Global Road Warriors: Pack Lots of Cash

Globe-trotting businesspeople are feeling expense account strain from a weakened dollar and rising prices overseas.

By Andrew C. Schneider, Associate Editor, The Kiplinger Letter

July 6, 2007

Going abroad for business? Prepare to pony up. Top foreign destinations for Americans on corporate trips and long assignments are becoming frightfully expensive. The main culprit is the flagging dollar, as its nearly 17% decline since February 2002 means that greenbacks fetch far fewer euros, yen, Canadian dollars and other currencies at foreign exchange desks. What's more, prices have been rising in other countries as the dollar has been falling, creating a double whammy to the business traveler's money pouch.

Priciest of all, for the second year running, is Moscow, according to a recent survey by Mercer Human Resource Consulting. As Russia thrives on exports of oil and natural gas, Muscovite consumers and businesses are flush with cash and driving up prices for all sorts of items. For example, average monthly rent on a two-bedroom, unfurnished luxury apartment in the Russian capital now equals that of New York at about $4000. You'll probably pay more than $6 for a cup of coffee in Red Square, about 60% more than in Times Square.

The dollar factor holds sway in much of Europe, with London having leapfrogged Tokyo and Seoul this year to become the world's second-most-expensive city. It isn't surprising, given that the British pound is trading at its highest level against the dollar in more than 25 years. London also is seeing real estate and rental costs escalate as the city starts to gear up for the 2012 Summer Olympics, while restaurant checks and public transit fares have reached nosebleed levels in global terms. A fast-food hamburger meal will set you back the equivalent of about $7.60, versus $4.80 in San Francisco.

Pricey stays abroad aren't limited to the usual suspects. Other cities climbing the cost rankings include Zagreb, Croatia; Bratislava, Slovak Republic; Limassol, Cyprus; Almaty, Kazakhstan, and Dakar, Senegal.

East Asia is also becoming an expense account buster. That's attributable more to the rapid pace of growth in emerging and newly industrialized economies and the increase in consumer spending across the region, including traditionally thrifty Japan, than the dollar's weakness. Many governments in the area, most notably that of China, have intervened to keep their currencies pegged to the dollar or at least limit their currencies' rate of appreciation, in order to keep their exports competitive in the U.S. market. Even here, though, there are exceptions. South Korea, for example, has allowed the won to appreciate against the dollar by more than 30% since February 2002 -- the British pound, by comparison, has appreciated 27% against the dollar over the same period -- which helps to explain Seoul's No. 3 ranking.

Take a tour of the top ten priciest cities with our slideshow.

Faced with escalating costs worldwide, U.S. companies -- particularly smaller ones -- might be tempted to skip trips or overseas assignments altogether. But in most cases, this would be a shortsighted approach, given the explosion in business opportunities abroad. Slower economic growth in the U.S. is making faster-growing regions more attractive.

Foreign travel and assignments also help companies build up internal strengths. "The danger is in forgetting that [these trips are] a critical way of developing global leadership talent," says Dr. Ernie Gundling, president and co-founder of consulting firm Aperian Global. Experience in overseas postings can give employees a sense of how day-to-day circumstances around the world differ from those in the home market, helping a firm to better accommodate itself to changing conditions. Such experience can't be gleaned as easily through alternatives such as teleconferencing.

Traditionally, U.S. firms have tended to review compensation packages for expatriate employees once or twice a year, regardless of the exchange rate climate. But, according to Rebecca Powers, a principal and senior consultant with Mercer, "companies are discovering that their schedule of review is not frequent enough because the dollar is depreciating faster." Rather than running the risk of alienating, and losing, large numbers of skilled professionals, says Powers, many companies are biting the bullet and giving raises more frequently.

Finally, it's worth bearing in mind that, while U.S. cities may be getting less expensive in comparison to foreign ones, they're still by no means cheap. New York has dropped behind Singapore in terms of costs of living -- likewise, Los Angeles has fallen behind Lagos, Nigeria, and Boston, behind Bucharest, Romania. But prices in these three American cities are still climbing.

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