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March, 1999 - Canada outperformed all G-7 countries in a new study that compares business costs in the UK, France, Germany, Austria, Italy and Japan. Atlantic Canada's strong showing in knowledge-based industries helped boost the margin of Canadian advantage.
Titled Competitive Alternatives, A Comparison of Business Costs in North America, Europe and Japan - the KPMG study shows that a typical Canadian-based firm enjoys a 7.8% cost advantage over a US-based firm, measured across nine key industries. The UK was the only country other than Canada to underprice the US, finishing second with a 5.2% cost advantage.
The Atlantic Advantage
Measured separately, Canada's Atlantic region holds an impressive 9.7% advantage over the US, averaged across the nine industries. When comparing knowledge-based industries - software, telecommunications, electronics, medical devices and pharmaceuticals - the Atlantic cost advantage climbed to 10.7%, tops of any region in the survey.
Business Cost Index Ratings (US = 100)
|
Electronics |
Food
Processing |
Medical
Devices |
Metal
Fabrication |
Pharma -
ceuticals |
| Atl. Can. |
87.6 |
94.4 |
89.2 |
90.3 |
90.9 |
| Canada |
91.5 |
94.3 |
92.4 |
92.1 |
93.4 |
| U.K. |
98.4 |
93.1 |
94.0 |
92.5 |
94.8 |
| U.S. |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
| Austria |
106.7 |
98.6 |
103.7 |
101.4 |
102.8 |
| France |
106.0 |
100.3 |
103.2 |
102.6 |
102.9 |
| Italy |
105.8 |
99.6 |
103.4 |
101.8 |
103.0 |
| Germany |
111.8 |
102.4 |
107.7 |
108.6 |
106.1 |
| Japan |
132.7 |
113.6 |
121.8 |
139.5 |
117.9 |
|
|
Plastic
Products |
Telecom
Equipment |
Packaged
Software |
Advanced
Software |
Overall |
| Atl. Can. |
91.1 |
93.1 |
84.2 |
83.6 |
90.3 |
| Canada |
92.2 |
94.9 |
86.0 |
85.5 |
92.2 |
| U.K. |
93.2 |
97.3 |
94.0 |
93.9 |
94.8 |
| U.S. |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
| Austria |
100.8 |
102.7 |
115.2 |
114.5 |
104.1 |
| France |
101.3 |
102.5 |
114.2 |
112.6 |
104.2 |
| Italy |
100.7 |
102.8 |
115.0 |
114.2 |
104.2 |
| Germany |
107.9 |
104.8 |
118.0 |
116.0 |
108.0 |
| Japan |
141.4 |
109.0 |
125.4 |
121.9 |
121.9 |
Comparison of total annual costs, nine-industry average, by region and city
| City | State/Province/Region | Country | Index | Rank in
Region |
| North America: East |
| Sherbrooke | Quebec | Canada | 89.2 | 1 |
| St. John's | Newfoundland | Canada | 89.7 | 2 |
| Charlottetown | Prince Edward Island | Canada | 89.8 | 3 |
| Quebec City | Quebec | Canada | 90.3 | 4 |
| Halifax | Nova Scotia | Canada | 90.5 | 5 |
| Monteal | Quebec | Canada | 90.9 | 6 |
| Moncton | New Brunswick | Canada | 91.3 | 7 |
| Sarnia | Ontario | Canada | 92.5 | 8 |
| Kingston | Ontario | Canada | 92.5 | 9 |
| Ottawa | Ontario | Canada | 92.6 | 10 |
| London | Ontario | Canada | 92.8 | 11 |
| Kitchener | Ontario | Canada | 93.0 | 12 |
| Hamilton | Ontario | Canada | 93.1 | 13 |
| Windsor | Ontario | Canada | 93.1 | 14 |
| Mississauga | Ontario | Canada | 93.2 | 15 |
| Toronto | Ontario | Canada | 93.8 | 16 |
| San Juan | Puerto Rico | United States | 95.1 | 17 |
| Anniston | Alabama | United States | 96.2 | 18 |
| Raleigh | North Carolina | United States | 98.9 | 19 |
| Jacksonville | Florida | United States | 98.9 | 20 |
| Atlanta | Georgia | United States | 99.6 | 21 |
| Columbus | Ohio | United States | 99.8 | 22 |
| Scranton | Pennsylvania | United States | 100.4 | 23 |
| Lewiston | Maine | United States | 100.5 | 24 |
| Burlington | Vermont | United States | 100.9 | 25 |
| Saginaw | Michigan | United States | 101.9 | 26 |
| Hartford | Connecticut | United States | 103.1 | 27 |
