Canada ranked top for cost competitiveness among mature market countries

KPMG LLP

Stable total cost picture helps move Canada up global list. Moncton ranks as the most competitive city for business in Canada.

TORONTO, March 26, 2014 /CNW/ - KPMG's Competitive Alternatives 2014 report released today revealed Canada as the most cost competitive mature market country for business. Notable decreases in sea freight and natural gas costs, combined with very stable facility costs, limited increases in labour costs, and a three per cent drop in the Canadian dollar helped drive Canada's rise in the international rankings. 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.

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

Among 107 cities featured in the study, 15 were Canadian. Moncton ranked as the most competitive city in Canada for the second consecutive time. The study also revealed that larger Canadian cities are all more cost competitive than comparable large US cities.

Canada vs. the world

• Total business costs have held steady worldwide since 2012. For Canada, total business costs for the sample business operations examined in Competitive Alternatives increased by just 0.7 per cent over two years - the third lowest increase among the 10 countries examined. This small total increase is despite Canada seeing some noticeable increases in specific cost factors such as electricity, air freight and property tax costs.  However, these were offset by notable decreases in sea freight and natural gas costs, very stable facility costs and limited labour cost increases.
  
  
• Canada ranks second (behind only Mexico) among the 10 countries surveyed, with business costs 7.2 per cent lower than the United States.
  
  
• A combination of currency exchange rates and cost fundamentals helped move Canada ahead of the Netherlands and the United Kingdom, re-establishing a competitive advantage over these countries seen in 2010 and earlier editions of Competitive Alternatives.  The slightly weaker Canadian dollar, slightly stronger pound and euro, more competitive transportation costs for North America, and significant increases in European utility rates all influenced the rankings.
  
  
• Looking at specific business sectors, Canada saw its strongest result in the digital services subsector with a cost advantage of 17.8 per cent relative to the US. This significant advantage is due in part to substantial incentives that some Canadian provinces provide to digital media production firms.
  
  
• From a tax perspective, Canada, France, the UK 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)

2014 Rank	Country	2014 Cost Index	% cost advantage versus US
High Growth Market
1	Mexico	81.3	18.7%
Mature Markets
2	Canada	92.8	7.2%
3	Netherlands	94.5	5.5%
4	United Kingdom	94.6	5.4%
5	France	97.4	2.6%
6	Italy	98.8	1.2%
7	Japan	99.2	0.8%
8	Australia	99.3	0.7%
9	United States	100.0^1	—
10	Germany	100.9	-0.9%

¹ The US baseline of 100.0 reflects 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 Regional Breakdown

Looking more closely at the Canada-specific results, Atlantic Canada cities took four of the top five spots in the study with Moncton first, followed by Charlottetown in second place.  New to the top five is Quebec City, ranking in third place and improving from its sixth place ranking in 2012. More competitive leasing rates for both industrial and office space are the main factors specific to Quebec City that helped it to move up in the rankings.

The rankings of the 15 Canadian cities paint an interesting picture of the costs associated with doing business in Canada:

• While Montreal ranks eighth among the featured Canadian cities, it leads in offering the lowest business cost among the 34 largest Canadian and US cities (those with metropolitan populations of 2 million or more). Low transportation costs, and moderately low industrial leasing costs and electricity costs help Montreal's performance.
  
  
• Toronto ranks 11^th among the 15 featured Canadian cities, but still ranks ahead of all similarly-sized US cities. While low transportation costs and moderately low natural gas costs are advantages for Toronto relative to other Canadian cities, high labour and electricity costs add to Toronto's total cost picture.
  
  
• Despite ranking as the most expensive city for business in Canada, Vancouver still ranks ahead of all major US West Coast cities and rates marginally ahead of Atlanta (the lowest cost city among 31 major US cities). Relatively low costs for statutory labour costs and other employer-paid benefits help to offset relatively higher salary/wage and facility costs for Vancouver.

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

2014 Rank	City^1	2014 Cost Index^2		2014 Rank	City^1	2014 Cost Index^2
1	Moncton	90.1		9	Saskatoon	92.8
2	Charlottetown	90.4		10	Sudbury	93.5
3	Quebec City	90.7		11	Toronto	93.6
4	Fredericton	90.8		12	Kamloops	93.6
5	Halifax	91.6		13	St. John's	93.7
6	Niagara Region^3	91.9		14	Edmonton	94.0
7	Winnipeg	92.0		15	Vancouver	94.6
8	Montreal	92.0

¹ Cities represent an intentional mix of population, regional geography, major industries, and economic circumstance.
² Business costs in this table are expressed as an 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 per cent cost advantage relative to the US.
³ Niagara Regional Municipality.

QUOTES

"This year's survey findings show that organizations looking to expand their operations should consider Canada. As the top mature market country, our favourable business cost fundamentals and moderate corporate tax rates, as well as tax credits and incentives, make Canada a cost competitive location. Together with our high quality of life, this helps make Canada an attractive investment opportunity for organizations and their employees."

• Elio Luongo, Canadian Managing Partner, Tax, KPMG

"Businesses may look to set up shop in larger cities, but this year's study shows that many regional cities remain attractive options and offer great value for organizations focused on keeping costs low while responding to market and customer needs. It's clear that Atlantic Canada continues to be an attractive location for international business."

• Benjie Thomas, Partner, KPMG, Advisory Services

LEARN MORE

Competitive Alternatives Report
Competitive Alternatives Infographic
Competitive Alternatives website
Canadian regional backgrounder
KPMG Tax
@KPMG_Canada - #BizCosts, #CompAlt14
KPMG on LinkedIn

About KPMG's Competitive Alternatives Study

KPMG's 2014 Competitive Alternatives study provides an independent comparison of international business locations in more than 100 cities in 10 countries around the world.

The study looks at a wide range of issues when assessing competitiveness for business with a primary focus on business costs, but also separately considers population and demographics, education and skilled labour, innovation, infrastructure, economic conditions, regulatory environment, cost of living and personal quality of life. It also examines cost competitiveness of locations for different industry sectors including digital services, research and development, corporate services and manufacturing.

The study enables business executives to take an 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 or expansion, and enables policy makers to help determine the impact of a proposed tax and/or incentive policy change on the cost competitiveness of their jurisdictions.

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

Exchange rates per USD used in the Competitive Alternatives 2014 study are as follows: AUD $1.08, CAD $1.05, EUR €0.73, JPY ¥100.43, MX $13.02 and UK £0.62.

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 155,000 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.

Image with caption: "KPMG's Guide to International Business Location Costs (CNW Group/KPMG LLP)". Image available at: http://photos.newswire.ca/images/download/20140326_C6778_PHOTO_EN_38343.jpg

SOURCE: KPMG LLP

Briana D'Archi
National Senior Manager, Communications
KPMG in Canada
416.777.8169
[email protected] 

Julie Bellissimo
National Manager, Communications
KPMG in Canada
416.777.3988
[email protected]