Dislocated

Yan Fournier, a young French engineer living in Shanghai, doesn’t consider himself an expat. That is, he’s not a typical foreign expat who receives housing and kids’ tuition all wrapped up in a pricey package deal. On the contrary, Fournier’s salary is about half as much as he would make back home in Paris. "I came for the experience," said Fournier.

Fournier represents the face of China’s new expats – the younger, more adventurous types who are easier on companies’ purse strings. He is also the kind of cheaper hire who is challenging relocation companies’ business and forcing them to reevaluate their strategies.

A changing market

As the economic crisis reduces expat placements in China – and the salaries of those that do come – relocation companies are responding to the strain in a variety of ways, from diversifying their core businesses to cutting their rates in the fight for an increasingly smaller stake of the once lucrative expat relocation market.

"We’ve had to fight harder for every client," said Adam McWhirter, general manager at the Chongqing office of Maxxelli Real Estate in China. "It forced us to diversify – 2009 showed us that we cannot solely rely on relocations."

McWhirter recently worked with three foreign families coming to China for Volvo who represent the younger and more adventurous type of expatriate. They received enough money for a nice apartment, but not a luxurious villa.

Just 10 years ago, a new transplant in China would likely receive a car or two, a driver, a villa and fully funded international school tuition. "Expats who came to China used live like kings," said McWhirter. Now, expansive villas are being replaced by four-bedroom apartments.  Employees in lower management positions may have their driver and cars cut, and are expected to take taxis, the subway or walk to work.

"There has certainly been a huge emphasis on cost reduction," said Robb Junker, director of aftermarket operations in Asia for Federal Mogul. "Companies are paring down the number of expats overseas, and reviewing the situation for those here."

Federal Mogul, a supplier of aftermarket automotive products, has eliminated drivers for their foreign employees in China – including Junker himself. For new hires coming to China, the company has eliminated the rest and relaxation extras as well as the hardship premium.

Relocation companies aren’t immune to all that chopping. Fewer expats and cheaper packages are stressing the businesses that have catered to those specialized markets.

In response to the downturn in foreigners in 2009, Maxxelli created a blog to attract more clients and expand its reach. It also enhanced customer service to keep current clients happy. "One upset client can mean the difference between loss or profit for the month," McWhirter said.

The company is now branching out into other related businesses, such as home sales, property management, portfolio management and helping foreign companies with talent searches.

Smaller players suffer

As the climate shifts, smaller players are especially feeling the pain. Klein Relocation & Consultancy, which focuses on China’s southwest, is experiencing price pressure from customers who are driving hard bargains on prices and commissions, said CEO Fabien Klein.

However, Klein’s local expertise is an advantage: The company frequently contracts with larger relocation companies that are placing people in the region but have no local representation. The hope, Klein said, is that some of those international companies will cut out the middleman and come straight to his smaller firm.

With some international companies moving out of top-tier Chinese cites to less expensive lower tier cities, Klein is optimistic about the future. Even as the foreign population shrinks elsewhere, it’s still growing in less expensive cities like Chengdu, he said.

Meanwhile, larger companies claim that their global presence cushions them from the impact from China-specific reductions to a certain extent. Barbara Ma, a sales and business development manager at Allied Pickfords, points to the company’s 800 offices in 40 countries and worldwide contracts with giants such as Caterpillar and Shell as a source of strength. While most of the Allied Pickfords’ corporate clients have plans to increase local hiring and cut back on placing Western expats here, they are increasingly relocating local Chinese employees to other countries for training and "internationalization." Ma said that relocating Chinese employees now makes up 15% of Allied Pickfords’ client base.

In the long run, the prospects for relocation firms appear uncertain. On the one hand, much of China is clearly no longer a "hardship post," and it is doubtful that the golden expat package of yore will return. On the other, there is a limit to which international firms can localize their management without creating parochial management culture silos; managers need to move around a firm’s international operations to be able to handle top leadership responsibilities.

There will still be money to be made in relocation, but making it is unlikely to ever be as easy as it was in the past.