| Newark | New Jersey | United States | 103.6 | 28 |
| Boston | Massachusetts | United States | 103.9 | 29 |
| North America: West |
| Regina | Saskatchewan | Canada | 90.8 | 1 |
| Edmonton | Alberta | Canada | 90.8 | 2 |
| Saskatoon | Saskatchewan | Canada | 90.9 | 3 |
| Brandon | Manitoba | Canada | 91.7 | 4 |
| Calgary | Alberta | Canada | 92.3 | 5 |
| Winnipeg | Manitoba | Canada | 92.7 | 6 |
| Oklahoma City | Oklahoma | United States | 98.9 | 7 |
| Cedar Rapids | Iowa | United States | 99.4 | 8 |
| Colorado Spings | Colorado | United States | 99.7 | 9 |
| Dallas-Fort Worth | Texas | United States | 100.9 | 10 |
| Minneapolis | Minnesota | United States | 101.6 | 11 |
| North America: Pacific |
| Kamloops | British Columbia | Canada | 93.1 | 2 |
| Vancouver | British Columbia | Canada | 94.9 | 3 |
| Boise | Idaho | United States | 98.4 | 4 |
| San Diego | California | United States | 102.2 | 5 |
| Seattle | Washington | United States | 103.4 | 6 |
| Europe |
| Telford | Shropshire | United Kingdom | 94.2 | 1 |
| Cardiff | Wales | United Kingdom | 95.0 | 2 |
| Manchester | Greater Manchester | United Kingdom | 95.3 | 3 |
| Valenciennes | Nord | France | 103.0 | 4 |
| Linz | Upper Austria | Austria | 103.4 | 5 |
| Avezzano | Abruzzo | Italy | 103.6 | 6 |
| Graz | Styria | Austria | 103.8 | 7 |
| Grenoble | Isere | France | 104.0 | 8 |
| Turin | Piedmont | Italy | 104.3 | 9 |
| Modena | Emilia Romagna | Italy | 104.6 | 10 |
| Vienna | Vienna | Austria | 105.2 | 11 |
| Toulouse | Haute Garonne | France | 105.5 | 12 |
| Dresden | Sachsen | Germany | 105.6 | 13 |
| Darmstadt | Hessen | Germany | 108.7 | 14 |
| Dusseldorf | Nordrhein-Westfalen | Germany | 109.6 | 15 |
| Japan |
| Hamamatsu | Shizuoka | Japan | 115.3 | 1 |
| Fukuoka | Fukuoka | Japan | 118.6 | 2 |
| Yokohama | Kanagawa | Japan | 131.9 | 3 |
The Atlantic Advantage
Every Atlantic Site in Survey Earns Top-10 Ranking
THE MODEL: The KPMG model is designed to determine the costs of doing business for nine industries in 64 North American, European and Japanese locations. The model is based on the production requirements of firms with between 90 and 120 employees, and sales of at least 13 million US$ a year.
US BASE = 100: US costs in each industry - including all annual operating costs and taxes - serve as the base line for comparison. The following charts reveals each country's ranking in the industries examined. The red numbers show where Atlantic Canada stands when the region's statistics are broken out from the overall Canadian statistics.
National Rankings
|
Electronics |
Food Processing |
Medical Devices |
Metal Fabrication |
Pharma- ceuticals |
| %Savings for Atl. Can. Over #1 Country |
4.3% |
-0.3% |
3.5% |
2.0% |
2.7% |
| Canada |
1 |
2 |
1 |
1 |
1 |
| U.K. |
2 |
1 |
2 |
2 |
2 |
| U.S. |
3 |
5 |
3 |
3 |
3 |
| Austria |
6 |
3 |
6 |
4 |
4 |
| France |
5 |
6 |
4 |
6 |
5 |
| Italy |
4 |
4 |
5 |
5 |
6 |
| Germany |
7 |
7 |
7 |
7 |
7 |
| Japan |
8 |
8 |
8 |
8 |
8 |
|
|
Plastic Products |
Telecom Equipment |
Packaged Software |
Advanced Software |
Overall |
| %Savings for Atl. Can. Over #1 Country |
1.2% |
1.9% |
2.1% |
2.2% |
2.1% |
| Canada |
1 |
1 |
1 |
1 |
1 |
| U.K. |
2 |
2 |
2 |
2 |
2 |
| U.S. |
3 |
3 |
3 |
3 |
3 |
| Austria |
5 |
5 |
6 |
6 |
4 |
| France |
6 |
4 |
4 |
4 |
5 |
| Italy |
4 |
6 |
5 |
5 |
6 |
| Germany |
7 |
7 |
7 |
7 |
7 |
| Japan |
8 |
8 |
8 |
8 |
8 |
Exchange Rates
All results are sensitive to exchange rates. The exchange rate used for Canada and the US was CA$1.50 = US$1.00. For Atlantic Canada to lose its overall competitive advantage with the US, the value of the Canadian dollar would have to appreciate to CA$1.22 = US$1.00.
