Relocation specialists are broadening their offerings as employers consolidate vendor base.
Any HR professional involved in relocating employees knows how complicated and time-consuming this chore can be. A myriad of loose ends must be addressed in moving a worker from, say, Fort Worth, TX to Beijing, China. That’s why companies are increasingly relying on outsourced relocation specialists to help them manage the broad needs of employees on the move, everything from real estate to moving services to neighborhood orientation.
At the same time, employers want accountability from their providers. To do so, these companies have transformed into financial hubs for tracking and managing their clients’ relocation budgets. They are merging traditional functions such as real estate transaction and moving goods with expanded services such as intercultural training for overseas relocation and policy reviews.
And because clients are looking to consolidate many of these services, providers are ratcheting up their suite of offerings, sometimes acquiring or partnering with service businesses here and abroad in an effort to broaden their reach. Another benefit of dealing with just one relocation company is simpler cost tracking; the provider submits one report for all associated costs. In some cases, they are going as far as helping companies determine compensation levels and even recruiting efforts. These and other trends point to HR’s continuing push to make the most efficient use of its resources.
“The folks who manage (relocation) services want to move into more strategic roles. They want to look at issues around selection, skills transfer and what the compensation packages are. They don’t want to manage the day-to-day because they don’t have the technology and resources , ” said John Arcario, the executive vice president at Cendant Mobility, an international mobility provider.
Don Rankin of The MIGroup agrees but adds that many in the outsourcing field fail to recognize that technology is only a recording and planning tool. "Human interaction is a vital element in relocation ," he said. Technology cannot make decisions in a situation where getting an employee productive ASAP is vital, like finding a suitable home. We are also seeing clients who use companies such as ours to centralize the relocation process, removing layers of employees in operating divisions and bringing efficiencies to purchasing and delivering services."
Arcario explained that relocating employees, especially overseas, continues to be a time-consuming task for HR because of the fragmented vendor marketplace. HR professionals, already stretched thin in the their time commitments, can leverage many of the automated tools that their outsourced partners have implemented to check on move progress, costs, and other detailed information not available if they were coordinating the moves themselves.
Larger Relocation Budgets
Runzheimer International, a Rochester, WI-based relocation service consultant, said a survey it recently conducted showed that about 60 percent of companies have held their relocation budgets stable; another 30 percent have increased their spending. Among those surveyed, they also said about 25 percent have a relocation budget of $2 to $10 million.
The consultant found that in general, companies are stepping up the amount as well as the variety of processes outsourced to take advantage of the network of services providers offer. Additionally, clients are asking for service level agreements to ensure they receive the benefits they’ve negotiated for.
To further cut costs, many companies have opted for tiered policies and asked the providers to review their relocation policies to make sure they remain competitive and cost-effective. Some firms offer employees incentives to use a third party to pre-market and list their homes. And through lump-sum allowances, about 29 percent reported that they realized savings of 11 to 30 percent.
As a reflection of changing trends, Runzheimer also reported that 90 percent use only one third-party vendor for their relocation needs.
Some observers say the changes clearly point to a strategic shift in how HR views relocation functions. Ellie Sullivan, the director of consulting for Weichert Relocation Resources, Inc., said her clients’ No. 1 demand these days is to review existing policies and make recommendations that will help hold down costs. In fact, it’s usually a precursor to signing the outsourcing contract.
“Often times, it (the policy review) starts even before we are selected as a provider,” said Sullivan. “We are routinely evaluating clients’ policies to determine how it stacks up against best practices.”
She pointed out that HR departments often don’t have enough resources to diligently review and make changes in policy. As a result, they rely on vendors such as Weichert to look for savings that would otherwise be overlooked. At the same time, companies expect providers to minimize their service fees, with the understanding that relocation consultants will share revenues with the service providers.
That, in turn, is driving some large relocation specialists to offer more services on their own than through other providers, according to Runzheimer. This not only ensures greater margins but also a strategic advantage because clients prefer to interact with just one vendor.
Vendors, in turn, are aggressively broadening their offerings, not just through traditional relocation services such as moving or real estate assistance. Advancements such as self service are playing a more prominent role, according to Betsy Welch, director of client relations at Cornerstone Relocation Group.
