Consideration of cost components such as labor, taxes, real estate and utilities are the key measures most companies use to decide where to locate plants. However non-cost factors often end up being the decisive factor.
"The site selection process starts out objective and ends up subjective," explains Hartley Powell, principal in KPMG's Global Location and Expansion Services practice.
KPMG recently released its 2012 global Competitive Alternative study that measured 26 significant cost components in each market, as they apply to 19 industries over a 10-year analysis horizon.
However KPMG did take into account the entire range of factors that need to be applied to any decision. "Our study addresses these non-cost factors, which include labor availability and skills, economic conditions, infrastructure, innovation, regulatory environment, cost of living and quality of life," said Powell.
The study examined more than 110 cities in 14 countries. For the first time, the 2012 study features four major high growth countries -- Brazil, Russia, India and China -- frequently referred to as the BRIC countries. The study compares 19 different business operations, including three operations that are new in 2012advanced battery/fuel cell manufacturing, video game production and international financial services.
Cincinnati, Ohio ranked #1 as the lowest-cost business location among large U.S. cities. The city's low costs for facility leasing, transportation and property taxes contributed significantly to its ranking as the least-costly location to do business among the 27 largest metro areas (all with populations exceeding 2 million.)
"Ohio is very competitive overall. What you find is that Ohio has come out with very pro-business tax structure," says Powell.
Some other low costs cities include:
•Atlanta and Orlando -- Atlanta's ranking was driven by a very favorable effective income tax rate and competitive business operating costs in such areas as transportation, employee benefits, natural gas and factory leasing. Orlando benefited from very competitive costs for salaries and wages, and employee benefit plans.
•Tampa and Dallas-Fort Worth -- Tampa had the lowest labor costs of all the large U.S. cities, along with low downtown office leasing costs. Dallas-Fort Worth had particularly strong cost advantages for utilities and facilities, which contributed to the locations ranking for lowest overall business operating costs among the large U.S. cities.
•Baltimore, St. Louis and Cleveland -- Baltimore ranked sixth in the study with a cost index of 97.0, benefiting from the lowest suburban office lease costs among large cities and low property-based taxes. St. Louis and Cleveland followed Baltimore, both with a cost index of 97.1. St. Louis low costs for factory leasing and electricity contributed significantly to its ranking, while Cleveland benefited from low office lease costs.
The report states that among the mature makests, the United Kingdom, the Netherlands, and Canada are the low-cost leaders, with business costs 5% or more lower than the United States. Favorable results for the UK and the Netherlands are due, in part, to devaluations of the euro and the pound resulting from the European debt crisis.
France and Italy rank fourth and fifth among the mature markets. Costs in France are 3.9% lower than the U.S. baseline, while costs in Italy are 2.1% lower than in the U.S. Pegged as the study baseline, costs in the United States rank sixth among the mature markets, while costs in seventh-ranked Germany are virtually equal to the U.S.
Australia's business cost structure is 3.7% higher than the United States, while Japan has the highest cost structure at 9.4% above the U.S. Relative costs in both of these countries have risen in recent years due to the strong appreciation of their currencies relative to other major world currencies.
Business costs in the five emerging countries are below those in the nine mature countries examined. Costs in these countries are also compared to the U.S. baseline. China and India are the low-cost leaders among the high growth countries, with overall business costs 25.8% and 25.3%, respectively, below the United States. In fourth-ranked Russia, business costs are 19.7% below the U.S. baseline. Costs in Brazil are higher than in the other high growth countries, and approach the cost levels of the leading mature countries. Brazil's wage levels, including minimum wage standards, are significantly above those of the other high growth countries studied. A heavy burden for both direct and indirect taxes also impacts Brazil's total cost performance.
Mexico ranks third among the high growth countries, with business costs 21% below the U.S.
Looking specifically at some non-business costs such as innovation, the study found that high growth economies, especially China and India, have historically focused on process and secondary product innovation in pursuit of cost efficiencies. However, with their labor cost advantages gradually eroding due to high rates of wage inflation, there is now an increased focus on higher value added product innovation, the report concludes.
With respect to R&D spending, Japan, Germany, and the United States invest the greatest proportion of GDP in R&D activities, while Germany, Australia, and Italy were the countries that saw the largest increases in R&D spending (as a percentage of GDP) between 2006 and 2009. China leads among the high growth countries for R&D spending, ranking behind all mature countries except Italy.
For business regulation and permitting, the United States leads all countries on permitting times and overall ease of doing business. Australia ranks first for commercial real estate transparency, while Mexico leads all countries for market accessibility.
Looking specifically at permitting times for construction of a new warehouse, the US leads with only 26 days required to obtain all permits, followed by 73 days in Canada and 81 days in Mexico. Italy ranks last among the mature economies, requiring 258 days for permitting, while Brazil ranks last among all countries, at 469 days.
The environmental regulations in high growth countries tend to rank below those in the mature economies in terms of supporting business competitiveness. At the same time, with the exception of Brazil, the environmental performance of the high growth countries is also weaker than in the mature countries.
Quality of Llife
The business cost of crime is perceived to be highest in Mexico, followed by Brazil, Italy, and the United States, and is perceived to be lowest in Germany, Canada and China.
Based on homicide rates, Japan and Germany are the safest countries studied, while Brazil and Mexico are the most dangerous. The homicide rates in China or India are both lower than in the United States.
Looking at healthcare, the high growth economies tend to have a higher share of total health expenditures funded by the private sector than the mature economies. Among all countries, the United States has both the highest level of health care expenditures and also the largest share coming from the private sector (including employer-paid health care plans.)
Comparable data on housing affordability are only available for cities in five of the countries studied. Based on this data, housing is more affordable in the United States and Canada than in the United Kingdom, Australia, or China.
For the full report which includes information on many other factors, both business costs and non-cost factors click here.