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Expat Briefing Editorial Team
15 August, 2016
As we reported in Expat Briefing last week, Hong Kong is now the most expensive city for companies to send employees on assignment, just ahead of the usual suspects at the top of this league table like Geneva, Tokyo and Singapore. However, Mercer's latest Cost of Living Survey also reveals some more surprising results.
About Mercer's Survey
Mercer's widely recognized survey is one of the world's most comprehensive, and is designed to help multinational companies and governments determine compensation strategies for their expatriate employees. New York City is used as the base city for all comparisons and currency movements are measured against the US dollar. The survey includes over 375 cities throughout the world; this year's ranking includes 209 cities across five continents and measures the comparative cost of more than 200 items in each location, including housing, transportation, food, clothing, household goods, and entertainment.
Mercer's survey shows that amid global economic and political volatility, multinational companies are not being deterred from carrying through their global expansion strategies as they attempt to out-compete their rivals and grow. However, the survey also indicates that few organizations are prepared for the challenges world events have on their business, including the impact on cost of expatriate packages.
Some of the main factors contributing to the cost of remunerating expat employees on international assignments include currency fluctuations, cost inflation for goods and services, and instability of accommodation prices.
"Despite technology advances and the rise of a globally connected workforce, deploying expatriate employees remains an increasingly important aspect of a competitive multinational company's business strategy," said Ilya Bonic, Senior Partner and President of Mercer's Talent business. "However, with volatile markets and stunted economic growth in many parts of the world, a keen eye on cost efficiency is essential, including a focus on expatriate remuneration packages. As organizations' appetite to rapidly grow and scale globally continues, it is necessary to have accurate and transparent data to compensate fairly for all types of assignments, including short-term and local plus status."
"Maximizing return on investment with fewer resources and talent shortages worldwide makes growth initiatives more difficult for multinationals," Bonic added. "Organizations must ensure they can facilitate the moves they need to drive business results by offering fair and competitive compensation packages."
This year's report finds that Hong Kong has overtaken the Angolan capital of Luanda as the world's most expensive city to send employees on assignment, with Zurich and Singapore remaining in third and fourth places, respectively. Tokyo makes an appearance in the top-ten this year, having risen six places to fifth, while Kinshasa, the capital city of the Democratic Republic of Congo, arrives in top-ten for the first time in sixth place. Shanghai (7th), Geneva (8th), N'Djamena (9th), and Beijing (10th) complete the top-ten.
At the other end of the spectrum, the world's least expensive cities for expatriates, according to Mercer's survey, are the Namibian capital of Windhoek (209th), Cape Town (208th), and Bishkek, the capital of Kyrgyzstan (207th).
A notable trend in this year's survey is the elevation of US cities in the league table, due largely to the strength of the US dollar against other major currencies. New York is up five places to rank 11th, the highest-ranked city in the region. San Francisco (26th) and Los Angeles (27th) climbed 11 and nine places, respectively, from last year while Seattle (83rd) jumped 23 places. Among other major US cities, Honolulu (37th) is up 15 places, Washington, DC (38th) is up 12 places, and Boston (47th) is up 17 spots. Portland (117th) and Winston Salem, North Carolina (147th) remain the least expensive US cities surveyed for expatriates.
By contrast, the majority of cities in South America are relatively less expensive than they were last year, as a result of weakening currencies against the US dollar. This is despite strong inflation in countries such as Brazil, Argentina and Uruguay. In particular, São Paolo (128th) and Rio de Janeiro (156th) plummeted 88 and 89 places, respectively. Meanwhile Lima (141st) fell 19 places and Bogota descended 42 places to 190th. Managua (192nd) is the least expensive city in South America.
San Juan in Puerto Rico was the exception to this rule, having climbed 22 places to 67th, making it the second-most expensive city in Latin America after Buenos Aries, in 41st place overall.
