CASE STUDY: THE COST OF THE FAILED EXPATRIATION OF A CEO FROM ONE OF A MULTINATIONAL'S PLANTS IN MEXICO:

 Cultural Training & Coaching as insurance for optimizing expatriation success

By Olivier Soumah-Mis Intercultural Coach 33 years’ experience:

When I'm asked if cultural preparation is essential, I say no, but cultural training works like insurance. As long as the expatriate and his family adapt, all is well, until the moment when one of your expatriates or a family member does not adapt, the personal and professional situation becomes critical, and we have to make the difficult and very costly decision to repatriate the family because the situation is becoming unmanageable. Good cultural preparation is the key to success, and failure is often due to a lack of preparation for the local culture.

Don't forget that according to studies, notably that of INSEAD, 30% of expatriations are failures, and that the main cause of these failures are unmanaged or poorly managed cultural differences.

This article is a case study that highlights the ratio between the cost of cultural preparation and the cost of failure. Companies shouldn't skimp on the 1,250 USD it costs to prepare a day's worth of cultural preparation.

The cost of a failed expatriation for a CEO in Mexico can vary widely depending on factors like assignment duration, CEO compensation, and local conditions. Below is a detailed breakdown of potential costs, categorized by stage:

1. Pre-Departure Stage

• Recruitment/Selection:
• External hire: 20–30% of annual salary (e.g., 300kCEO→300kCEO→60k–$90k).
• Internal hire: Minimal cost.
• Legal/Immigration: Work permits, visas, and legal fees (5k–5k–15k).
• Cultural Training: 5k–5k–20k.
• Relocation Planning: 2k–2k–10k.
  Total: 12k–12k–135k.

2. Relocation Stage

• Moving Household Goods: International shipping (15k–15k–50k).
• Temporary Housing: 1–3 months in Mexico (5k–5k–15k).
• Travel Costs: Flights for family and pets (10k–10k–20k).
• Settling-in Allowance: 5k–5k–10k.
  Total: 35k–35k–95k.

3. On-Site Costs (First Year)

• Housing Allowance: Annual rent in major cities (50k–50k–150k).
• Cost-of-Living Adjustments: 20k–20k–50k.
• Education: International school for 2 children (40k–40k–80k).
• Security: Risk-based measures (20k–20k–100k).
• Tax Equalization: Compliance and advisory fees (10k–10k–30k).
  Total: 140k–140k–410k.

4. Early Return/Repatriation

• Reverse Relocation: Shipping belongings back (15k–15k–40k).
• Lease Penalties: Breaking housing contracts (5k–5k–20k).
• Repatriation Support: Career coaching, temporary housing (10k–10k–30k).
  Total: 30k–30k–90k.

5. Lost Productivity & Business Impact

• CEO Salary (Unproductive Period): 3–6 months (75k–75k–300k for a $300k salary).
• Temporary Leadership/Consultants: Interim CEO fees (100k–100k–300k).
• Missed Revenue/Opportunities: Varies widely (100k–100k–500k+).
  Total: 275k–275k–1.1M+.

6. Legal/Compliance Costs

• Severance/Termination: Local labor laws may require 3–12 months’ salary (75k–75k–300k).
• Dispute Resolution: Legal fees if litigation occurs (20k–20k–100k).
  Total: 95k–95k–400k.

7. Miscellaneous

• Replacement Training: Cultural prep for new candidate (5k–5k–15k).
• Emergency Costs: Unplanned trips, evacuations (10k–10k–50k).
  Total: 15k–15k–65k.

Estimated Total Cost Range

Low End: 400k–400k–600k (failure within 6–12 months, minimal disruptions).
High End: 1.5M–1.5M–2.5M+ (external hire, prolonged failure, litigation, significant business loss).

Key Variables Influencing Cost

• Timing of Failure: Earlier failure reduces on-site costs.
• CEO Compensation: Higher salary increases severance and lost productivity costs.
• Local Market: Housing/security costs vary by Mexican city (e.g., Monterrey vs. Mexico City).
• Legal Complexity: Mexican labor laws may escalate termination costs.

This framework provides a structured estimate, but actual costs depend on organizational specifics and external factors. Companies should conduct risk assessments and include failure contingencies in expatriation budgets.

This failure can represent up to 3-5 times the CEO's annual salary, including the long-term impact on plant performance. Rigorous preparation and regular monitoring are essential to reduce these very costly risks for the company. Cultural training is your best insurance to optimize the success of your expatriates' expatriations.