China and India may have received the most press coverage lately as meccas for low-cost manufacturing. But if those and other developing countries are excluded, U.S. factory executives in search of places to set up shop may want to consider locations either north of the border, or “down under,” based on results of a new business cost comparison study by KPMG LLP, the U.S. member firm of Swiss cooperative KPMG International.
Canada ranks number one, followed closely by Australia, among the least costly places to do business, according to the fifth edition of KPMG’s “Competitive Alternatives” report, released Feb. 18. The report has been published biannually since 1996. The 2004 version—which was the subject of a presentation by co-author Stuart MacKay at the National Manufacturing Week trade show, Feb. 23-26, in Chicago—compares business costs in 11 industrialized nations. Those countries, in order of 2004 ranking from least to most expensive, are: Canada, Australia, the United Kingdom, Italy, France, Luxembourg, the United States, Iceland, the Netherlands, Germany and Japan.
According to the report, low-cost leaders Canada and Australia both have average business costs that are about 8 percent to 9 percent below those of the seventh-ranked United States, which served as the baseline for the study. Germany and Japan, ranked most expensive, have costs almost 14 percent and 24 percent higher, respectively, than the United States. The study measured 27 cost components—such as labor, taxes and utilities—and examined 17 industry specific operations, including 11 in manufacturing. The basis for comparison was the after-tax cost of startup, and operation over a 10-year period. Cost analysis data for 98 cities worldwide is also included in the report.
Countries such as China, India and Mexico were not included in the study because KMPG was unable to secure sponsorship from those countries, MacKay told the National Manufacturing Week audience. The study, funded at more than $1 million, received financial support from 67 economic development organizations in nine of the 11 countries studied. The study included all of the countries in the G7, or Group of Seven, a coalition of industrial democracies, as well as other countries where sponsorships were obtained.
Next time, China?
Not surprisingly, says MacKay, the two countries in which funding was not secured were Germany and Japan, the countries with the highest costs. Perhaps equally unremarkable, more than two thirds of the study sponsors are from Canada, which captured the number-one low-cost position for the fifth straight time in the 2004 study. KPMG hopes to include more developing countries in future editions of the study, says MacKay, president of Vancouver, B.C., Canada-based MMK Consulting Inc., which manages the “Competitive Alternatives” study for KPMG.
One of the most notable findings of this year’s report, according to MacKay, was a significant improvement in U.S. cost-competitiveness since the last report was published, due largely to the rapid decline the value of the dollar versus other major world currencies. Canada’s 9 percent advantage over the United States in the 2004 report is down from about 14.5 percent in 2002, for example. And today’s 13.9 percent advantage held by the United States over Germany is up from just a 1.9 percent advantage in 2002. Japan, Canada and the United Kingdom have also gained ground against the continental European countries, aided by the strength of the euro, the report reveals.
A complete copy of the 60-page “Competitive Alternatives” report can be viewed and downloaded at www.competitivealternatives.com. In addition, a Web-based cost model on the site allows users to compare and rank all 98 cities, and examine individual cost factors relevant to their industries.
