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Cities Where the Dollar is Weakest

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By Venessa Wong
     June 22 (Bloomberg Businessweek) -- Tokyo, Japan's busy
center of government, culture, and the economy, has been an
expensive place to live for decades. Going to a movie theater
costs about $22 per ticket, and renting a two-bedroom apartment
easily costs $5,000 per month. Even travelers pay about $50 per
night to sleep in capsule hotels, where guests stay in a "room"
measuring about 2 meters (6 ft., 7 in.) deep, 1 meter wide, and 1
meter tall. As the yen has strengthened against the dollar, from
110 yen in August 2008 to about 90 yen to the U.S. dollar this
month, the cost of living for foreign nationals paid in U.S.
dollars has become tangibly more expensive in Tokyo.
     In a new ranking by global human resource company ECA
International, Japan's capital rose to become the most expensive
city in the world for American travelers for the first time since
2005. The city's return this year was due largely to currency
appreciation. Tokyo was followed by Oslo, Norway, and Angola's
capital, Luanda. Exchange rates were also responsible for the
rise in the cost of living in Seoul and Sydney, which climbed to
20th and 30th place, respectively, from ranks below 100 last
year. Meanwhile, Manhattan, N.Y., the most expensive place in the
U.S., fell 10 spots, to 29th place, as the U.S. dollar weakened.
     "One of the major reasons for the volatility from the 2009
to the 2010 [ranking] was currency volatility over the past 12
months," says Lee Quane, regional director of Asia for ECA
International. "We did see [some prices] increase, but it was
pretty much benign."

  Don't Forget the Beer

     ECA International, which is based in London, surveyed 399
locations in September 2009 and March 2010 based on a basket of
128 goods, including groceries, transport, dining out, clothing,
electronics, and such miscellaneous services as haircuts.
Expenses such as rent, utilities, and school fees that are not
typically included in a cost-of-living allowance were not
counted. The survey focused on internationally recognizable
brands—such as Kellogg's (K) cereal or Sapporo (SOOBF:OTC)
beer—commonly purchased by expatriates.
     While less-expensive options, such as local alternatives,
are available, companies typically base the cost-of-living
allowance on the amount needed to support a lifestyle similar to
what a person had in the home country. Companies do not want
employees to feel they are taking a loss to work overseas, says
E. James (Jim) Brennan, senior associate at ERI Economic Research
Institute in Redmond, Wash. "Accessing a certain product that is
normally not found in that economy can be very expensive," he
says. Other times, "the difficulty is not what the costs are, but
what goods and services are available."
     Also, depending on the situation, cheap alternatives are not
always advisable. For example, the Centers for Disease Control &
Prevention says illnesses such as typhoid fever can spread
through contaminated water and food, so the center encourages
travelers to avoid food from street vendors.

  Depending on One's Lifestyle

     How much one spends, of course, is often as much a choice as
as a necessity. Ohio native Michael King, president of virtual
computing company Citrix Systems' (CTXS) Japan operations, has
worked overseas for the past 15 years and has been at his most
recent assignment in Tokyo since January 2009. "Japan is always
expensive," he says. "If you're paid in local currency, then it's
less of a problem."
     King says he pays about $15 for a U.S. magazine and $50 for
a DVD. While leisure is certainly not cheap, food constitutes a
large portion of his expenses. For convenience, King shops at
expatriate grocery stores, where goods sell at a premium, and it
is not uncommon for him to pay $50 for a steak. According to ECA
International, the average price of 1 kilogram of rice in Tokyo
is $8.47, and one dozen eggs cost $3.78. Dining in Western and
Japanese restaurants is no cheaper—according to restaurant
surveyor Zagat, dinner with a glass of wine plus tip in Tokyo
costs $94, on average.

  Seasonal Delicacies

     "You can find reasonable things, but the quality expectation
for food here is very high," King says. In addition to the
careful preparation involved in much of Japanese cuisine, he says
many people are willing to pay more when certain foods are in
season—for example, peaches from Yamanashi in the summer.
     Of course, Tokyo is not categorically expensive. The city is
packed with noodle shops and yakitori stands offering grilled
chicken on skewers. Midrange retailers such as Uniqlo and H&M
(HNNMY:OTC) have become popular. The same is true in other
cities: In New York, for example, hot dogs, pizza slices, and
sandwiches are among the cheap eats in a city where Zagat
estimates the average dinner with wine and tip costs $42.
     Assignees can live on less, but when companies send talent
overseas, "they don't want it to be a negative experience for
anyone," says ERI's Brennan.

  Scaling Down Benefits

     Sending employees overseas (often along with their families)
is a significant investment for any company, especially because
compensation and benefit packages must cover employees' overseas
expenses as well as such obligations as mortgage payments at
home. Costly as cities such as Tokyo are, they often serve as
regional commerce centers and remain critical to multinational
companies; the need to move staff overseas remains fundamental.
     Even in today's business environment, ECA International's
Quane says, employers need to make compensation attractive enough
for employees to take assignments, not move to competitors, while
the employer can still make a return on investment. Many
employers have recently tried to trim benefit packages while
ensuring that the employee's core compensation remains
attractive, he says.
     Until about five years ago, overseas assignments were viewed
by many as cash cows—an opportunity to enjoy a good standard of
living overseas while saving some money. Today, "companies are
striking the right balance," says Quane. Housing allowances and
paid trips home, for example, have been scaled down, he says.
Assignees who may have received an allowance for a two- or
three-bedroom apartment may now receive an allowance for a
smaller rental. Some packages are being localized to line up with
local standards. In locations that have become unprofitable, some
employees have been sent home.
     "Talent is never in excess," says Brennan. "Anyone who is
proficient and versatile and valued enough to go international is
a valuable product." While paying for $90 meals and $50 DVDs may
be expensive while the dollar is weak and business is soft,
Brennan says in the long term, the right person can be the
solution to turning things around.

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