Canada gains a business cost advantage over the US

March 31, 2010   by PLANT STAFF

TORONTO: Canada’s cost competitiveness as a business location has improved since last year’s recession: it now has a 5% advantage over the US, which is an improvement over 2008, says KPMG’s Competitive Alternatives 2010 study.

The global consulting company’s biennial report compares business costs in 112 cities with populations in excess of 2 million, from 10 countries in North America, Europe, and Asia Pacific. It shows that Canada’s position has improved since it was virtually even with the US in 2008.

By country, Canada was second behind Mexico, followed by the Netherlands. The US is ranked eighth.

KPMG cites several factors that have helped Canada’s competitiveness, including the Canada-US exchange rate over the last two years and a variety of tax cuts and reforms that have or will be implemented by both the federal and provincial governments. In fact, KPMG notes taxes are now lower in Canada than in any of the other G7 countries.

“With the Canadian dollar at US$0.94, it is very positive for Canada to demonstrate this cost advantage over the US,” says Simon Harding, associate partner in KPMG’s Advisory Services practice and head of its strategic and commercial intelligence practice. “Ten years ago, we estimated that the break-even exchange rate for the two countries was about US$0.80, yet a number of structural changes through the 2000s have allowed Canada to maintain a cost advantage over the US, even in this high-dollar environment.”

The study measures 26 significant cost components that are most likely to vary by location, including labour, taxes, real estate, and utilities, as they apply to 17 business operations over a 10-year planning horizon, as well as a range of non-cost competitiveness factors.

Canada’s major cities fare well in the results, ranking ahead of all major US cities. Monterrey and Mexico City were ranked first and second. Montreal ranks third among 41 cities, Vancouver is fifth and Toronto sixth. Manchester, England at fourth was the only other G7 city to match the rankings of the Canadian cities.

But Harding believes Canada can’t rest on its laurels. “It must continue to present a clear value proposition to businesses in other areas in order to maintain its attractiveness for international firms,” he said.

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