Expatriates have always been known for their ability to adapt to new cultures and contexts but the current financial crisis may prove to be the biggest challenge yet for internationals.

The economic landscape across the globe is changing by the day and it is still unclear how that will affect the world and workplace – and the place of expats within it.

Two things are already clearly impacted, though: the costs borne by expatriates in many European cities and overseas assignments by multinational corporations.

A recent survey by the Economist Intelligence Unit (EIU), for instance, showed that while weakening exchange rates have substantially lowered the relative cost of living in Western Europe for expatriates, it remains the most expensive area of the world to live in. Western Europe boasts seven of the top 10 most expensive cities across the globe and all but two of the Western European cities surveyed are in the top 50, according to the report.

However, those living in Western Europe can take heart in the fact that the relative cost of living in the region is dropping – due, in large part, to drastic declines in European currencies such as the sterling, the euro and the Norwegian krone.

"Two factors drive the relative cost of living: local prices and exchange rates,” said Jon Copestake, editor of the report, released last month. “Normally our ranking of cities by cost of living is relatively stable but in the current global climate, changes in exchange rates have significantly altered our assessment of the most and least expensive cities."

Changes in the most expensive places

The main changes in the ranking occurred among the most expensive cities, according to the report. Paris, the most expensive city in Europe, dropped from second to third place. London’s weak sterling led the city, originally ranked eighth, to fall spectacularly to 27th position, putting it below New York for the first time since 2002.

Expensive Scandinavia was especially hard hit: Oslo, in first place last year, saw its relative cost of living drop by 28 index points and Stockholm by 24. Reykjavik, still reeling from Iceland’s banking collapse in October, experienced a fall of 23 points.

In perhaps a sign of how the financial and economic crisis has yet to affect certain countries, most main German and Spanish cities ranked experienced little fluctuation, according to the survey. Munich (16th), Berlin (17th), Madrid (20th) and Düsseldorf (31st) showed no change in ranking. Frankfurt dropped three spots to seventh while Barcelona and Hamburg rose only slightly from their positions in the top 30.

Getting harder to be an expat

As the economic crisis has led to many companies to shed workers, so multinational corporations are changing the way they assign employees overseas.

“Without a doubt, this whole recession is reverberating within the international assignment practice,” said Scott Sullivan, senior vice president of GMAC Global Relocation Services. “We have seen what I would consider a radical turn.”

According to a yet-to-be published study of 180 multinational corporations conducted by GMAC, only 37 percent of companies saw an increase in the number of expats they employed during 2008; that number was 67 percent the year before.

Moreover, when asked whether they believed the number of their expat employees would increase in 2009, only 33 percent of companies said yes, compared to 68 percent at the beginning of 2008.

“We're seeing a lot less optimism about growth in the expat population in these companies,” Sullivan said. “Companies are aggressively looking to review their [expat] assignments and determine which ones they can bring home or which of those expats can be localized.”

Another cost-saving mechanism that is becoming popular for companies that employ expats, Sullivan noted, is becoming savvier about where employees are being transferred to and from.

“Companies are really scrutinizing the candidate selection,” said Sullivan. As long as the skill set is the same, companies are happier to send somebody from India to London than from New York to London – due to differing sets of lifestyle expectations. "It’s all about getting the most cost-effective candidate in place.”

Cost of living in select European countries:
City – rank (original rank)

The Netherlands
Amsterdam – 27 (27)

Spain
Barcelona –18 (19)
Madrid – 20 (20)

Switzerland
Geneva – 9 (12)
Zurich – 6 (7)

Germany
Frankfurt – 7 (4)
Munich – 16 (16)
Berlin – 17 (17)
Hamburg – 23 (26)
Düsseldorf – 31 (31)

Belgium
Brussels – 14 (12)

France
Paris – 3 (2)
Lyon – 21 (24)

THE EIU report
Conducted across 140 countries, the EUI report is aimed at helping companies calculate allowances for executives and their families who are being sent overseas. The report does so by comparing the cost of products and services in each city. This time, it compares the results of a survey carried out in September of last year, just as the housing mortgage mess in the United States was beginning to grow into a global financial and economic crisis, to February 2009 exchange rates.

Jessica Dorrance/Expatica

For more information on cost on living allowances, visit  the Cost of Living subchannel on Expatica HR.