Canada keeps top spot as most cost competitive mature market for business, KPMG study reveals

High value of US dollar gives Canada cost advantage. Fredericton, NB ranks 1st for most competitive city for business in the country

TORONTO, March 30, 2016 /CNW/ - Today, KPMG in Canada released its Competitive Alternatives 2016 report, revealing Canada as the most cost competitive mature market for business. The high value of the US dollar has enabled Canada to maintain its competitiveness and status in the international rankings, despite higher local business costs such as lease costs for downtown and suburban office space and reductions in federal R&D tax credits. The study, which is conducted biennially, looks at more than 100 cities and 10 countries around the world, examining 26 significant business cost elements, including labour, facilities, transportation, utilities and taxes.

"Over the past year, the weakening Canadian dollar and its potential impacts on the future of our economy have caused concern among Canadians. This study sheds light on a more positive outlook, highlighting that the high value of the US dollar has actually been a driver in improving Canada's competitiveness and overall cost advantage. While we wait to see where our economy is headed, this study continues to demonstrate Canada's position as a cost competitive location for business," said Greg Wiebe, Partner, KPMG.

Mexico, a NAFTA partner and the only high growth/emerging country included in the study, ranks first overall among the 10 countries in the study, with lower business costs than any of the mature market countries examined.

Among 111 cities featured in the study, 17 were Canadian. Fredericton, NB ranks as the most competitive in Canada, having edged ahead of 2014's leader, Moncton, NB. The study also reveals that all Canadian cities are more cost competitive than any of the US cities featured; and Montreal, Toronto and Vancouver rank among the most competitive major cities worldwide.  

"Each Canadian city included in the study, amongst many others across the country, will benefit from the federal government's commitment to driving investment in transportation, climate mitigation and social infrastructure. This commitment will continue to make Canada an attractive investment opportunity for organizations and their employees, setting the stage for our competitive future," said Brad Watson, National Practice Leader, Infrastructure, KPMG.

Canada vs. the world

  • Among the countries, Canada ranks second (behind only Mexico) in all four sectors examined – digital services, R&D services, corporate services and manufacturing. Among these sectors, Canada demonstrates its strongest results in R&D services, due in part to the federal and provincial R&D tax credits available.
  • The high value US dollar proved to be a key factor in the rankings for many countries. Canada's cost advantage relative to third-placed Netherlands only changed marginally, while Canada's cost advantage over Australia declined due (in part) to the value of the Australian dollar declining by even more than the Canadian dollar relative to the US currency.
  • From a tax perspective, the UK, Canada and the Netherlands offer the lowest effective rates of corporate income tax across a range of business sectors, all helped by tax incentives designed to support R&D and/or other high tech activities.

Rankings and cost index results for all countries (listed from lowest cost to highest cost)

2016

Rank

Country

2016
Cost Index1

% cost

advantage

versus US2

2014

Rank

High Growth Market

1

Mexico

77.5

22.5%

1

Mature Markets

2

Canada

85.4

14.6%

2

3

Netherlands

87.7

12.3%

3

4

Italy

89.3

10.7%

6

5

Australia

89.4

10.6%

8

6

France

90.5

9.5%

5

7

United Kingdom

90.9

9.1%

4

8

Germany

92.3

7.7%

10

9

Japan

92.7

7.3%

7

10

United States

100.0

9

1  Business costs in this table are expressed as a percentage index, with the United States being assigned the baseline index of 100.0. A cost index less than 100 indicates lower costs than the US. For example, an index number of 95.0 represents a 5.0 percent cost advantage relative to the US.
2  The US baseline of 100.0 reflects average costs in the four largest US cities: New York City, Los Angeles, Chicago and Dallas-Fort Worth. National costs for all other countries are also based on major cities in each country.

Canadian coast-to-coast breakdown

All Canadian cities included in the study were found to be more cost competitive than any of the US cities featured. Among the 34 major Canadian and US cities (all cities with metropolitan populations of 2 million or more), Montreal, QC continues to be the most cost competitive in Canada, followed by Toronto, ON and then Vancouver, BC, ranking ahead of all 31 large US cities.

