- Frequent calls and travel are indispensable for American manufacturers who locate plants overseas or source their products abroad.
- The average American business traveler spent $4,149 per trip abroad in 2011, of which $2,116 was spent on airfare.
- Business travelers went abroad an average of 4.2 times in 2011, and the average length of each trip was 19 days.
Understanding the full array of tasks associated with conducting business long-distance is necessary in order to properly account for and assess the total costs to a business. The opportunity costs associated with coordinating operations here and abroad, like many direct costs, depend on each company's individual circumstances. However, several pieces of data allow us to make a general assessment of the costs and frequency of international business travel.
Often there is no substitute for in-person meetings and visits to worksites. Travel requirements to locations—plants or sourcing facilities—are likely to be intensive, especially in the start-up phase of a new plant's operations or a relationship with a new supplier. Executives and other employees may also need to travel to further develop or strengthen relationships; to oversee design, production, or shipping; or to resolve unforeseen issues like supply chain disruptions or production errors.
The Department of Commerce's Office of Travel and Tourism Industries (OTTI) conducts the Survey of International Air Travelers to estimate the characteristics and spending of international travelers entering the United States, as well as American travelers going abroad. According to the survey, the average American business traveler spent $4,149 per foreign trip abroad in 2011. About half of the total cost of these trips was airfare, while the rest was spent on lodging, food, and other costs at the destination.
The average international ticket for business travel cost $2,116 in 2011. Ticket costs can vary dramatically depending on several factors, including season, destination, lead time, and the class of service. For business travelers in 2011, 71 percent of tickets were for seats in economy or coach class, compared to 18 percent in business class and 4 percent in first class.
Average Cost of Direct Round-Trip Flight from U.S. to Selected Destinations, 2011
Rank Among Business Class Ticket Purchases
Rank Among Economy Class Ticket Purchases
Source: Economics and Statistics Administration analysis using data from Department of Transportation, Bureau of Transportation Statistics.
Note: Fare classes are determined by reporting carriers.
The table above shows the average cost of economy- and business-class round-trip tickets from the United States to select foreign destinations in 2011. For these destinations, flying business class meant paying 2.5 times as much as economy. China, Brazil, and Japan, in particular, were high-cost destinations for business travelers, while Mexico represented a considerably less costly destination in 2011. By contrast, the Bureau of Transportation Statistics reports that the average domestic fare in the United States cost $364 in 2011.
While flight costs can add up, the personal and professional benefits of global travel generally far outweigh the costs. OTTI reports that the United States welcomed a record 62.7 million international visitors in 2011. With respect to offshoring, however, an important factor to consider is the number and length of trips required to set up a new factory or node in a supply chain, as well as the recurring trips required to maintain functionality or a good business relationship. Trips may be frequent and unplanned. According to OTTI, the average business traveler surveyed in 2011 reported traveling abroad 4.2 times during the previous 12 months and 17.1 times over the previous 5 years.
Lodging and Other Costs
According to OTTI, 77 percent of American business travelers stayed in hotels or motels on their foreign trips in 2011, with each staying an average of 9 nights. While most of the remainder stayed in private homes, those trips were considerably longer, with an average length of 27.1 nights. Hotel, food, and other similar costs can vary substantially depending on the country and city in which a traveler stays. To provide an idea of the magnitude and range of these costs, the following table shows the per diem rates set for Federal government employees traveling abroad in 2011:
Average International Per Diem Allowances for Federal Government Employees, 2011
Meals and Other Expenses
Source: Economics and Statistics Administration analysis using data from Department of State.
In addition to direct costs like travel and accommodation, companies should consider the indirect or opportunity costs that arise from having personnel or executives out of the office for extended periods of time. Coordinating overseas plants and supply chains requires frequent communication with overseas staff. Although telecommunication costs may be low, calls or video conferences, often at off-hours because of time zone differences, impose opportunity costs on U.S. employees, increasing stress or reducing attention to innovation.
As indicated above, OTTI found that the average international business traveler in 2011 reported making 4.2 trips abroad in the preceding 12 months and 17.1 trips over the previous 5 years. Given that the average length of each trip is 19.9 days, American businesspeople traveling abroad may be spending more than two months each year working overseas. Each day spent abroad likely represents a day spent away from the office or the plant back in the United States. Many companies may be prepared to invest in a dedicated employee or team to manage their international operations. While this choice offsets the opportunity cost of having other employees out of the office, it imposes other opportunity costs in the form of resources that could be spent on other projects.
Culture and Communication
A company may easily calculate its cost with tangible activities like travel. However, it also must take into account the broader need to get acquainted with the business and cultural norms and practices of the places in which it conducts business. According to a report from the Economist Intelligence Unit (EIU), nearly 90 percent of companies with an international presence or plans to expand internationally believe that improving cross-border communications improves profits, revenues, and market share. The United States is a prime example: U.S. companies export to markets across the globe and account for the largest share of outbound direct investment. A U.S. multinational's global success is a source of strength for its U.S. operations.
However, conducting a global operation requires adequate resources. Almost half of the companies surveyed in the EIU report say that they need some of their employees to speak a foreign language, and one quarter say a majority of their employees need foreign language skills. They cite "differences in cultural traditions" and "different workplace norms" as the largest threats to their international relationships. Companies developing cross-border relationships should be prepared to commit resources for hiring or training employees to manage cultural dynamics.
Manufacturers who are considering locating plants overseas or sourcing their products should consider the full array of travel costs, from direct costs like flights and lodging to indirect costs like time away from the office.