By Kevin Randall – The Harvard Business Review
Despite the current political headwinds blowing against globalization, companies continue to recruit talent from around the world and talented people continue to want overseas work experience.
For firms, it’s become imperative to look beyond geographic borders to attract and retain top talent. This is partly due to the fact that 77% of CEOs report being concerned about the availability of key skills, according to PwC. Seventy-seven percent also agree or strongly agree that they move talent to where they need it. Marshall Goldsmith, who has coached CEOs at dozens of global Fortune 500 companies, told me that the talent game is becoming geographically borderless. “What companies want is a leadership base that at least somewhat parallels their customer base. So you don’t have a group of leaders that doesn’t have anything in common with their customers.”
For individuals, younger workers see a flatter world and prioritize international experiences and mobility for career development. According to a PwC report on Millennials, 71% desire to work abroad at some point in their career. Those who don’t may be limiting their options, says Goldsmith. “Mobility, that’s just part of life today [for employees]. They need to be more flexible and open to moving around today. If you lack geographic mobility, it’s a career detriment.” The upside is that those who embrace this reality can enjoy a new measure of flexibility. “Many people have a lot more choice about where they live than they used to.”
So where do these ex-pat workers want to live, and why do they want to live there?
AIRINC, a global research company which currently works with over half of the Fortune 100 on international talent and pay strategies, created an index that helps answer these questions. Using data from its in-house survey team, which continually researches the financial and lifestyle conditions of more than 400 cities around the world, AIRINC identified the most (and least) attractive places for today’s workforce.
The Global Cities 150 Index is based on data collected by AIRINC’s in-house survey team, which continuously researches the costs and living conditions of more than 400 cities around the world to evaluate international mobility for its clients. AIRINC visits cities on every continent except Antarctica, ranging from remote locations like Port Moresby, Papua New Guinea and Blantyre, Malawi to major global business centers like Hong Kong and Zurich. These cities were selected to meet AIRINC’s global and multinational company customer base, who move their employees around the world to support business needs. Cities that made the final ranking of 150 include those in Europe, the Middle East/Africa, Asia/Pacific, Latin America, and North America.
The index combines financial and lifestyle measures, ranging from local salary levels, tax rates, living costs, and living conditions to assess how appealing each location is to live in. For the lifestyle factors specifically, AIRINC researches and evaluates each city on over 60 hardship components, classified into 11 categories that represent physical threat and safety (e.g. violence, crime, medical), discomfort (e.g. climate, isolation, freedom) and inconvenience (e.g. availability of housing, recreation, goods and services, and education facilities).
For the financial metrics, AIRINC maintains their own international salary data base that captures location-specific salary levels for professional talent. Their internal tax team researches the applicable national and local taxes, social security payments, and family allowances to develop representative tax models. And the cost of living considers both the relative cost of goods and services and the differences in living patterns between the home and host locations. AIRINC’s survey team prices a basket of more than 350 goods and services to accurately represent the cost of living in each location. Prices collected include those for housing, utilities, transportation, food, drink, recreation, clothing, domestic help, household supplies, communications, home furnishings, personal care, and medical.
The financial metrics are aggregated to calculate the net purchasing power of a typical salary in each city, and then converted to a common currency to allow comparison among cities. The lifestyle metrics are weighted and grouped by category to result in a score out of 100 that allows objective assessment of the living conditions among cities. The two sets of metrics are then combined to reflect the importance of each, with financial metrics given slightly more weight (60%), resulting in an overall city attractiveness score.
AIRINC breaks down its data in three main ways.
First is the financial ranking — salary, tax, and cost-of-living data are aggregated to calculate the net purchasing power of a typical salary in each city, and then converted to a common currency to allow comparison between locations. Each city is assigned a score based upon the net purchasing power, and this score is used to determine the financial ranking of the cities.
Similarly, the lifestyle ranking takes into account living conditions and social benefits, including physical threat and safety (e.g. violence, crime, medical), discomfort (e.g. climate, geographic isolation, cultural or psychological isolation) and inconvenience (e.g. availability of housing, recreation, goods and services, and education facilities). These metrics are combined and weighted to result in a score that allows a comparison of the living conditions between cities.
