Manufacturers that participate in overseas business, either by sourcing suppliers or moving operations abroad, face the necessity of travel expenses. All costs, hidden and clear, must be taken into account when deciding where to do business. This includes everything from the initial airfare cost to transport employees, all the way to opportunity cost associated with having key employees in different time zones.
In 2019, business travelers traveled internationally on average 3.8 times within the year, taking trips with an average length of 14.6 days, according to the U.S. National Travel & Tourism Office. That same year, the average cost of an international round-trip ticket hovered around $1,200. This is just the tip of the iceberg.
This blog is the eighth in a series detailing the costs associated with moving production overseas. Read more:
This article will explore the unexpected costs of travel when conducting business overseas, and explain why so many costs are overlooked or under-budgeted.
But first, it’s important we address a lingering question that greatly impacts the message of this article and, as of writing, has yet to be fully answered or resolved.
Has COVID-19 Halted the Need for Business Travel?
In early 2020, the global pandemic brought on by COVID-19 effectively stopped business travel entirely for a number of months. As workers nationwide moved to home offices and meetings became increasingly more virtual, it appeared business travel would never recover.
As of publishing, rates of business travel have inched upward since March 2020, but are nowhere near pre-pandemic levels. Some experts say
business travel will need a few years to recover, while others say
it peaked before 2020 and will never reach the same level.
Regardless of the rate of business travel in the U.S. in the coming years, there is still no conceivable substitute for in-person meetings, especially when setting up new locations, partnerships and other such ventures internationally. Worksite visits and in-person meetings are unmatched when it comes to strengthening and developing relationships, overseeing production and resolving unexpected issues in manufacturing or the supply chain.
Though business trips may be fewer in number and limited to higher level managers and executives, they will not become a thing of the past entirely. Companies looking to do business overseas will still need to contend with the costs, meaning this article’s information simply cannot be dismissed.
Airfare Costs
When embarking on a business trip overseas, airfare is usually expected to comprise at least half of total expenses. After the price of jet fuel skyrocketed in 2008, airline tickets followed suit and, when considering inflation, have never returned to pre-recession price levels. Ticket costs vary depending on several factors, including seasonality, locale and desired seating class.
For example, the average cost of round-trip, first-class flights to faraway destinations like China and Australia can often top $5,000 per ticket,
according to the Bureau of Transportation Statistics. Meanwhile, the same first-class round-trip ticket to a much closer place, like Mexico, costs less than $1,000. Ticket prices also climb around 10% leading up to high-travel occasions like Thanksgiving and Christmas.
In contrast to these international prices, a domestic flight usually tops out around $1,300 for a business class ticket.
Lodging & On-Site Costs
After airfare, the remainder of tangible business trip costs usually include on-the-ground expenses like lodging, food, ground transportation, etc. In 2019, 80.1% of business trip-goers reported staying in a hotel or motel. On average, these respondents spent 10.4 nights in said lodging, a cost that can quickly add up.
Like flights, lodging costs depend on factors like seasonality, location and level of service. Hotels in larger metropolitan areas, where businesses tend to congregate, are more expensive, as are private rooms and room service.
To give an idea of lodging costs, here are the per diem rates for lodging created for federal employees traveling overseas to these countries, updated March 2021:
- United Kingdom - London $314
- Mexico - Mexico City $244
- China - Beijing $246
- India - Bangalore $352
- Brazil - Sao Paulo $286
These lodging costs do not include the cost of meals and other incidentals, which vary depending on even more unpredictable factors, most notably the appetite and schedule of the traveler.
Oversight Costs of Overseas Travel
We’ve covered some of the more tangible costs of overseas travel, but we cannot overlook the less obvious oversight costs that come with sending employees out of the country for business trips. The first is the cost of choosing the right vendor, a process that can require extensive time and effort even when conducted internationally. It can take a year to select the right partner. Assuming you send one or more employees overseas to find a partner abroad, your business must eat the cost of airfare and lodging in addition to the extra time cost of sending someone around the world rather than keeping them on U.S. soil to work on other projects.
Even after vendors are selected, another oversight cost is that of transitioning and easing into a new relationship. It can take years to fall in sync with a partnering business, a time cost that is only increased when considering cultural barriers, time zone shifts and the difficulties of getting on the same page when you’re located in different countries. It’s much easier to get to know someone and hash out business decisions in person rather than over a video or phone call where one party is online during normal business hours and the other has logged on at 3 a.m. to take the call from their time zone.
To avoid jet lag and constant back-and-forth travel, companies may also find it prudent to invest in an employee dedicated solely to overseas liaisons, which requires creating an entirely new position with onboarding and salary costs.
Finally, another often overlooked cost is that of visas for employees sent to scout out new vendors and build relationships. Visas are temporary and must be obtained for every business trip in order to conduct financial activities on-ground. This also represents an up-front cost, meaning it’s impossible for a business to immediately begin making money after offshoring.
Intangible Costs of Doing Business Overseas
In a similar vein, companies sending employees overseas must consider the intangible opportunity costs related to coordinating schedules and ensuring frequent methods of communication to prevent business downtime. Employees required to log on in the middle of the night face excessive stress and less sleep, reducing ability to complete the project efficiently.
Additionally, when considering the average length of an international trip in 2019 was 14.6 days, and the average employee takes four or more trips per year, Americans can end up spending over two months out of the calendar year working overseas. This instability can further contribute to stress on the individual.
Finally, another intangible, often overlooked cost is that of cross-cultural communication. We’ve previously discussed
the cost of finding employees or partners overseas, but after hiring or entering into an international partnership, maintaining the relationship comes with its own set of challenges. Different cultures are comfortable with different ways of working, some of which are more aggressive than others. Some cultures may be comfortable taking instruction while others may push back or work to have their voice heard.
Aside from culture, your current employees may not speak the local language in the area they are sent to develop partnerships. This can not only present problems up front, it can make it difficult for the relationship to flourish in the future. Your company may find itself investing in yet another employee to work as a translator.
These differences in language and communication styles may seem like an easy barrier to hop, but they can greatly slow, even halt, productivity. Companies that move operations overseas should consider the resources and training needed to overcome cross-cultural hurdles they may not have initially anticipated.
The bottom line: Traveling overseas for business will not become completely obsolete or defunct in the coming years. Aside from the more obvious high costs of business and lodging, companies face intangible and oversight costs that simply cannot be overlooked.
When you add up all the numbers and look at the data, you may find the smarter financial move is inside U.S. borders. Seeking domestic partnerships and opportunities can mean slashing your travel budget and putting the money to more useful ventures.
If you’re looking for a domestic vendor, Custom Rubber Corp. offers services and capabilities that work with your business needs and budget. Contact Custom Rubber Corp. to learn more.