The rankings of the 17 Canadian cities paint an interesting picture of the costs associated with doing business in Canada:

  • Fredericton, NB ranks as the most competitive in Canada for the first time, having overtaken 2014's leader, Moncton, NB. This marks the first time that Fredericton has topped the list of Canadian cities, with low increases in labour costs and reductions in lease costs (especially for industrial) assisting Fredericton's ranking.
  • Montreal, QC ranks 9th among the featured Canadian cities and leads in offering the lowest business cost among the 34 largest Canadian and US cities (those with metropolitan populations of 2 million or more). Montreal's strongest results are in the manufacturing and the digital services sectors, ranking 6th in Canada in both sectors.
  • Toronto, ON ranks 12th among the 17 featured Canadian cities, but still ranks ahead of all similarly-sized US cities. While low transportation costs and industrial facility leasing costs are advantages for Toronto relative to other Canadian cities, high electricity costs add to Toronto's total cost picture.
  • Vancouver, BC ranks 15th among the featured Canadian cities. Within Canada, total labour costs in Vancouver are lower than in the other big Canadian cities, aided by very low costs for statutory plans. However, Vancouver has the highest industrial land costs and the highest office leasing costs among the 17 Canadian cities compared.

Rankings and cost indices for featured Canadian cities
(listed from lowest cost to highest cost)

2016 Rank

City1

2016 Cost

Index2

2016

Rank

City1

2016 Cost

Index2

1

Fredericton

83.3

10

St. John's

85.4

2

Moncton

83.3

11

Kelowna

85.5

3

Quebec City

83.9

12

Toronto

85.6

4

Charlottetown

83.9

13

Gatineau3

(National Capital Region)

85.8

5

Barrie

84.2

6

Halifax

84.5

14

Saskatoon

85.9

7

Winnipeg

84.9

15

Vancouver

86.2

8

Sault Ste. Marie

85.0

16

Edmonton

86.4

9

Montreal

85.2

17

Calgary

87.0

1  Cities represent an intentional mix of population, regional geography, major industries, and economic circumstance.
2  Business costs in this table are expressed as a percentage index, with the US baseline of 100.0 reflecting average costs in the four largest US cities: New York City, Los Angeles, Chicago and Dallas-Fort Worth. A cost index less than 100 indicates lower costs than the US.  For example, an index number of 95.0 represents a 5.0 percent cost advantage relative to the US.
3  Representing the Gatineau/Ottawa metropolitan area, with the model business assumed to be located in Gatineau and subject to Quebec taxes.

LEARN MORE
Competitive Alternatives report
Canadian regional backgrounder
Competitive Alternatives infographic
Competitive Alternatives website
KPMG Tax
@KPMG_Canada #BizCosts #CompAlt16
KPMG on LinkedIn

About KPMG's Competitive Alternatives Study
KPMG's 2016 Competitive Alternatives study provides an independent comparison of international business locations in more than 100 cities in 10 countries around the world.

Competitive Alternatives is a biennial KPMG study that focuses on business locations in the NAFTA marketplace, as well as leading mature market countries in Europe and Asia Pacific. KPMG initiated this study to help Canadian and international businesses make informed global business decisions. Competitive Alternatives is also intended to assist economic developers and corporate site selectors in understanding these competitiveness issues across a broad range of jurisdictions.

To access the full report, please visit CompetitiveAlternatives.com.

Exchange rates per USD used in the Competitive Alternatives 2016 study are as follows: AUD $1.39, CAD $1.34, EUR €0.91, JPY ¥121.44, MX $16.76 and UK £0.66.

About KPMG

KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative ("KPMG International"). KPMG member firms around the world have 174,000 professionals, in 155 countries.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

SOURCE KPMG LLP

Image with caption: "KPMG’s Guide to International Business Location Costs (CNW Group/KPMG LLP)". Image available at: http://photos.newswire.ca/images/download/20160330_C7830_PHOTO_EN_652849.jpg

For further information: Tonique Bedeau, National Manager, Communications, KPMG in Canada, 416.777.3241, tbedeau@kpmg.ca; Julie Bellissimo, National Manager, Communications, KPMG in Canada, 416.777.3988, juliebellissimo@kpmg.ca

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