Lower US Dollar Erodes Canada's Cost Advantage Globally, Reports KPMG



    Corporate tax cuts, skilled labour, energy supply help offset effects
    of high dollar

    A digital report and clips can be downloaded from
    www.f8films.com/client/kpmgca2008

    TORONTO, March 27 /CNW/ - The depreciated US dollar has eroded Canada's
previous cost advantage and has challenged the country to become competitive
in other ways, according to KPMG's 2008 Competitive Alternatives study that
compares business costs in 136 cities in 10 counties in North America, Europe,
and Asia Pacific. Canada and the United States now lead the G7 countries for
affordable business costs.
    Mexico, new to the 2008 study to allow a comparison among the North
American Free Trade partners, is the least expensive place to do business,
with costs approximately 20.5 percent below the US baseline, while Germany and
Japan remain the most expensive countries in which to do business.
    The results were determined using recent exchange rates, with the
Canadian dollar valued at US$1.00, up 17.4 percent from 2006. "With the
Canadian dollar at par, Canada is challenged to maintain the competitive edge
it once held," said Mark MacDonald, Global Director, Competitive Alternatives,
KPMG. "Canada has to present a clear value proposition to businesses in other
areas. One example of this is the federal government's recent cuts to
corporate income tax rates, which are among the lowest for a wide range of
operations among countries surveyed."
    Among major Canadian cities, Montreal and Halifax have the greatest cost
advantage relative to comparable US cities. In the past two years, business
costs have risen most rapidly in British Columbia and Alberta, reflecting the
western economic boom of recent years. Previously, Vancouver and Toronto were
ranked as the most costly cities in Canada. Vancouver still holds the number
one spot, but now it is followed by Calgary and Chilliwack, BC, then Toronto.
    "What stands out in the 2008 survey is how strong Canada ranks globally
in terms of the non-cost factors that were considered," said Glenn Mair, MMK
Consulting, one of the study authors in association with KPMG. "Canada
consistently ranks well when we consider environmental regulation, education
attainment, housing affordability, labour force, and energy availability - all
of which are important business location considerations."
    The study measured 27 significant cost components that are most likely to
vary by location, including labour, taxes, real estate, and utilities, as they
are applied to 17 business operations, over a 10-year planning horizon. The
study also compared data on a variety of non-cost competiveness factors. The
6 month research program covered 136 cities in Australia, Canada, France,
Germany, Italy, Japan, Mexico, Netherlands, the United Kingdom, and the United
States. For the first time, the study includes all 3 NAFTA countries and all
50 US states, in addition to its traditional G7 coverage.

    
    Comparison of Cost Indices Among Major Canadian Cities

    -------------------------------------------------------------------------
    CITY                                COST INDEX   COST INDEX   COST INDEX
                                            2008         2006       CHANGE
    -------------------------------------------------------------------------
    Sherbrooke, QC                          92.8         90.1        +2.7
    -------------------------------------------------------------------------
    Moncton, NB                             94.9         91.1        +3.8
    -------------------------------------------------------------------------
    Fredericton, NB                         95.3         91.5        +3.8
    -------------------------------------------------------------------------
    Charlottetown, PEI                      95.8         91.7        +4.1
    -------------------------------------------------------------------------
    Quebec City, QC                         96.3         92.6        +3.7
    -------------------------------------------------------------------------
    Halifax, NS                             96.6         92.2        +4.4
    -------------------------------------------------------------------------
    Saskatoon, SK                           96.7         92.8        +3.9
    -------------------------------------------------------------------------
    Winnipeg, MB                            97.7         94.1        +3.6
    -------------------------------------------------------------------------
    Waterloo Region, ON                     98.2         94.3        +3.9
    -------------------------------------------------------------------------
    Montreal, QC                            98.5         94.3        +4.2
    -------------------------------------------------------------------------
    St. John's, NL                          99.5         94.3        +5.2
    -------------------------------------------------------------------------
    Edmonton, AB                            99.9         93.3        +6.6
    -------------------------------------------------------------------------
    Ottawa, ON                              99.9         95.1        +4.8
    -------------------------------------------------------------------------
    Toronto, ON                            101.5         96.5        +5.0
    -------------------------------------------------------------------------
    Chilliwack, BC                         101.6         94.0        +7.6
    -------------------------------------------------------------------------
    Calgary, AB                            102.0         94.7        +7.3
    -------------------------------------------------------------------------
    Vancouver, BC                          104.2         96.9        +7.3
    -------------------------------------------------------------------------
    Business costs are expressed as an index, with the United States being
    assigned the baseline index of 100.0
    Source: KPMG's 2008 Competitive Alternatives Study

    Canada and International Comparison

    Canada

    -   Canada statistically ranks 2nd overall and first among G7 countries
        for affordable business costs, with a nominal 0.6 percent cost
        advantage over the United States.