“They (companies) want to be able to come in and have a manager check service online anytime from anywhere in the world,” said Welch. “Everybody wants technology used to the greatest degree to make their lives simpler.”
Welch noted that such an approach is a departure from tradition. Whereas companies in the past had sought providers with more of a “high touch,” many these days are lured by the benefits of being able to look up updated data, collect cost reports from one source, and track moves in progress.
Relocation Costs
Another trend, Welch observed, is that a growing number of companies are offering lump-sum payments to their employees instead of direct reimbursement. They find workers are typically more conservative when they are put in charge of spending, thereby reducing costs to the employer. At a time when cost-cutting is an imperative in relocation trends, the lump-sum option seemed to be favored. According to Worldwide Employment Relocation Council (WERC), an association for relocation professionals, the average relocation costs in 2003 for a current employee owning a home—the latest year in which statistics were available—was $70,771; for new hires the cost was $52,109.
The average cost, however, may be deceptive because companies increasingly are developing tiers in their policy, offering different relocation payments to employees at varying levels. This has become an increasingly popular way for companies to reduce costs. According to the WERC, the percentage of organizations in the United States using tiered policies for existing employees has risen from 10 percent in 1988 to more than 52 percent in 2001; for new employees, the practice has climbed from 23 percent in 1987 to 64 percent in 2002.
Clearly relocation cost-cutting initiatives are high on the wish list of HR professionals, but they often don’t have time or resources to easily compile data and track trends. That’s why relocation companies are being called to fill the gap, said Margery Marshall, the president of Prudential Relocation.
“One of the outsourcing buckets becoming more prevalent is around financial management,” she said, noting that functions such as cost tracking, expense reimbursement, and interfacing with payroll have become part of the basic services relocation providers offer these days. “Clients are saying ‘You as a relocation provider need to take accountability of real costs to my program.’”
Aside from shouldering more responsibilities and serving as the main point of contact for their clients, relocation specialists are also making information more accessible. Through web portals and other electronic tools, clients can easily track their employees’ moves at all hours of the day and night—an important feature considering that the fastest growing segment in the relocation market is international, especially those going to Asia.
But as many HR professionals will attest, the large number of tools rolled out for their benefit sometimes can be overwhelming. So even though relocation companies are making new technology available, utilization is limited because they are either unfamiliar with how to use them or simply not aware of their existence.
“The real room for improvement is to counsel and educate the employer about what tools are already available to them,” Sullivan pointed out. Prudential, for instance, allows employees to access its portals to perform a number of self-service functions, including tracking and even submitting expense forms. Additionally, employers also have their own portal for administration and tracking purposes.
Growth Areas
Relocation providers will need to become even more innovative in the future as the nature and lengths of moves change. Taking an employee from one U.S. city to another still accounts for the bulk of the business, but it also has the slowest growth. International moves, driven by the China factor, are boosting business for many global specialists.
“Our growth internationally within and outside of Asia is off the charts,” said Marshall. She cited several reasons for sharply higher global moves, including higher trade with China and the rest of Asia, the fall of some trade barriers, and a broad increase in outsourcing activity.
Aside from where employees are moved, the types of relocation are also evolving. Traditional employees are moved to a different site for assignments lasting three to five years. Today, many domestic assignments are shorter, with some considered just extended business trips. On the other hand, some expatriates are being moved one-way for longer assignments. Part of the shift is that some companies are relocating employees to address a specific project rather than to fill a strategic position.
With international relocation growth accelerating, the makeup of the market may be changing as well. Some observers noted that all signs point to a consolidation of relocation service providers. Without significant scale on a global basis, some providers won’t be able to compete in the marketplace, Marshall added. While she says there will always be room for niche players, she said she believes the days of the mid-size providers may be numbered. “A lot of small and mid-size companies can’t survive in this market,” Marshall added.
What will it mean for employers? The good news is that as provider companies bulk up through acquisition and organic growth, they will be able to offer more services, cost savings, and international clout. On the other hand, fewer players may mean less competition and fewer choices, which could also affect services and prices.
Ultimately, with changes in the marketplace and relocation practices, a new model is being carved out. Employers looking to outsource will be able to shift more responsibilities onto the shoulders of their providers and possibly realize strategic and financial gains in the process.
