Locating To Your Advantage
KPMG's comparison study of Canadian and international business costs
A technology company's location can have a significant impact on its operating costs. Although selecting the best site for a business operation also requires careful consideration of many non-cost factors including labour availability, infrastructure and quality of life, for many firms, the logical first step in locating, relocating or acquiring a business is to perform a high-level review of which jurisdictions represent the most cost-competitive locations.
KPMG's 2006 Competitive Alternatives study provides an independent comparison of international business costs in 128 cities in nine industrialized countries around the world. The study measures and compares the after-tax combined impact of 27 significant cost components such as labour, taxes, real estate, and utilities, as applied to the business operations in 17 industries including electronics, biotech, software and telecommunications. The results enable CEOs to compare the cost advantages of locating their business operations in various cities across Canada or internationally.
Of the nine countries examined, including Canada, France, Germany, Italy, Japan, the Netherlands, Singapore, the United Kingdom and the United States, Canada ranks second for overall business costs, with costs approximately 5.5 per cent below those in the United States. Singapore is the overall leader among the countries studied, with business costs approximately 22.3 per cent below those in the US, and Japan and Germany rank as the most expensive countries in which to do business.
The study results were determined using recent exchange rates, with the Canadian dollar valued at US85.2¢. However, even with the strong 13.6 per cent appreciation of the Canadian dollar during the two-year period from 2004 to 2006, Canada continues to have a cost advantage relative to the United States, and the Canadian dollar would have to rise in value by another 13 per cent, almost to par with the US, to bring Canadian cities to a breakeven position with the US in terms of overall business costs.
For larger cities in Canada, Edmonton and Montréal rank as those with the greatest cost advantages relative to the US. While costs in Toronto and Vancouver are the highest within Canada, and on par with such low-cost US cities as Atlanta and Tampa, these cities do still offer significant cost advantages over most of the large US cities included in the study. Among the smaller cities examined, Canadian cities generally continue to offer lower cost structures than equivalent US cities, even after allowing for the higher value of the Canadian dollar since 2004.
The advantage seen for many of the Canadian cities relative to the US is generally the result of a combination of lower labour costs, including lower employer costs for private medical coverage, lower real estate costs, and lower electricity costs in Canada. In the software sector, where labour costs are relatively more significant than in other industries, Canada has a 6.7 per cent cost advantage over the US. Various federal and provincial tax cuts over the last decade have also made Canada's tax system more competitive with the US, and have contributed to the positive position of the Canadian cities.
Comparison of relative cost indices
In the tables below, business costs are expressed as an index with the United States being assigned a baseline index of 100.0. The baseline index is defined as the average of nine representative US cities. A cost index less than 100 indicates lower costs than the US. A cost index greater than 100 indicates higher costs than the US. For example, an index number of 95.0 represents a 5.0 per cent cost advantage relative to the US. Cost index is determined by averaging variables from various industries and operations.
Relative cost indices of select Canadian cities
|
City |
Cost Index |
|
Sherbrooke, QC |
90.1 |
|
Moncton, NB |
91.1 |
|
Charlottetown, PEI |
91.7 |
|
Halifax, NS |
92.2 |
|
Quebec City, QC |
92.6 |
|
Saskatoon, SK |
92.8 |
|
Edmonton, AB |
93.3 |
|
Chilliwack, BC |
94.0 |
|
Winnipeg, MB |
94.1 |
|
Montreal, QB |
94.3 |
|
St. John's, NF |
94.3 |
|
Waterloo, ON |
94.3 |
|
Calgary, AB |
94.7 |
|
Ottawa, ON |
95.1 |
|
Toronto, ON |
96.5 |
|
Vancouver, BC |
96.9 |
Source: KPMG's 2006 Competitive Alternatives Study
International relative cost indices
CountryOverall
Cost Index
Electronics
Telecom
Biotech
SoftwareWeb
& Multimedia
Singapore
77.7
81.9
89.3
73.3
70.7
67.4
Canada
94.5
96.6
97.5
89.9
93.0
93.8
France
95.6
99.9
98.7
94.2
97.0
94.7
Netherlands
95.7
99.6
99.1
90.5
95.5
96.5
Italy
97.8
102.1
100.1
97.0
101.0
96.5
United Kingdom
98.1
103.4
99.9
100.2
99.7
99.0
United States
100.0
100.00
100.00
100.00
100.00
100.00
Japan
106.9
111.00
104.6
108.2
100.7
102.00
Germany
107.4
111.8
104.6
113.4
109.6
109.5
Source: KPMG's 2006 Competitive Alternatives Study
Canada and International Comparison Highlights
Canada
Canada ranks second overall and first among the G7 countries for low business costs, with a cost advantage of 5.5 per cent over the United States.
Combining salary and wage costs along with all benefits, total labour costs are lowest in Singapore, followed by Canada. However, expressed as a percentage of payroll, benefit costs in Canada are lower than in any of the other countries studied.
Canada, along with the United Kingdom and France, are the countries that offer the greatest tax incentives to encourage research and development (R&D) activities.
Canada offers the lowest electricity costs among all countries studied.
Other Countries
Singapore ranks first among the countries studied, with business costs 22.3 per cent lower than in the United States. With GDP per capita now on par with some western European nations, Singapore is the first newly industrialized country to be included in Competitive Alternatives.
France and Netherlands ranks third and fourth respectively, with overall business costs lower than in all other European countries, and a cost advantage of approximately 4.4 per cent over the US.
Italy and the United Kingdom rank fifth and sixth respectively, with business costs approximately 2 per cent below the seventh ranked United States.
Japan and Germany were the most costly places to set businesses, with business costs approximately 7 per cent higher than in the United States.
Singapore, the United Kingdom and the Netherlands offer relatively low effective corporate income tax rates for the widest ranges of operations.
Office leasing costs are lowest in Italy, followed by Germany, and the Netherlands.
* Source: KPMG's 2006 Competitive Alternatives Study
Want to know more?
KPMG's Information, Communications and Entertainment (ICE) partners and professionals are deeply experienced in serving technology industry leaders in the provision of audit, tax, and business advisory services. Wherever in the world you choose to operate, KPMG's member firms can help place your business on a solid footing. With local market knowledge and experience in financing, tax, real estate, and other global location and expansion services, we can help you identify the appropriate sites and negotiate the right deals.
To learn more about KPMG's ICE practice and services, please contact James Topham, Partner, at jtopham@kpmg.ca or Nathalie Bernier, ICE National Industry Leader, at nbernier@kpmg.ca, or visit our website www.kpmg.ca/en/industries/ice/.
To download a copy of KPMG's Competitive Alternatives report, visit www.CompetitiveAlternatives.com.