Why This Is a Good Time to Reassess Your Relocations Portfolio

Why This Is a Good Time to Reassess Your Relocations Portfolio

HR relocation is a thriving industry across the globe, and it is no secret that corporations use relocations as a talent retention and career development tool. While it primarily deals with the movement of mid-, senior- and C-level executives within the home country or across borders and continents, in today’s global village, the industry sees a large movement of highly skilled, low-level executives as well. With changing employee relocation preferences and rapid shifts in market impacting sourcing practices, it has become imperative to look at a few of the pressing developments that have impacted buyers across the globe.

Tax Reforms

The new U.S. tax reforms implemented during the end of 2017 resulted in many tax cut benefits that directly impacted the HR relocation industry. The U.S. government has proposed to cut back the tax holiday enjoyed for the household goods movement, final trip expenses and so on. The household goods movement — which accounts for about 30-40 percent of the average relocation cost pie, and which used to be billed separately for better tax computation — will now be considered a taxable expense, leading to an increase in the overall cost of an employee’s relocation by 5-6 percent. Mobility experts expect employers across the spectrum to gross up the inflated tax bill, instead of passing it on to their employees. Some corporations are pushing the household goods movement services out of the bundled services purview, to an a la carte offering portfolio, which offers deferment of incidence of the HHG tax only on a need basis.

Credit Financing

The slow but steady increase in fed rates in the U.S. is also increasing cost pressures for corporations. The relocation industry predominantly operates on a credit model financed at a rate of London Interbank Offered Rate (LIBOR) plus 150-400 basis points for the period between the date of end-use of services by relocation assignees and the date of invoice payment by their employers. Contract negotiations will assume high significance in this scenario, where buyers should look to bargain for a longer interest-neutral moratorium period. In a best-case scenario, large suppliers such as Weichert and SIRVA — with sound financial health and robust credit backup — have even started offering an interest-neutral financing model to their customers. This is a major competitive advantage for big relocation management companies (RMC), compared to smaller peers such as Cornerstone, etc. that depend on third-party financial services companies for business credit lines. Buyers should also factor in this aspect in their contract negotiations.

Service Delivery Model

Earlier, the relocations industry predominantly offered only two service delivery models — the single point of contact model, and the single point of coordination model. In the former, a dedicated relocation consultant micromanages every need arising from an executive’s movement using hypercare service mechanisms. The latter, a widely used model, helps to manage the movement of mid- and senior-level executives through a coordinated platform that provides access points for different departments in the RMC providing specific services in the relocation package. However, nowadays millennials prefer the DIY lump-sum relocation program, wherein RMC just provides the assignees with a credit lump-sum balance to be withdrawn by assignees using a debit card. Assignees are free to choose their own relocation service options, decide on vendors and customize the service delivery based on their needs. Most RMCs also provide free consulting services to assignees. In such services, the RMC only invoices the employer for management fees — for maintenance of the relocation mobile application platform and the payment servicing offered to the assignees. For buyers, the lump-sum program is the most cost-effective and efficient relocation package on offer. This is a win-win situation for both employers and employees; however, for senior-level executives, fully managed RMC-driven relocation services would still hold the key.

Pricing Strategy

Bundled pricing for the set of most popular and sought-after relocation services such as predecision services, destination tours, household goods movement, final trip and temporary living services is one of the most preferred pricing strategies adopted by buyers across the spectrum. Bundled offerings come with lower service fees, compared to a la carte service fees that are separately charged for individual service offerings. A hybrid model with bundled pricing for a fixed, predetermined set of service offerings — coupled with a la carte pricing for need-based additional service offerings — is the ideal pricing strategy that can be adopted by buyers. It offers the most cost-effective and flexible choice of service offerings that can be customized from assignee-to-assignee.

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