NEWS RELEASES
CANADA NUMBER ONE LOCATION FOR BUSINESS INVESTMENT COMPARED TO U.S. AND EUROPE, STUDY CONCLUDES
October 9, 1997 No. 160
CANADA NUMBER ONE LOCATION FOR BUSINESS INVESTMENT
COMPARED TO U.S. AND EUROPE, STUDY CONCLUDES
International Trade Minister Sergio Marchi today welcomed an independent study
that concludes that Canada has lower overall business costs than the United States
and five leading European countries.
The study also found that Canada was the lowest-cost location in each of eight key
manufacturing industries examined, and that 14 of 17 Canadian cities studied led
the low-cost rankings. In addition, every Canadian city studied was less expensive
than all U.S. cities studied.
"These results clearly show that, on the basis of cost, Canada is the number one
location for investors compared to the U.S. and Europe," said Mr. Marchi. "This is
important news for investors looking for a low-cost, competitive location. It's
also important to all Canadians, because every $1 billion in new investment in
Canada is estimated to create 45 000 jobs over five years."
Low start-up costs, low telecommunications rates, low interest rates and the
lowest overall tax burden of the seven nations gives Canada a 5.4 per cent cost
advantage over the United States. Canada's cost advantage ranged from 1.8 per
cent, over second-place Sweden, to 11.8 per cent over seventh-place Germany.
"Canadians must now aggressively develop a global brand name for quality and low
cost," added the Minister. "We have a powerful message to send about Canada's
attractiveness as the most cost-competitive base from which to serve the NAFTA
[North American Free Trade Agreement] market. I hope that all Canadian political
and business leaders will take this message across Canada and abroad."
The study, The Competitive Alternative: A Comparison of Business Costs in Canada,
Europe and the United States, was conducted by KPMG, an international consulting
firm. It compares the cost factors that companies look at when deciding to locate
and operate in a given area. Costs are compared from start-up through the first 10
years of operation. Forty-two cities are studied -- 27 in North America and 15 in
Europe.
Manufacturing sectors studied were: electronics; food processing; medical devices;
metal fabrication; pharmaceuticals; plastics; software production; and
telecommunications equipment. They were chosen because they are a mix of
traditional, capital-intensive industries (such as metal fabrication) and skilled,
labour-intensive industries (such as software production).
Other key findings regarding Canada are:
Canadian cities top the list of the most cost-competitive centres from which to
serve the NAFTA market;
Compared to the United States, business costs in Canada are about $1 million a
year lower for an average firm of about 100 employees on revenues of $10 million.
Canada's cost advantage over some other countries studied was even greater.
Canada's effective corporate income tax rate -- including federal, regional and
local taxes -- is among the lowest of the seven countries studied.
Canada's research and development incentives give Canada a powerful competitive
advantage in knowledge-intensive industries.
The KPMG study reinforces the many positive forecasts made by international
organizations about Canada. Just last month, for example, the International
Monetary Fund predicted that Canada would lead the industrial world in economic
growth this year and next. The study also complements overall federal initiatives
to increase investment in Canada, and underscores the Government's work to promote
the advantages of investing in Canada as a base from which to serve NAFTA.
Some of this work involves: spreading this positive message abroad; focussing on
priority industry sectors; helping small and medium-sized enterprises to grow
through investment partnerships and venture capital; and forging new alliances
between the three levels of government and the private sector.
Abstracts of the study can be obtained from KPMG's Web site at www.kpmg.ca. For
complete volumes, contact the publisher, Prospectus Inc., in Ottawa at (613) 231-2727 or 1-800-575-1146.
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For further information, media representatives may contact:
Media Relations Office
Department of Foreign Affairs and International Trade
(613) 995-1874
Background Paper
The Competitive Alternative:
A Comparison of Business Costs in Canada, the United States and Europe
The KPMG International Study of Business Costs challenges many international
assumptions about the cost of doing business in different countries. For example,
Canadian business costs are significantly lower than in the U.S., and every
Canadian city studied had lower business costs than every U.S. city studied.
The study rigorously measured 42 cities in Canada, France, Germany, Italy, Sweden,
the United Kingdom and the United States on the same factors across eight
industrial sectors -- a comparison beyond the capacity of many small to medium size
firms. The study helps executives considering a new operation in North America or
Europe to identify locations that merit further consideration. While a final
investment decision must also include non-cost factors such as workforce
availability, quality of life, education, and medical care, business costs are
still among the main factors in an investment decision.
