Expanding your organisations reach : Cost of Living | 23 Apr 2010

It is vital for companies to be aware and well informed about the total cost of living in the new location, particularly during the planning stages if a number of country options are available.

Having this knowledge, an organization can budget for the compensation and benefit planning, avoid cost blow-outs, as well as ensuring that an assignees lifestyle quality and financial well-being is maintained.

What to look out for

The typical factors that impact the direct cost of living are housing, transport, food, clothing, household goods and entertainment. Other important factors include medical care options and education need if moving families.

In particular the standard of living and expectations should always be considered for elements that are relevant to the assignees.

Net wage level vs. purchasing power

The net wage level is meaningless if no comparison is obtained for the actual purchase power in the new destination. Local taxes, types of produce available including imported and local, cost of housing, cost of education etc will have a significant factor, particularly if moving into a non English speaking location.

Locally produced goods’ price levels and quality vs. import goods

Imported goods are found in many locations around the world, but will often be more expensive than local products. These are generally cheaper and very often of similar quality to global brands.

Housing

Whilst typical local accommodation may seem rather reasonably priced or even cheap to an expat, remember that these may not be compatible to what you are used to back home. This often means you will be renting into a more expensive market that offers the quality and amenities you are accustomed to in expat areas.

Education

Most parents will prefer to find a school that either matches the curriculum of their home country or an alternative international school, exposing the child to a new language and curriculum. These types of international schools are mostly private and will naturally cost much more than their own country education.
Some countries state owned institutions or cheaper alternative multilingual schools can offer the equivalent quality of teaching in many new destinations as alternatives. The use of our local consultants is the best source of resource to understand specifics for the new city.

Allowances

Most organisastions have now taken the approach that the lump sum allowance or capped assistance approaches have been selectively implemented in the relocation policies, based upon the duration and in some cases employee grade level.

It is important for these allowances to be reviewed from time to time, particularly if living costs have changed over the past few years. This may be something that should be reviewed every 3-5 years dependant upon the number of expat movements.

Useful allowance such as education, medical care, accommodation and home leave may be of interest to many relocating individuals and families.

Ensuring that your organisations policy provides some ‘plain speaking language’ for the employees benefit, with typical scenario examples may assist with the organisations process, and overcomes many typical before and after contract negotiations.

It is also helpful to include a list of exclusions so that the assignees can work out how they should allocate their relocation allowance towards the other uncovered items.

Where to get your information

If your organisation currently has an international office in the new location, the local staff may be able to give HR or Management an insight into the cost of living for a local. This may not however be comparable to employees who you plan to relocate as it is difficult to gauge a ‘like for like’ comparison without the local staff having an understanding of standards of your home country.

Local staff may not necessarily understand an expat’s yearning for specific home comforts, such as your country’s food, your favorite bar of chocolate or preferred brand of detergent.In addition, property types, sizing and typical material finishes may differ enormously from county to country.  Sao Paulo is a good example; expat properties are either in security secure apartment blocks or gated communities. Housing size can be is quite restrictive from smaller style apartments to mansions with very little in between.

Local employees who are used to the security risk and who are mindful of their own surroundings, may not appreciate fully the difference in lifestyle that a typical ‘western’ employee is accustom to in their home country.

On the other hand, obtaining your facts and figures from global resources is also a risk. The information is often very general, abstract and outdated by the nature of today’s fast changing global economies.

Mercer, an HR and related financial services consulting firm, and UBS Bank, for instance, conduct annual worldwide Cost of Living surveys that cover numerous cities and measure the comparative cost of over 200 items. These help multinational companies and governments to determine allowances for their expatriate employees but are also a useful benchmark for individuals considering relocating.

The facts from these surveys do not always demonstrate the ‘true’ value and can be a costly mistake if organisations do not obtain additional factual information through a more direct source.

As real-life example of a mistake that can be made, in review of UBS Banks average ‘expensive’ 4 bedroom accommodation in Delhi, it is listed as USD4000 per month. Life Relocation clients have been able to experience through first hand information that typically this cost would be in the region of USD10,000 - 15,000 per month for accommodation at a similar level to their Australian standards.  Such differences may be catastrophic to the financial viability of an assignment, or to the well-being of an assignee if this is not understood in detail.

Many of Life Relocation’s clients utilise our services to provide host city/country cost of living analysis as we have the advantage of having a global on-the ground presence with our extensive network of international partners and staff with local understanding as well as extensive international experience and knowledge. This gives us insight into both the local conditions in the host country, as well as those in the country of departure by which you will set your standards.

Life Relocation consultants will be able to advise your organisation on allowances or on what to expect regarding issues related to cost of living.