February 23, 2004—Canada is the least costly place to do business, edging out Australia, according to a biannual study comparing business costs in 11 industrialized countries in North America, Europe, and Asia-Pacific by KPMG LLP, the audit, tax, and advisory firm. Japan and Germany ranked in the study as the most expensive countries to do business. The survey data was collected primarily between April and November 2003.
The United States, seventh in the rankings, had the greatest improvement in cost competitiveness since 2002 of any of the countries in the study, due mainly to the decline in value of the US dollar relative to all major world currencies, which the report says was the most important factor affecting international business competitiveness in the two-year period.
In Europe, the United Kingdom ranked first in cost-competitiveness and third overall in the study. Italy, France, and Luxembourg had the lowest costs among continental European countries, with business costs about 1% lower than the United States.
Japan, Canada, and the United Kingdom gained ground against the continental European countries, aided by the strength of the euro. Among the euro member countries, France has experienced the greatest improvement in competitiveness, due primarily to more competitive labor and benefits costs.
The researchers pointed out that labor, utilities, and income taxes were the most significant factors affecting business costs since the 2002 Competitive Alternatives study, with their impact varying considerably on operating a business in the countries studied.
The study found significant cost differentials between countries for establishing manufacturing and corporate services operations. For example, the United States is at a 2.5% cost disadvantage to the United Kingdom for manufacturing, but holds a 16.9% cost advantage for corporate services operations.
According to the study, labor costs typically represent 56-72% of location-sensitive costs for manufacturing operations and 75-85% for non-manufacturing operations. Facilities costs represent the second largest location-sensitive cost factor, accounting for 4-14% of costs for manufacturing and 12-24% for non-manufacturing. Taxes are another key factor, representing 5-11% of total location-sensitive costs for manufacturing and 3-8% for non-manufacturing.
In comparing international cities with populations of more than two million, Montreal ranked as the most cost-competitive, followed by Melbourne, Australia, and Toronto. Cities with the highest costs were Yokohama, Japan; followed by Frankfurt, Germany and London, England. When all large and medium-sized cities are included, the least-costly city to do business in was Sherbrooke, Canada. In Europe, the least costly city was Caserta, Italy.
KPMG’s 2004 Competitive Alternatives study measured 27 cost components—such as labor, taxes, and utilities—applied to business operations in the following countries: Australia, Canada, France, Germany, Iceland, Italy, Japan, Luxembourg, the Netherlands, the United Kingdom, and the United States. The research included an analysis of these costs in 98 cities worldwide. The study’s basis for comparison was the after-tax cost of startup and operation for 12 types of business, over a 10-year span.
