Expatriation may cost more in future

Singapore - HR practitioners may have to think twice about bringing expatriates into Singapore, if Credit Suisse's recent forecast that inflation may hit 8.5% in May and June proves accurate.

According to a recent ECA survey, Singapore is now the 114th most expensive city in the world for expatriates - up 17 rankings from September 2007. This also makes Singapore the 13th most expensive Asian city as well.

The survey, which is based on price comparisons for 128 goods and services items expatriates typically buy, found Singapore's cost of living increased due to inflation and the appreciation of the Singapore dollar.

If Singapore does see an 8.5% inflation rate, Lee Quane, general manager of ECA International Asia, expects to see Singapore rise even further up the survey, so expats can expect a higher cost of living in the future.

This also means Singapore will further lose what little competitive edge it had over Hong Kong in attracting expatriates to its shores - especially since Hong Kong is pegged to the falling greenback.

Quane notes that five years ago, the cost of living in Singapore was 20% cheaper than in Hong Kong. This advantage has since eroded to a 2 to 3% difference.

"A few years ago, a relatively lower cost of living would have meant the total compensation package provided to expatriate staff would be lower in Singapore than it is in Hong Kong."

Higher inflation will also pose problems for companies that did not factor in inflationary costs when planning for 2008 salary increases. Quane says that because most companies forecasted a 4 to 5% increase in salaries at the end of 2007, the current 6% inflation rate means that employees’ "real wages" have decreased.

"If they find they have to pay salaries, this is going to have an impact on their overall revenue. And if they can't offset the higher labour costs against productivity gains, they are going to pass the higher costs on to consumers," Quane says.

Hence, Quane says it now falls on Singapore companies to increase productivity "in order to offset the higher labour costs", through the implementation of better software or technology.

However, not everyone will suffer losses from the ballooning figure, Quane says. Some winners that emerge from this picture would be Singapore-based companies such as Singapore Airlines and Singtel who send employees overseas to places such as US and Hong Kong.

Because employees are backed by a stronger purchasing power, companies do not have to provide as big of a salary increase as they would normally have to.

"Going forward, the salary increases that companies need to give to their expatriates who are sent to these places would be much lower than it had been in the past," Quane adds.