Geoarbitrage, or Geographic Arbitrage, is a term used to describe the practice of taking advantage of differences in the cost of living or business expenses in different locations around the world.
Geoarbitrage helps businesses or individuals save money on expenses by relocating to locations where such expenses are lower. The objective of geoarbitraging is to allow businesses and individuals to save money and thus increase their financial power.
This guide will offer an in-depth explanation of what geoarbitrage is and how to do it. We will also mention popular examples.
An In-Depth Look At Geoarbitrage
With business expenses and living costs rising in certain places, individuals and companies are forced to look at alternatives. These alternatives hope to address these expenses and, thus, increase their spending power.
Geoarbitrage follows the “nomad principle,” where individuals and businesses are looking to move abroad to cut costs and reap the benefits of a lower cost of living or LCOL. Although this concept isn’t new, and living in low-cost countries is far from revolutionary, the nomad principle is highly popular and attainable by many.
This need and want for a lower cost of living has created the principle of geoarbitrage.
The “How To” of Geoarbitrage
There are several ways businesses and individuals can use geoarbitrage to reap the benefits of living at a lower cost. Those include the following:
- Working remotely.
- Relocating to a country with a cheaper cost of living.
- Relocating to areas with a cheaper cost of living.
- Outsourcing business aspects to workers in countries with cheap labor.
- Becoming a digital nomad.
These methods can help you use geoarbitrage to your advantage. But let’s explain these methods in more detail.
Geoarbitrage Through Remote Work
Remote work is becoming more popular by the year. The COVID pandemic forced companies to shut down offices temporarily, and employees were forced to work from home. Fortunately, most people are familiar with the concept of remote work.
Since geoarbitrage aims to save money and increase your spending power, remote work presents an opportunity where individuals or businesses can save a lot of money by working from home.
Geoarbitrage By Relocating Internationally
One of the more popular ways to do geoarbitrage is to relocate internationally. Mind you, the country you plan to relocate must be cheaper than your own. So if you’re from the United States, you’ve got the majority of the countries to choose from, as the United States ranks high on the list of countries with the highest cost of living.
Geoarbitrage By Relocating Nationally
As you can see, geoarbitrage doesn’t require you to relocate internationally, as there could be plenty of opportunities hiding in your backyard; you’re simply unaware of them.
One example is to move out of expensive cities and into the countryside. It’s well documented that cities are becoming more crowded and more expensive by the year. For example, renting a single-bedroom apartment in a good part of New York City costs well over $1,000, while you can rent an entire house a few miles outside the city.
Geoarbitrage Through Outsourcing
Another popular way to use geoarbitrage as a means to save money, cut costs, and increase your spending power is to outsource. Outsourcing is a popular business practice where businesses obtain goods or services externally, usually from businesses in countries with cheaper labor.
Outsourcing is a popular business practice as it achieves all the goals of geoarbitrage. Although, it’s important to mention that outsourcing is most prevalent with businesses or companies looking to exploit geoarbitrage.
Geoarbitrage By Becoming a Digital Nomad
The last example of geoarbitrage is the practice of becoming a digital nomad. Digital nomads are people who work remotely and travel the world while earning a steady income.
These individuals often choose to live in locations where the cost of living is lower, such as Southeast Asia or Central America, to stretch their income further and have more disposable income to travel and enjoy their time abroad.
A core idea of becoming a digital nomad is to lower monthly expenses while having a steady income in a strong currency (US Dollars, Euros, or British Pounds).
Challenges to Look Out For
For all the cost-saving benefits that come with geoarbitrage, it’s important to discuss the unique challenges that come with it. So, let’s do that.
Adjusting to Cultural and Language Differences
One of the biggest challenges associated with international geoarbitrage is the issue of cultural differences, which could make it difficult to adjust to your new location. Additionally, language barriers and other obstacles may make it difficult to navigate the local business landscape.
Another challenge is the issue of taxes. When working or doing business in another country, it’s important to be aware of that country’s tax laws and regulations. As one can imagine, this can be a complex process, and it’s important to understand the tax laws and regulations to avoid legal issues.
If you plan to move to another country, the language and cultural differences won’t be the only challenge. Other factors also determine if you can use geoarbitrage to your advantage. These can include a lack of social life and the absence of family, childcare, job availability, and other factors you must consider before relocating.
Despite these challenges, geoarbitrage can be a powerful tool for individuals and businesses looking to increase their wealth and purchasing power. By taking advantage of differences in the cost of living and business expenses in different locations worldwide, individuals and businesses can save money and increase their profitability.
Whether through working remotely, relocating to a cheaper area, or outsourcing certain business functions, there are many ways to take advantage of geoarbitrage.