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Location traps

Location traps

While the world’s geopolitical environment is never entirely stable, the volatility we see today – and its impact on taxation, trade, immigration and employee mobility – is perhaps unprecedented.

An uncertain political landscape characterized by rising populism and more-stringent policies and regulations – combined with digital technology’s rapid and ongoing transformation of traditional business models – is posing historic challenges for businesses everywhere. And this is certainly true for mobility teams pursuing effective, efficient and predictable movement of much-needed talent for today’s global organizations. Changes in the global environment – and the pressures being created both for businesses and their mobility leaders – include:

  • In Europe, the UK’s proposed exit from the European Union is expected to profoundly affect how businesses inside and outside the UK will structure and conduct cross-border businesses. Many organizations are already conducting feasibility reviews of where entire teams could be best located and how potential future restrictions on freedom of movement could impact them.
  • The US’s changing position on global trade and its introduction of more restrictive tax and trade policies are affecting future business prospects both for US companies and the foreign companies that invest or do business in the US. How future work assignments are structured may be impacted by these changes in the US and other countries plus the diminishing influence of multilateral projects and institutions.
  • The rise of populism is exerting a significant impact on domestic immigration policies around the world. Immigration rules have become tighter in a bid to increase local employment levels, making it harder for global organizations to move talent to some countries, particularly less-experienced workers. Initial data also shows that such policies could affect how often US and global firms source international university applications, potentially limiting their future use of global talent. According to an annual survey released by the Institute of International Education, for example, new US enrollments by international students for the 2017-18 school year decreased 6.6 percent from the previous year. And that follows a 3.3 percent decline in new international students during the 2016-17 academic year. The study cites several factors, including visa and immigration policy changes in the past two years that have affected the number of international students enrolling in US schools.
  • Rising civil interest in taxation of large corporations and the global project to curb tax-base erosion and profit-shifting have sparked a wave of tax reforms worldwide as countries seek to shore up tax bases and improve their ability to compete for foreign investment. Organizations are increasingly moving significant populations to demonstrate substance as compliance moves to the top of the C-Suite agenda, with reputational damage increasingly a primary concern.
  • The continued rise of China and its Belt and Road Initiative will likely spur unprecedented trade and economic activity among more than 70 countries. China’s soft power will likely become increasingly important and its state-owned enterprises are expected to have different objectives and operations that pose real challenges to conventional multinationals and how both domestic and foreign workers are deployed in nations throughout that region. 

While these unprecedented global headwinds are unleashing significant new challenges for global businesses and their mobility teams, they are also encouraging more companies to seek out nations that provide easier and expedited accessibility for mobile workers and the multinationals that employ them.

Countries including Singapore, Switzerland and Dubai – known as “location traps” – have traditionally been attractive to mobile employees due to their relatively stable governments, lower personal taxes and comparatively high living standards. Global organizations, meanwhile, have been equally attracted by their government incentives, availability of global talent and favorable tax landscapes.

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Weighing the benefits of ‘location traps’

Location traps will likely continue to offer potential advantages to businesses and their employees. This is particularly true in the current climate, as global challenges – from unpredictable geopolitical conditions and tightening immigration rules, to tax reforms and recent changes in trade policies– continue to exert pressures on global businesses.

But to consider the benefits of location traps today will require companies to look more strategically at how they manage deployment of workers to these locations. Doing so can reveal advantages that make deployments to these countries potentially more productive and predictable.

An effective strategy to navigate the challenging global conditions includes addressing employer’s needs to optimize talent recruitment and deployment, create more flexible work assignment policies, move from short- to longer-term planning, and develop more structured timelines for assignments.

Here is a brief overview of some best practices that can deliver a more strategic approach to talent management and ultimately make the best use of location traps in today’s challenging environment:

Candidate selection: Finding the right candidate for each assignment or wider mobility opportunity has never been more important. Increasingly, organizations are utilizing data analytics tools to cast a wide net and identify talent possessing the right background, language skills and professional skillset to best serve the needs of each assignment. The 2018 KPMG Global Assignment Policies and Practice (GAPP) survey1 showed that 27 percent and 32 percent of participants view mobility analytics as positively contributing to both the selection and retention of assignees, respectively.

Increasing the flow of talent: Home countries are still incentivized to send talent to location trap nations but are beginning to put far more thought into articulating the experience that will be gained by the employee and how this will prepare them for future roles. The most progressive organizations now already know the specific future role that the employee may be asked to take on and communicate this as part of relocation discussions. This encourages employees to invest in their careers by working abroad while also understanding that their time in any specific location may be limited.

The 2018 KPMG GAPP survey showed that only 7 percent of organizations are currently planning an assignee’s return or next deployment before one year prior to repatriation. A greater focus on longer-term planning is needed to address next steps for employees more strategically.

Flexibility in approach There is no longer a one-size-fits-all mentality to mobility. Many organizations are offering more flexible assignment policies – setting policy frameworks containing core and optional provisions and expanding the range of choices for either the business or the employee. This can ensure that the golden packages of the past are typically only seen for very senior or strategic moves and that employees have the flexibility to prioritize the assignment support that is most important to them.

Localization. Building finite timeframes to long-term assignment policies has proven effective in reducing the financial motivation for assignees to remain in location trap countries. Where individuals choose to remain in a location for personal reasons, it has had the added benefit of reducing the cost of mobility, which remains a key objective for many organizations. The 2018 KPMG GAPP survey showed that only 39 percent of organizations have a formal process for localization, including clear timeframes, under the relevant assignment policy.

The spectrum of mobility. The average assignment period to such locations has been decreasing for some time due to factors such as the rise of dual-career families, increasing immigration challenges in select locations and greater focus on the cost of assignments. This trend will continue as organizations increasingly rely on remote working and shorter assignments such as extended business trips, short-term assignments and development/training assignments. The 2018 KPMG GAPP survey showed that more than

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In contrast, 28 percent of organizations expect the use of long-term assignments to decrease.

Conclusion – Strategic talent management benefits everyone

To maintain competitiveness, global organizations are focusing on the comparative benefits of location traps, looking for potential regional hubs for their mobile workforce. This is particularly true today, as geopolitical volatility, combined with changing immigration regulations and policies in the US, Europe and elsewhere, make destinations with favorable and flexible approaches to mobile employees and their organization more attractive.

Today’s mobility challenge is to adopt a more strategic and well-defined approach to work assignments and overall deployment policies. Ultimately, global organizations that prosper from a mobility perspective as the wider storms rage on will be those that follow the right strategy. They will make the best use of location traps to deploy talent into surrounding growth markets. They will effectively communicate how each cycle of global experience benefits their employees at the respective stages in their careers. And they will provide employees with the flexibility to choose the specific assignment benefits that best suit their personal needs.

Keep in mind, as well, that in today’s world, unpredictability and change are the new normal, meaning organizations must continue to evolve in their approach to mobility as conditions shift. However the future unfolds, mobility teams need to maintain a close eye on geopolitical trends so that they remain ready to face and effectively manage any new strategic and operational challenges in the weeks, months and years ahead.

 

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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