U.S. Gains Significantly in Global Business Cost Comparison Thanks to Lower Dollar

March 31, 2008
KPMG's report says Mexico has lowest business costs.

The U.S. has shown a significant gain among the G7 countries as a cost-effective location for business, due to the lower U.S. dollar, according to KPMG's 2008 Competitive Alternatives study that compares business costs in 136 cities in 10 countries in North America, Europe, and Asia Pacific. Canada and the U.S. now lead the G7 countries for affordable business costs.

Mexico, new to the study in 2008 to allow a comparison among the North American Free Trade partners, is the cheapest place to do business, with costs approximately 20.5% below the U.S. baseline. Canada and Australia have lost most of their previous cost advantages over the U.S., as their currencies appreciated, while Germany and Japan remain the most expensive countries in which to do business.

"When we did this study in 2006, we found that 4 of the G7 countries had a cost advantage over the U.S. Now, given the dollar depreciation, the U.S. has surpassed all of the European G7 countries, and has only a nominal disadvantage to Canada. U.S. business costs are now much more competitive than they have ever been in the study," said Mark MacDonald Global Director, Competitive Alternatives, KPMG.

Major cost components, such as labor, industrial facility costs, and natural gas are lowest in Mexico. However, Mexico did not rank as well for transportation or telecom costs, or for business environment factors, such as innovation, infrastructure, regulatory environment and quality of life.

Within North America, among the major cities studied, the Mexican cities of Puebla, Guadalajara, and Monterrey offer the lowest business costs, followed by San Juan, Puerto Rico. These cities rank ahead of a group of Southern U.S. cities that all offer moderately low business costs: Atlanta, Tampa, and Dallas-Fort Worth. At the other end of the spectrum, San Jose, California (Silicon Valley), and New York City continue to represent the most expensive cities in which to do business.

New to the 2008 report is analysis of a wide variety of non-cost factors that influence the attractiveness of business and site locations. Site selection factors compared in the report include macro-economic indicators, labor markets, innovation, business and environmental regulation, quality of infrastructure, energy supply, and quality of life.

"Selecting the most favorable business location doesn't always come down to merely dollars and cents. One of the key reasons the non-cost factors were included in this study is that factors such as education, skilled labor pool, and cost of housing, for example, may play a key role in the success of a business," said Glenn Mair, MMK Consulting, one of the study authors in association with KPMG.

Country Comparison:

  • France ranks 5th among the 10 countries examined, and has the lowest cost structure among the European countries studied.
  • The United Kingdom, the Netherlands, and Italy are also very closely grouped, ranking 6th through 8th, with business costs between 7.1% and 7.9% above the U.S. benchmark.
  • Japan is still a relatively high-cost jurisdiction, ranking ninth overall. However, Japan has gained some ground against other countries over the longer-term, due to its low inflation rates and the lower volatility of the yen vis-a-vis the U.S. dollar.
  • Germany (ranked 10th) has the highest cost structure overall, with costs 16.8% higher than the U.S. benchmark. Germany, along with Italy and Japan, also face the additional challenge of an ageing population, with the largest proportions of the population older than 44 and the smallest proportion under 25.

Detailed study results are available online at http://www.competitivealternatives.com

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