To determine the overall ranking, the financial and lifestyle metrics were combined and weighted — with the financial factors getting a slightly heavier weighting — resulting in an overall score that allows easy city-to-city comparisons. In terms of the weighting, AIRINC found that a 50:50 split didn’t allow for cities with higher financial rankings to rise significantly in the list. A 60:40 ratio offered the best compromise, taking into account the ability of sufficient financial benefits of a location to overcome some lifestyle deficits. Put another way: greater financial freedom in a location could help ex-pats work around some lifestyle restrictions by offering more recreation, more travel, bigger and safer housing in better neighborhoods, and so on.
While it is not surprising that cities like Zurich (#1 rank overall) and New York (#6) make top 10 overall list, the index helps to illustrate tradeoffs between lifestyle and financial factors, and within each category. To illustrate this, let’s delve a bit deeper into several cities that both did and didn’t make the top 10.
Melbourne (#16), for example, is often recognized as one of the world’s most livable cities, given its pleasant climate, vibrant mix of ethnicities and cultures, work-life balance, and varied lifestyle options. This has attracted large numbers of immigrants and out-of-state Australians, making Melbourne the country’s fastest-growing major city. It is home to a diverse range of industries and has become an important business center in the Asia-Pacific region. However, it is an expensive place to live. For example, the one-person per diem for three meals in restaurants is $80USD in Melbourne, which is 16% higher than the amount in San Francisco. In addition, workers in Australia pay a high tax burden (not unlike those in Denmark). While ranked in the top 10 for lifestyle, financial factors knock Melbourne out of the overall top 10.
Manama, Bahrain (#51) has the opposite problem of Melbourne: It is ranked #1 for financial metrics but suffers overall due to a lower rating on lifestyle factors.
However, even with lower salaries and medium taxes, Calgary (#9) ranks high overall due to low costs and good lifestyle. In this case, it seems like salary is not everything; it is what the income represents (purchasing power) that is vital.
San Francisco made the top 10 in large part due to tech companies’ high salaries. But the tech industry growth has also contributed to very high housing costs and stresses on lifestyle due to urban displacement, widening income inequality and declining ethnic diversity.
And what can we learn from the lifestyle and financial rankings in particular? Clearly, smaller European cities dominate the former ranking. This is likely because major cities have high housing costs, and European countries tend to offer more generous social benefits such as government-sponsored health care, maternity/paternity leave, and education, which were important factors in how the lifestyle score was calculated.
The top 10 financial ranking shows greater global diversity than the top 10 overall and lifestyle lists, however. All of these locations offer high salaries, and many of them also have either low taxes or lower cost-of-living (or both). For example, Georgetown, Cayman Islands (#36), Macau (#40) and some cities in the Middle East have no or very low personal income tax. Manama, Bahrain (#68) boasts the top financial ranking because it offers high salaries, no personal income taxes, and a lower cost of living.
At the same time, an offshore location like the Cayman Islands has a lower lifestyle ranking due to island-related restrictions (e.g. limited access to and high cost of imported goods, lack of recreation options, and cost and logistical challenges to visit and be visited by non-resident family and friends). Even tropical paradises are imperfect.
Going forward, the biggest question seems to be when Asian and emerging market cities will crack the overall top 10 (Singapore ranks #14), though it’s entirely likely. For one, according to AIRINC CEO Steve Brink, top Chinese executives, who not long ago earned one tenth of what their Western counterparts did, now get paid as much and in some cases more.
Additionally, longitudinal data from AIRINC indicates an increase in expat talent moving to Asian and emerging locations relative to Western, developed cities. As these trends continue (including geopolitical developments like Brexit and Trump administration policies), the balance of attractive global cities may continue to shift.
Editor’s note: Every ranking or index is just one way to analyze and compare companies or places, based on a specific methodology and data set. We believe that a well-designed index can provide useful insights, even though by definition it is a snapshot of a bigger picture. We always urge you to read the methodology carefully.