Low outlay for labour, benefits cited for ranking
Report analyzes cost of operating in 11 countries
Neco Cockburn
Business Reporter
Despite a rising dollar, Canada remains the cheapest industrialized country in which to do business, according to KPMG.
Lower labour and benefits costs are the main reasons Canada is the most cost-competitive of 11 countries, the consulting firm said in its 2004 “Competitive Alternatives” study, released yesterday.
“Canada means business when it comes to promoting our country as the global business partner of choice,” International Trade Minister Jim Peterson said at a news conference.
Australia finished second, while Japan and Germany are the most costly countries.
It’s the fifth consecutive time Canada has ranked Number 1, although the gap between it and the United States, which finished seventh, has decreased.
The study found startup and operation costs for small and medium-sized businesses in Canada are 9 per cent lower than in the United States. In 2002, the last time the study was conducted, costs were 14.5 per cent lower in Canada.
Although the change results mainly from a weaker American dollar, the study’s co-author said Canada’s advantage would remain even if the loonie were worth more than 90 cents (U.S.).
“The Canadian cost advantage is very robust in terms of not being all that sensitive to the changes in the U.S. dollar,” said Stuart MacKay, president of MMK Consulting in Vancouver.
The Canadian dollar was pegged at 75 cents (U.S.) for the purpose of study calculations. It closed at 75.48 cents yesterday, down 0.83 of a cent, and has risen about 15 per cent in a year.
Analysts say the findings don’t mean fingers should be crossed for an extremely high dollar.
“I think we’ve already seen that there are a number of industries that have faced a very real competitive threat, even from the move (dollar’s rise) over the past year,” said Doug Porter, senior economist at BMO Nesbitt Burns.
“I think if we actually did have the currency move up into the 90s, there would be sectors in the manufacturing industry that would be in serious jeopardy,” he said. “I doubt that all of Canadian industry would be anything close to comfortable with a currency of above 90 cents.”
Labour costs and benefits, which accounted for 56 to 85 per cent of all location-sensitive costs in the study, are major reasons for Canada’s competitiveness.
The study, which reported all figures in U.S. dollars, found the average labour cost in Canada was $50,919 (U.S.), compared with $63,379 in the United States
But if the Canadian dollar rose sharply, Porter said, it would “tend to erase that labour cost advantage.”
KPMG’s eight-month study looked at 17 industries in the Group of Seven countriesā Canada, the United States, Britain, Italy, Japan, Germany and France. Australia, Iceland, the Netherlands and Luxembourg were also included. Canada was the lowest-cost country in nine of those industries, which included aerospace, biomedical research and development and pharmaceuticals.
Consultants looked at the cost of starting and maintaining a business for 10 years, taking 27 factors into account, including land and offices, salaries and benefits, utilities, financing, taxes and transportation. The countries were then compared with the United States, which acted as an index.
For example, a startup software company with revenue of $14.2 million might have annual costs of $12.7 million in the United States. The same company could expect to spend $11 million in Canada and $14.6 million in Japan.
The study found Canada has the lowest electricity cost, at 6.3 cents per kilowatt hour, compared with 15.7 cents in the Netherlands.
Canada ranked fifth lowest in natural gas costs, and third in telecom costs.
The study also analyzed the cost-competitiveness of 30 large international cities. Toronto finished third behind Montreal and Melbourne.
The study didn’t look at other factors that affect company decisions, such as business environment, cost of living or quality of life. It also omits security, legal issues and government incentives.
KPMG released similar reports in 1996, 1997, 1999 and 2002. More than 60 sponsors, including international governments, corporations and consulting firms backed this year’s study.
Downloaded from www.competitivealternatives.com
