Localization
What is Localization?
The process of transitioning an expatriate employee from home-country compensation and benefits to local market terms in the host country, ending the typical expatriate package.
Localization occurs when an organization decides that an employee will remain in the host country permanently or for an extended period, making it impractical or cost-prohibitive to continue providing an expatriate compensation package. The employee transitions to local employment terms, including local salary benchmarks, benefits plans, and tax treatment.
The localization process requires careful planning and communication. Employees may experience changes in compensation, loss of expatriate allowances, and shifts in benefits coverage. Best practices include providing a transition period with graduated adjustments, offering financial counseling, and clearly documenting the new terms of employment.
Localization can generate significant cost savings for employers, but it must be handled sensitively to avoid employee dissatisfaction, attrition, or legal disputes. A well-designed localization policy should define eligibility criteria, transition timelines, and support mechanisms.
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Frequently Asked Questions
How does localization work?
Localization works by ending the assignment policy and re-issuing the employee as a local hire of the host country entity. Home country payroll, allowances, and tax equalization stop. The employee moves to host country payroll, benefits, and statutory contributions. The transition is typically phased over 12-24 months to ease the financial adjustment for the employee.
Why do companies localize assignees?
Companies localize assignees to reduce assignment costs, simplify long-term tax and immigration positions, and retain talent in the host country permanently. International assignments often cost two to four times local hire equivalents, so localization significantly reduces ongoing program spend. Localization also resolves permanent establishment risks created by long-running assignments.
What is the difference between localization and repatriation?
Localization ends the assignment by converting the employee to permanent host country employment. Repatriation ends the assignment by returning the employee to their home country and reinstating their home country role. Localization is one of several outcomes available when an assignment ends. The other common outcomes are repatriation, extension, or transfer to a new assignment location.
Related Terms
Repatriation
The process of returning an employee to their home country following the completion of an international assignment, including career transition support, reverse culture adjustment, and logistical assistance.
Expatriate (Expat)
An employee who lives and works outside their home country, usually on a company-sponsored assignment. Expatriates are subject to specific tax, immigration, and benefits considerations.
Balance Sheet Approach
A compensation methodology for international assignees that aims to keep employees financially 'whole' relative to their home country, by separately tracking income, taxes, housing, and goods and services costs.
Host Country
The country where an employee is sent to work during an international assignment, as opposed to their home (or origin) country.