Canadian cities also continued to drop in this year's ranking, mainly due to the weak Canadian dollar. The country's highest-ranked city, Vancouver (142nd), fell 23 places, while Toronto (143rd) is 17 places lower. Montreal (155th) and Calgary (162nd) fell 15 and 16 spots, respectively.
Europe, the Middle East, and Africa
Predictably, Swiss cities populate the top of the European rankings, with Zurich the most expensive European city to send expat employees to, in third place overall, followed by Geneva in eighth. The next European city in the world ranking was the Swiss capita, Bern, at 13th place.
The majority of major European cities are relatively unchanged cost-wise since last year, thanks mainly to the stability of the Euro against the US dollar. Paris (44th), Milan (50th), Vienna (54th), and Rome (58th) have barely moved compared to last year, while Copenhagen (24th) and St. Petersburg (152nd) remained static.
Other cities, including Oslo (59th) and Moscow (67th), plummeted 21 and 17 places, respectively, as a result of local currencies losing significant value against the US dollar. London (17th) and Birmingham, UK (96th) dropped five and 16 places, respectively, while the German cities of Munich (77), Frankfurt (88), and Dusseldorf (107) climbed in the ranking.
"Despite some marked price increases across the region, several local currencies in Europe have weakened against the US dollar which pushed a few cities down in the ranking," explained Nathalie Constantin-Métral, Principal at Mercer with responsibility for compiling the survey ranking. "Additionally, other factors like recent security issues, social unrest, and concern about the economic outlook have impacted the region."
Nevertheless, some cities in Eastern and Central Europe have become relatively more expensive, including Kiev (176th) and Tirana (186th) rising eight and twelve spots, respectively.
Tel Aviv (19th) continues to be the most expensive city in the Middle East for expatriates, followed by Dubai (21st), Abu Dhabi (25th), and Beirut (50th). Jeddah (121st) remains the least expensive city in the region despite rising thirty places. "Several cities in the Middle East experienced a jump in the ranking, as they are being pushed up by other locations' decline, as well as the strong increase for expatriate rental accommodation costs, particularly in Abu Dhabi and Jeddah," said Constantin-Métral.
Surprisingly perhaps, three Africa cities are to be found in the top-ten. Luanda, Angola (2nd) remains the highest ranking city in Africa, although it is no longer the most expensive city overall, due to a fall in the value of the local currency. Kinshasa (6th) follows, having risen seven places since 2015. Moving up one spot, N'Djamena (9th) is the next African city on the list, followed by Lagos, Nigeria (13th) which is up seven places.
As mentioned, Hong Kong is the most expensive city for expatriates both in Asia and globally. Singapore remained steady in fourth, while Tokyo climbed five places to sixth. Indeed, a number of Japanese cities have become relatively more costly places to send expat employees, largely on account of the rising value of the Japanese yen.
Chinese cities also remain relatively expensive, with Beijing, Shenzhen and Guangzhou in 10th, 12th and 18th places, respectively. However, the falling value of the yuan against the US dollar has had the effect of pushing several Chinese cities down the ranking in 2016.
Indian cities remain relatively inexpensive places for expat employment packages. Mumbai is the most expansive Indian city in 82nd place, followed by New Delhi (130th) and Chennai (158th), Kolkata (194th) and Bangalore (180th).
Elsewhere in Asia, Bangkok (74th), Kuala Lumpur (151st) and Hanoi (106th) plummeted 29, 38, and 20 places, respectively. Baku (172nd) had the most drastic fall in the ranking, plummeting more than 100 places. The city of Ashkhabad in Turkmenistan climbed 61 spots to rank 66 globally.
Australian cities have witnessed some of the most dramatic falls in the ranking this year as the local currency has depreciated against the US dollar. Brisbane (96th) and Canberra (98th) dropped 30 and 33 spots, respectively, while Sydney (42nd), Australia's most expensive ranked city for expatriates, experienced a relatively moderate drop of 11 places. Melbourne fell 24 spots to rank 71st.
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