactive approach to vendor management can help organizations avoid unnecessary expenses and achieve better value for money.
Furthermore, by consolidating many administrative tasks within a GEC, organizations can streamline processes and reduce the time and resources required to manage their Mobility programs, leading to the release of HR bandwidth and lower overhead costs, including real estate, technology licenses, and others.
Another factor driving efficiencies, and therefore cost management, is the consistency in the execution of policies and processes that comes from a centralized model. This can significantly reduce the number of exceptions that need to be managed, leading to fewer unplanned costs. Also, in project-based industries, where deployment timelines are critical, the ability of a GEC to deploy staff quickly and efficiently without the need for extensive adjustments or negotiations is particularly valuable. Delays in project timelines can directly translate into increased costs, and by minimizing these risks, a GEC helps organizations maintain better control over their budgets and business plans.
Of course, taxation is also a significant consideration for organizations managing a global workforce. Depending on the location, GECs may allow the leveraging of advantageous Double Taxation Agreements, Social Security Totalization Agreements, and favorable VAT rates, which can mitigate tax costs while remaining fully compliant in all jurisdictions. Compliance with local labor laws, immigration, social security and tax regulations is a critical aspect of managing a global workforce. ?A GEC can help organizations reduce the risk of non-compliance and the associated costs. In a survey conducted by ITX in 2023, 97% of responding organizations reported that the GEC model helped them achieve, or partially, achieve, better governance and compliance.
Often, the GEC structure also allows easier monitoring and mitigation of PE risks, although the extent of this exposure depends on a variety of factors. By managing and minimizing PE exposure, organizations can avoid additional tax liabilities and penalties, further contributing to cost savings.
In summary, when strategically planned, carefully designed, and expertly operated, GECs have the potential to deliver many cost efficiencies and positive return on investment. Nevertheless, it is always highly advisable to conduct a detailed Feasibility Study to evaluate the benefits and ROI of a GEC, before embarking on its implementation. It should be remembered that while cost management is an important consideration, it is just one of many factors that organizations must consider when establishing a GEC. ?In fact, organizations that leverage the full potential of a GEC can not only control and manage costs but also achieve greater efficiency, compliance, and employee satisfaction.
If you are evaluating the feasibility of a GEC and would like some guidance on how to approach it, please feel free to reach out to an ITX consultant.
Dispelling the Myth: Should a GEC be used for all international assignees?
There is a widespread misconception that organizations using a GEC employ this model for all their international assignees. In reality, a GEC is a strategic tool that delivers additional options and more flexibility to the organization, in cases where it makes sense to use it.? Therefore, the use of a GEC is far more nuanced, with organizations carefully selecting which employee groups or roles are best suited for employment under a GEC. ?It is also important to understand that a GEC is not a one-size-fits-all solution, but it can (and should) be customized based on each organization’s needs and priorities.
The decision to use a GEC for certain employees depends on a variety of factors, which are typically identified in the context of a Feasibility Study or Business Case.
A survey conducted by ITX in 2023 revealed that organizations use GECs in many different ways. Among the respondents, the majority of organizations use the GEC for Third Country Nationals, Global Nomads and Senior Executives (respectively, 75%, 64% and 61%), whereas 39% use the GEC for all their long-term assignees.? Interesting, 21% of respondents also include International Local Hires within the scope of the GEC, and 11% include all Short-Term Assignees. Rotators are also frequently managed through a GEC.? In fact, 71% of organizations that use Rotator assignments, indicated that they use a GEC.
It should be clear, therefore, that the establishment of a GEC does not necessarily force an organization to manage its entire international workforce using a single approach, but rather it provides an alternative tool for the management of specific segments, depending on the company’s strategic needs and objectives.? Although some Mobility professionals may have some concerns regarding having more than one approach within the same organization, the absence of one would require a one-size-fits-all framework, which would have its own limitations and challenges.
Ultimately, the feasibility of a GEC should be assessed on the basis of a well-structured and careful analysis, which would also include its potential benefits, its intended uses and the assignee segments to be included.? When GECs reflect some clear strategic objectives, they typically deliver great value to the organization, as long as they are expertly designed and operated.
Learning Corner: How do we know whether a GEC is delivering value?
As organizations contemplate the feasibility of establishing a GEC, the question often arises as to how to evaluate whether it is delivering value to the organization, once it is set-up.
The first and most crucial step in assessing the effectiveness of a GEC is to clearly define what "value" means for the organization. This definition is not universal, and it varies based on the company's unique goals, operational priorities, and strategic objectives. Therefore, before any GEC is implemented, the organization should articulate what it hopes to achieve.
These expectations should be established during the early stages, ideally before conducting a Feasibility Study or Business Case. In fact, the primary purpose of a Feasibility Study or Business Case is precisely to clarify these organizational priorities and the anticipated improvements that a GEC implementation is expected to bring, as well as whether a GEC can indeed deliver these improvements. Without this upfront articulation of objectives, not only will it be difficult to assess whether the GEC is delivering the expected return on investment (ROI), but the GEC may also lack the necessary strategic alignment during its design phase. In essence, the value of a GEC is intrinsically linked to the clarity and specificity of the goals set by the organization at the outset.
