Bill Kohnen(Notes from Panel Discussion)Global Ex Pat Roundtable Panel 2010Alabang ManilaWhen to send an Ex Pat to ManagePurchasing Spend
Background Companies doing significant business outside oftheir home country need to trade off cost ofsending ex pat employees and developing localskills In some countries local practices do not matchexpectations in the companies home country These may be simple approachs to businesspractice and management The differences may also be perceived by one sideas different ethical standards The differences can have serious legalconsequences
Factors to consider Perceived level of corruption in an area Many different independent reports on this Potential for growth and expansion Role of foreign operation in total organization Supporting regional customers Outsourced internal operations Supporting customers outsourcing Amount of financial exposure Potential product liability exposureFocus of this discussion is on local Purchasing spend
Observations Japanese and German companies generally sendex pats to all countries they operate in despiteperceived level of corruption. At a minimum aperson in charge of Operations and a separateperson in charge of Finance then generally a midlevel Manger for development. US companies tend not to send as many Ex Patsbased on perceived high cost and idea that localtalent should be developed and trusted.
Assumptions In countries with a high level of corruption 10% of spend isdiverted In low cost countries even with this added cost things remaininexpensive relative to other regions so it may not be obvious. Operations Managers are generally measured more onproductivity, schedule and quality so they are notincentivized to address this. Finance people create policy and controls that ironicallymaintain status quo – but arguably at least contain things. A Professional Purchasing Ex Pat will be incentivized totake out cost. The 10% corruption factor is “low hangingfruit” Global suppliers and even local ones are generally happierto give a discount direct to the company if they know thepurchase decision will be based on competitive review ofprice, quality, delivery and technology.
Warnings If initially addressing such a situation you will betaking money away from people that may be using itfor important things in their live. They proportion of money paid out increases basedon the level in the company. If feeling threatened Senior Managers will offer up alower level scapegoat as evidence they control things. This is serious business and in real cases has led toviolence and even deaths. If just starting to address this need to ease into it andmake it clear things will change forever and locals cannot simply wait until ex pat is reassigned and notreplaced.
What is the Threshold? Spend level is only $3M USD per year to startconsidering sending a Senior Ex Pat to ManagePurchasing. Not even considering other factors. Assumes total Cost of Ex Pat Manager is $200K to$300K per year. Savings from reduce corruption alone is 10%. 10% of$3M is $300K cover cost of Ex Pat A Professional Purchasing leader should be able todeliver addition 5% to 10% savings based on BestPurchasing Practices
Final Comments This discussion purposely avoided naming or rankingone country or region vs. another. Companies needto do this themselves. A key point is the threshold level is relatively low tostart considering sending at least one Ex Pat. Even if corruption is a very low level of concerndifferent business practices and assumptions candrive total costs as well. It is even worse to start to address this and not followthrough in the long term. It will create an atmosphereof simply waiting out any changes or issues arisingduring gaps in an Ex Pat being assigned.