The Model
Authors Stuart MacKay and Glenn Mair of KPMG collected data for all industries in
each of the locations (see Exhibit 1). KPMG developed business scenarios in eight
industries: each facility was assumed to have sales in excess of US$10 million and
a minimum of 100 employees. The analysis focussed on costs of establishing
facilities on a 5-10 acre site in suburban areas zoned for light-to-medium
industrial purposes.
Key Findings
Overall Business Costs Are Lowest In Canada
For the eight industries as a whole, Canada is the lowest-cost country. The
countries, in order of cost and index rating (United States=100) are ranked as
follows:
1. Canada (index 94.6)
2. Sweden (index 96.3)
3. United Kingdom (index 98.3)
4. United States (index 100.0)
5. Italy (index 102.8)
6. France (index 103.6)
7. Germany (index 107.2)
STUDY OVERVIEW
Manufacturing Industries Examined
Electronics Metal Fabrication Software
Food Processing Pharmaceuticals Telecommunication
Medical Devices Plastics Equipment
Jurisdictions Studied
Canada
Calgary, AB* Moncton, NB Sudbury, ON
Charlottetown, PE Montreal, QC* St. John's, NF
Edmonton, AB Ottawa, ON Toronto, ON*
Halifax, NS* Quebec City, QC Vancouver, BC
Hamilton, ON Sarnia, ON Winnipeg, MB
London, ON Saskatoon, SK
France
Grenoble* Toulouse* Valenciennes*
Germany
Darmstadt* Dresden* Dusseldorf*
Italy
Avezzano* Modena* Turin*
Sweden
Goteborg* Karlskoga* Malmo*
United Kingdom
Cardiff* Manchester* Telford*
United States
Austin, TX Columbus, OH Sacramento, CA
Bellingham, WA Minneapolis, MN Scranton, PA*
Boston, MA* Norfolk, VA*
Colorado Springs,CO* Raleigh, NC
* Included in the international comparison.
Location-sensitive Cost Factors Examined
Industrial land Labour Transport/distribution
Construction Wages and salaries Interest/depreciation
Electricity Statutory benefits Income taxes
Telecommunication Other benefits Other taxes
Component Costs Vary By Country: Some Surprises
The seven countries have particular strengths in different cost areas:
1. Initial investment costs are lowest in the United States and Canada. Land
costs are lowest in the United States, and construction costs are lowest in
Canada.
2. Labour costs, including wages and benefits, are lowest in the United Kingdom,
followed by Canada. Labour costs account for more than half of location-sensitive
annual costs. Some social programs such as health care appear to be a competitive
advantage.
3. Transportation costs to the North American/European marketplace are lowest in
the United Kingdom and Germany.
4. Electricity costs are lowest in Sweden, followed by Canada.
5. Telecommunications costs are lowest in Canada and the United States.
6. Interest costs, reflecting the combination of interest rates and investment
costs, are lowest in Canada.
7. The relative corporate tax burden, defined as the sum of income-based taxes and
property-based taxes, is lowest in Canada and Sweden.
Results are Consistent Across Industries
With a few exceptions, the overall rankings of countries are consistent across
each of the eight industries. Canada is ranked first and Sweden is ranked second
for all eight industries. The size of the advantage varies by industry. For
example, Canada's advantage over Sweden is less than 2.5 per cent of all
industries except software production, where the availability of research and
development tax credits gives Canada an advantage of more than five per cent.
Results Vary with Exchange Rates
The study results will vary with exchange rates. For example, at a current
Canadian dollar value of US$0.73, Canada's cost index of 94.6 gives it an overall
cost advantage of 5.4 per cent over the United States. This advantage would only
be lost if the value of the Canadian dollar were to increase by 14 per cent, to
US$0.83.
Further Information
KPMG Canada conceived, researched and wrote the study, with sponsorship from the
Royal Bank of Canada, Canada's Department of Foreign Affairs and International
Trade, and Ontario Hydro. Prospectus Inc., the report's publisher, and KPMG also
shared the costs of its preparation. The study updates and expands on similar
analyses conducted in 1994, 1995 and 1996. A separate study focussed on Atlantic
Canada is also available.
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