Once the organization's objectives are clearly defined, the next essential step in assessing GEC value is the "baselining" phase. This step, though often overlooked, is crucial for establishing a performance benchmark. Baselining involves measuring the performance of the current operational model before the GEC is implemented. This allows for a "before and after" comparison, making it possible to quantify the impact of the GEC once it is fully operational.
For instance, if one of the main objectives of the GEC is to enhance service delivery to assignees and business leaders, it is imperative to have robust data on the existing service levels. Without this baseline data, it would be nearly impossible to determine if the GEC is indeed delivering the anticipated improvements. The baselining phase thus provides the foundation for an objective assessment of the GEC's performance, enabling the organization to make data-driven decisions.
To comprehensively assess the value delivered by a GEC, it is essential to measure performance using both strategic and operational metrics. Strategic metrics provide a high-level overview of the GEC’s alignment with the organization’s broader goals, while operational metrics offer insights into the day-to-day functioning and efficiency of the GEC. Examples of strategic metrics include Operational Effectiveness, Cost Containment, Assignee Experience, Governance & Compliance, etc. Operational metrics would need to be aligned to the strategic ones, and often these relate to compliance, service quality & accuracy, efficiency and speed of service.? Operational metrics should be closely aligned with the strategic metrics and the overall objectives of the organization. For instance, if cost containment is a strategic priority, operational metrics should include detailed tracking of costs associated with expatriate management, exception management, vendor expenses, and other related financials. Similarly, if enhancing the assignee experience is a key goal, operational metrics should focus on the responsiveness and support provided to expatriates.
In summary, evaluating the value delivered by a Global Employment Company is a complex, multi-faceted process that requires careful planning, clear goal-setting, and rigorous data analysis. By defining what "value" means for the organization, establishing a performance baseline, and measuring both strategic and operational metrics, companies can ensure that their GEC is not only meeting its objectives but also contributing to the broader success of the organization.
ITX News:
Conclusion of the GEC Market Research Project and Availability of Final Report
We are pleased to announce the successful conclusion of our comprehensive research project aimed at exploring the genesis and evolution of Global Employment Companies (GECs) based on a survey of 100 organizations. This in-depth study has been instrumental in shedding light on a wide array of critical factors that influence the decisions surrounding the implementation of GECs.
The research provides valuable insights into several key areas, including the level of awareness and understanding of GECs among international organizations. It delves into the general perceptions and assumptions associated with GECs, offering a nuanced understanding of how these entities are viewed and the expectations placed upon them.
One of the focal points of the study was to determine the value a GEC must deliver to be considered a priority within an organization. The findings also highlight the significant role played by various senior stakeholders in the decision-making process related to GECs.
The final report, which encapsulates all findings and insights, will soon be distributed to the survey participants who have requested a copy. We believe this report will serve as a valuable resource for organizations looking to better understand how to navigate decisions regarding GECs, and how to avoid potential pitfalls.
Should you have any questions or require further information regarding the project, please do not hesitate to reach out to an ITX representative. You can also submit your queries through the ITX website or connect with us on our LinkedIn page.
We extend our gratitude to all the participants who contributed to the success of this project.
?
Preparing for our next GEC Network Club session – October 2024
ITX hosts the largest network of GEC professionals, who gather twice a year to exchange ideas and updates in a confidential and exclusive forum.? The next session is scheduled for September 2024, and ITX will reach out to the members in the next few weeks to request suggestions on discussion topics.
If you work in an organization with a GEC, or if you are in the process of establishing one, you are encouraged to join this unique network to stay up to date with the latest developments.? Members are also invited to use the private LinkedIn Group to exchange information, ask questions and post updates.? There are no membership fees.
Join ITX at the Global Workforce Symposium in National Harbor, Maryland – October 2024
ITX will share its knowledge of Global Employment Companies at this annual event hosted by Worldwide ERC. The symposium brings together experts from around the world to discuss the latest trends and innovations in the industry, including mobility strategies and practices, immigration, technology and remote work. The symposium offers extensive educational sessions, and interactive workshops, allowing attendees to connect, learn, and collaborate with prominent subject matter experts and speakers.
?
Join ITX at the Forum For Expatriate Management EMEA Summit in London, United Kingdom? – October 2024
ITX will host a Round Table discussion at the Forum for Expatriate Management (FEM) EMEA Summit, on 29-30 October 2024.? The Forum is an essential gathering for global mobility and HR professionals in Europe, the Middle East, and Africa, offering rich content and networking opportunities. Attendees can participate in workshops, panel discussions, and roundtables, gaining insights into the latest trends and best practices in global mobility. The summit also hosts the prestigious EMEA EMMAs (Expatriate Management & Mobility Awards), recognizing excellence in the field with an elegant awards ceremony. This summit is a key event for professionals looking to advance their knowledge and connect with industry peers.
Find out what a GEC could potentially do for you – Free self assessment and customized report
#itxgecsimplified #centersofexellence #globalmobility #expatriates #internationalhr #globalhr #globalemployment
?