| Expressed in |
| Value of | CA$ |  | JP¥ | UK£ | US$ |
| Canadian Dollar | - | 0.57 | 75 | 0.403 | 0.667 |
| Euro | 1.75 | - | 131 | 0.708 | 1.17 |
| Japanese Yen | 0.0134 | 0.0076 | - | 0.0054 | 0.0089 |
| UK Pound Sterling | 2.48 | 1.41 | 185 | - | 1.65 |
| US Dollar | 1.50 | 0.855 | 112 | 0.605 | - |
The First Ten Years: A Snapshot
Examining Startup Costs and Operating Costs
The KPMG business model is weighted to reflect the significance of each cost item
during the establishment, startup and full operation phases that a typical company undergoes during its first ten years.
The report's analysis of manufacturing operations is predicated on a business purchasing a site in a suburban industrial area.
The analysis of service operations assumes the least of space in a Class A suburban office building.
The model generates ten-year pro forma reports - including income and cash-flow statements - using standard financial assumptions.
Labour Costs Crucial
Fully 58% of key location-sensitive costs are labour costs (wages, employer-paid benefits and wage-based taxes).
Other cost weightings include ongoing costs related to initial investment (interest and depreciation) - 17%; taxes - 12%;
transportation - 9%; electricity - 3%; and
telecommunications - 1%.
Atlantic Canada's average wages and salaries (2.8 million US$ for the average 106.6-employee firm) are lower than those registered by any of the eight countries examined in the survey.
Furthermore, when other benefits and taxes are taken into consideration (employment insurance premiums, medical plan premiums, other payroll taxes, vacation and leave allowances) Atlantic Canada's labour cost package is lower than any similar package offered by any region surveyed.
The Bottom Line
- Every one of the four Atlantic Canadian cities in the 64-city survey qualifies as a TOP TEN LOW COST LOCATION.
- Atlantic Canada's cost advantage over the United States is 9.7%.
- If the six knowledge-based industries are examined on their own, the Atlantic Advantage climbs to 10.7%. No other region in the survey can match that.
BONUS! The Atlantic Region's financial commitment to educational spending means high-quality workers complement low costs.
Detailed Calculations by Cost Component
(Nine-industry Average, US$’000)
| Atlantic
Canada | Austria | Canada | France | Germany | Italy | Japan | UK | US |
| Inital Investment Costs* | |
| land |
330 | 5,828 | 934 | 1,417 | 6,397 | 1,484 | 29,651 | 3,219 | 987 |
| buildings |
2,111 | 5,144 | 2,325 | 2,428 | 5,128 | 2,471 | 17,372 | 4,442 | 2,779 |
|
|
|
2,441 | 10,972 | 3,259 | 3,845 | 11,525 | 3,955 | 47,023 | 7,661 | 3,766 |
| Annual Costs |
| Location-sensitive Costs | |
| labor and benefits |
3,464 | 6,612 | 3,835 | 6,598 | 7,048 | 6,332 | 7,312 | 4,087 | 5,646 |
| road freight |
508 | 184 | 323 | 303 | 300 | 306 | 943 | 204 | 339 |
| sea freight |
105 | 128 | 109 | 118 | 108 | 92 | 127 | 97 | 165 |
| air freight |
55 | 288 | 52 | 239 | 222 | 245 | 126 | 235 | 55 |
| electricity |
134 | 264 | 132 | 201 | 270 | 302 | 395 | 189 | 174 |
| lease |
69 | 73 | 73 | 70 | 69 | 52 | 227 | 153 | 101 |
| telecommunications |
53 | 174 | 52 | 99 | 145 | 164 | 153 | 127 | 48 |
| interest |
280 | 424 | 304 | 256 | 432 | 324 | 591 | 607 | 351 |
| depreciation |
654 | 809 | 663 | 669 | 810 | 672 | 1,445 | 772 | 668 |
| property taxes |
85 | 11 | 137 | 287 | 141 | - | 923 | 285 | 116 |
| transaction taxes |
53 | - | 70 | - | - | - | - | - | 132 |
| income taxes |
1,615 | 427 | 1,587 | 562 | 492 | 918 | 49 | 1,098 | 878 |
| (effective tax rate) |
33.8% | 32.7% | 35.7% | 39.2% | n/a** | 51.5% | n/a** | 31.2% | 36.0% |
| other taxes |
30 | - | 76 | - | - | - | 59 | - | 18 |
|
|
|
7,105 | 9,394 | 7,413 | 9,402 | 10,037 | 9,407 | 12,350 | 7,854 | 8,711 |
Non-location-
sensitive Costs | |
| other direct costs |
5,894 | 5,894 | 5,894 | 5,894 | 5,894 | 5,894 | 5,894 | 5,894 | 5,894 |
| other indirect costs |
2,005 | 2,005 | 2,005 | 2,005 | 2,005 | 2,005 | 2,005 | 2,005 | 2,005 |
|
|
| Total annual costs |
15,004 | 17,293 | 15,312 | 17,301 | 17,936 | 17,306 | 20,249 | 15,753 | 16,610 |
Cost advantage in
comparison to the US |
+1,606 | -683 | +1,298 | -691 | -1,326 | -696 | -3,639 | +857 | - |
