Sending Expats to Emerging Markets: Can You Really Afford That?

If I would be asked to name the most expensive cities in the world, it wouldn’t take me long to come up with an answer. My common sense and travelling experience would suggest Oslo, London, New York, Moscow, Tokyo, Paris and Geneva, for a start. There would probably be some debate about the relative ranking of these cities, and I have probably left out some other candidate cities from the list. Yet, there is little arguing in terms of naming these cities among the most expensive ones. The high living costs in these cities appear quite justified, given the high standards of living, higher salaries, business competition, big inflow of people and limited space.

Naturally, speaking about expat expenses, we would assume that the same business meccas can be considered as some of the most expensive assignment locations. However, the list of expats’ costliest destinations recently published by Mercer Consulting puts this assumption to a test. Specifically, taking a look at expat expenses, ranging from housing to food and leisure, in more than 200 cities around the world, Mercer came up with quite surprising results.

The top ten list of the most expensive cities for expats is led by Luanda in Angola, followed by N’Djamena in Chad. These results seem surprising, because taking into account the average standard of living, and the GDP of these countries, they would appear far below the level of the wealthiest and most expensive countries. Yet, when sending expats there, multinationals should be prepared for higher costs than they would spend, say, in New York, Paris or London. And this is clearly due to how the cost of living is calculated. Although in the aforementioned countries a significant percentage of the local population does manage with a very humble monthly spending, when calculating expat expenses we probably think in terms of ‘western standards’. In other words, in order to live in Luanda in similar conditions as one would live in London, one would need to pay a fortune for the ‘luxuries’ of a relatively similar quality of accommodation, security, transportation and goods.

I think the cases of Luanda and N’Djamena are exemplary for multinationals. Indeed, going into developing and emerging markets can be cost efficient in terms of salaries for the local workforce and costs of business operations, yet, the same may not be true for expat expenses. All in all, it seems that while cost containment is an important rationale for international staffing, sending people to emerging markets is not necessarily a cheaper option than sending them to New York, Paris or London.