    -   Canadian corporate tax rates, incorporating future effects of the tax
        cuts announced in last October's mini-budget, are now moderately low
        in comparison to the US and a number of the other countries studied.

    -   Drawing on the data comparison of non-cost factors, Canada was strong
        in the following areas:

        -  Canada ranks second in terms of environmental performance after
           France; it is perceived as a country with environmental laws that
           are most compatible with business competitiveness(1).

        -  Total labour costs are lowest in Mexico by a significant margin;
           however, Canada ranks much higher than Mexico on quality of life
           issues, such as healthcare, crime rates and education, which are
           included in the study for the first time.

        -  Globally, Canada ranks second for educational attainment and
           expenditures, and achieves top ranking in terms of educational
           outcomes.

        -  Canada is one of the top rated countries in terms of ethical
           business practices, ranking second for perceived low levels of
           corruption(2), while the US ranks eighth and Mexico last.

    Other Countries

    -   Mexico ranks 1st among the countries studied, with business costs
        20.5 percent lower than in the United States. This rating reflects
        Mexico's status as the first emerging industrial country to be
        included in Competitive Alternatives.

    -   Canada, the US, and Australia rank 2nd, 3rd, and 4th, respectively,
        but with less than 1.0 percent separating them.

    -   France ranks 5th among the 10 countries examined, and has the lowest
        cost structure among the European countries studied.

    -   The United Kingdom, the Netherlands, and Italy are also very closely
        grouped, ranking 6th through 8th, with business costs between 7.1 and
        7.9 percent above the US benchmark.

    -   Germany (ranked 10th) has the highest cost structure overall, with
        costs 16.8 higher than the US benchmark. Germany, along with Italy
        and Japan, also face the additional challenge of an ageing
        population, with the largest proportions of the population older than
        44 and the smallest proportion under 25.

    ----------------------------------------------
    (1) International Institute of Management Development (refer report
        exh. 6.14)
    (2) Transparency International (refer report exh. 6.13)


    Cost-Competitiveness: 2008 and 2006 Rankings by Country
    -------------------------------------------------------------------------
    COUNTRY                      RANK       2008         2006      Change in
                                        COST INDEX   COST INDEX   Cost Index

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Mexico                         1        79.5
    -------------------------------------------------------------------------
    Canada                         2        99.4         94.5        -4.9
    -------------------------------------------------------------------------
    United States                  3       100.0        100.0
    -------------------------------------------------------------------------
    Australia                      4       100.2         92.3        -7.9
    -------------------------------------------------------------------------
    France                         5       103.6         95.6        -8.0
    -------------------------------------------------------------------------
    United Kingdom                 6       107.1         98.1        -9.0
    -------------------------------------------------------------------------
    Netherlands                    7       107.3         95.7       -11.6
    -------------------------------------------------------------------------
    Italy                          8       107.9         97.8       -10.1
    -------------------------------------------------------------------------
    Japan                          9       114.3        106.9        -7.4
    -------------------------------------------------------------------------
    Germany                       10       116.8        107.4        -9.4
    -------------------------------------------------------------------------
    Business costs are expressed as an index, with the United States being
    assigned the baseline index of 100.0
    Source: KPMG's 2008 Competitive Alternatives Study

    To access the full report, please visit www.competitivealternatives.com.
    

    About Competitive Alternatives

    KPMG's 2008 Competitive Alternatives study provides an independent
comparison of international business location costs in over 100 cities in 10
countries around the world. The study enables businesses executives to take a
quick, initial scan of how business costs compare among a variety of cities in
leading countries. It also assists KPMG professionals and economic developers
in their work with businesses considering relocation, and enables policy
makers to help determine the impact of a proposed tax and/or incentive policy
change on the cost-competitiveness of their jurisdiction in relation to
others. Detailed study results are available online at
www.competitivealternatives.com.

    About KPMG in Canada

    KPMG LLP, a Canadian limited liability partnership established under the
laws of Ontario, is the Canadian member firm affiliated with KPMG
International, a global network of professional firms providing Audit, Tax,
and Advisory services. Member firms operate in 145 countries and have more
than 123,000 professionals working around the world.
    The independent member firms of the KPMG network are affiliated with KPMG
International, a Swiss cooperative. Each KPMG firm is a legally distinct and
separate entity, and describes itself as such.
    KPMG can assist clients as they consider expanding, relocating, or
consolidating their business activities. The firm offers a variety of global
location and expansion services, ranging from strategic planning, to site
analysis, to determining the availability of business incentives.
    KPMG in Canada's Web site is at www.kpmg.ca.





For further information:

For further information: Julie Bannerjea, Senior Manager, Media
Relations, KPMG, (416) 777-3243, jbannerjea@kpmg.ca; Shilpa Kotecha, Manager,
Media Relations, KPMG, (416) 777-8918, skotecha@kpmg.ca; Erin O'Reilly, Media
Profile, (416) 504-8464, erin@mediaprofile.com


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