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Moncton: Canada’s most cost-competitive city?
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Insight
Can you guess which Canadian city is considered the most competitive in the land for business? If you said 'Moncton', congratulate yourself.
Indeed, the City of Moncton's tide is rising in the KPMG "Competitive Alternatives 2012" study where it took top honours as the most cost competitive city for business in Canada.
The east coast city is more cost competitive than 15 other Canadian cities including Toronto, Montréal, Calgary and Vancouver.
"Smaller centres have a lot of cost advantage just because of the old supply and demand. Industrial land, office space, labour costs, those types of things provide cost advantages in smaller centres," explains Elio Luongo, Canadian Managing Partner, Tax, KPMG in Toronto. "Of course, what comes with that is you might be missing the amenities that are in bigger cities like Toronto with access to some of the financial things you might need and a larger talent and labour pool."
It depends on the nature of the business too, he adds. There are different cost advantages that might affect a business such as low utility costs, transportation, or access routes to different markets will drive these business decisions.
Among major Canadian cities:
Toronto ranks 12th among the 16 featured Canadian cities. Moderate industrial leasing costs, transportation costs and natural gas costs are advantages for Toronto relative to the other Canadian cities, while high labour costs add to the total cost picture in Toronto.
Of large urban centres, Montréal ranks the highest at 7th among the 16 featured Canadian cities and it has the lowest business costs among the 30 largest cities in Canada and the United States (all with metro populations of 2 million or more).
Vancouver ranks 14th among the 16 featured Canadian cities. Vancouver has the highest office leasing costs among the featured Canadian cities, for both downtown and suburban office space, while relatively low utility costs benefit Vancouver.
Calgary ranks as the most expensive among the 16 featured Canadian cities, but still ranks as being more cost effective than 42 international cities studied. Relatively high wages, suburban office leasing costs, and electricity costs all add to Calgary's total cost picture, while low natural gas costs represent a plus for Calgary.
"Montréal, relative to other Canadian cities, has lower transportation costs, moderately low industrial leasing costs and electricity costs, which is what helps its performance as well as a range of incentives that are important," Luongo says. "In the R&D, e-commerce and IT, digital media, international financing activities and manufacturing. Relative to other Canadian cities, Montréal is strongest in manufacturing and in video game production."
Canada's international appeal
On the opposite end of the spectrum, Calgary ranks last among Canadian cities (16th) but it ranks quite high as a cost-effective city from an international perspective. What does that say then with respect to where Canada is at for companies to set up shop or for investors to invest?
"Canada ranked third behind the U.K. and the Netherlands but not by much. In mature markets, with the United States being the baseline 100, the U.K. is at 94.5, the Netherlands is 94.7 and Canada is at 95," he says. "We have a great tax system and access to electricity, a good labour pool, moderate wage increases over the last few years and those are big factors."
While all Canadian cities ranked as more cost competitive than the U.S. baseline for the study (based on New York City, Los Angeles, Chicago, and Dallas-Fort Worth), results for Canadian cities relative to their regional peers in the U.S. were more mixed. For example:
*Montréal is less expensive to operate in and ranks ahead of Boston, Toronto ahead of Chicago, and Vancouver ahead of Seattle.
*Windsor-Essex in Ontario ranks as less expensive than Saginaw, Mich., and Buffalo, but Lexington, Ky., and Youngstown, Ohio, rank ahead of Windsor-Essex with low business costs.
Digital sector strong
"Amongst the mature markets, Canada is very competitive in the digital sector," he adds, which is interesting considering some might consider this country to be a digital backwater in light of what's transpiring in the telecommunications sector.
"That might be fair and you might be able to reconcile those although we have a cost competitive advantage, I don't know that we are truly getting the fruits of those advantages," Luongo continues. "That might leave some people perplexed as we have these cost advantages yet for whatever reason we're not getting the realized advantage from the economy out of the digital sector."
This year's edition is the first of KPMG's study to examine the major high growth countries and compare cost competitiveness in Brazil, Russia, India, China and Mexico.
The study found that China and India are low cost leaders among high growth countries with overall business costs significantly below the U.S. baseline. Low cost labour drives the cost advantage for India and China, with wages being substantially lower than in Canada.
The KPMG study examines 26 business cost elements, including labour, taxes, real estate, and utilities, in 16 featured Canadian cities, and compares more than 110 cities in 14 countries around the world.
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