| Index (US=100.0) |
90.3 | 104.1 | 92.2 | 104.2 | 108.0 | 104.2 | 121.9 | 94.8 | 100.0 |
| Rank |
| 4 | 1 | 5 | 7 | 6 | 8 | 2 | 3 |
* Average of seven manufacturing industries, has no initial investment in land and buildings for service industries.
** Effective tax rates not shown as marginal profitability in some industries results in a rate not reflective of true tax rates.
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The Atlantic Connection
The North American / European Telecom Hub
Atlantic Canada, like most of North America has a sizable telecommunications cost advantage over other parts of the world. In Atlantic Canada that large cost advantage is bolstered by a superb communications infrastructure that has made the region a low-cost telecom hub for North America.
Atlantic Canada's $2 billion telecommunications and IT sector produces advanced multimedia and courseware, develops innovative computer-based mapping systems and has set new standards in tele-health and tele-education. High-speed digital links, broadband networks, mobile and marine communications and satellite processing systems are all part of the mix.
Atlantic Canada's convenient location between European and West Coast US markets means that it is open for business with both sides of the Atlantic during critical hours of each continents's business day.
The Atlantic Advantage In a Knowledge-Based World
One city's cost edge over another is often relatively slim in traditional industries, such as food processing. But observe how slim advantages tend to become hefty advantages in knowledge-based industries. CONSIDER -
- Canada's cost edge over the US averages 6.7% in manufacturing industries. In the packaged and advanced software industries, that margin more than doubles to 14.3%.
- The Atlantic Canadian advantage in software is a breathtaking 16.1% over the US.
- Running a 110 employee software firm in Atlantic Canada instead of the US will save the average firm about 1.8 million US$ a year.
- In the six knowledge-based industries examined in the survey, the cities from Atlantic Canada stood in the Top 10 in cost-efficiency every time except once (and that one made the Top 11).
And Furthermore...
Some Additional Advantages To Locating In Atlantic Canada:
WORKFORCE QUALITY - Expenditures on education vary among countries and regions, ranging from a low of 4.1% of GDP in Italy to 9.7% of GDP in Atlantic Canada.
MEDICAL BENEFITS SAVINGS - Canada's national health care system pays for medical coverage that employers in the US must provide under private plans. One recent study showed that General Motors in the United States pays its average worker $772 per car produced in health care costs, compared to $200 par car in Canada.
FEWER LAW SUITS - Canada is a far less litigious country than the United States - tort costs in Canada have traditionally been less than 1% of GDP - well under half the US rate.
EASY EXPORTS - The Canadian regulatory system permits exports in accordance with the receiving country's laws, irrespective of approval status in Canada. Canadian exporters must only certify that products are in compliance with the importing country's regulatory requirements. The North American Free Trade Agreement has essentially turned American markets into Canadian markets.
INTELLECTUAL PROPERTY PROTECTION - Canadian patent protection laws are now in line with those prevailing in the United States, Europe, and other leading innovative cultures.
QUALITY OF LIFE - The United Nations Human Development Index represents a broad index which combines a large number of individual quality of live measures, including education, health care, crime, housing and income. For the last four years Canada has ranked first on the UN index. And when it comes to quality of life within Canada, most Canadians will tell you that Atlantic Canada is the place to be.
For more information about the KPMG study, contact:
Allan Robertson, KPMG Halifax, arobertson@kpmg.ca
Glenn Mair, KPMG Vancouver, gmair@kpmg.ca
To order copies of the KPMG report, contact:
Summit Group, Phone: 1-800-575-1146, books@summitconnects.com
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