KPMG 2006 Competitive Alternatives Study Toronto Region Ranked One of the Most Cost Competitive Jurisdictions in the G7

“Competitive Alternatives” is a comprehensive guide for comparing business costs internationally. The 2006 study measures the combined impact of 27 cost components that are most likely to vary by location, as applied to specific business operations. It does not measure quality of life and other significant variables which impact competitiveness and are often factored in to site selection decisions. Chief among these is availability and quality of the labour force. As well, culture and environment are important as they contribute to the ability to attract and retain workers. Finally, of increasing impact are issues of security and safety and risk of disaster. By these measures, Canada and the Toronto Region, in particular, rank high among all global leaders.

Canada: Lowest Cost G7 Nation

Unlike in previous KPMG studies, a newly industrialized country—Singapore—was included in the 2006 report. As a result, Canada was bumped out of first place as the overall business cost leader for the first time, as Singapore posted the greatest cost advantage over the United States at 22.3%. Canada, however, continued to lead the G7 countries in terms of low business costs, with a cost index of 94.5, representing an overall 5.5% cost advantage over the United States (US=100). With the appreciation of the Canadian dollar, Canada’s cost advantage over the U.S. decreased from 9.0% in the 2004 study. In the 2006 study, France is ranked third (95.6) and the Netherlands is ranked fourth (95.7). The U.S. itself is ranked seventh (100.0).

Cost Advantage by Industry Sectors

Canada ranked second (behind Singapore) in terms of cost advantage in manufacturing, software and corporate services and ranked third in R & D. Canada also ranked second (after Singapore) in seven of the eleven manufacturing sectors: aerospace, chemicals, electronics equipment, medical devices, pharmaceuticals, precision manufacturing and telecommunications. In other manufacturing sectors, Canada ranked third through fifth. The reason for Canada’s strength in these sectors is that labour costs are the key element in location-sensitive costs and overall labour costs are lowest in Canada. For manufacturing operations, labour costs average 64% of total location-sensitive costs. For non-manufacturing operations, they average 80%.

Canada’s cost advantage over the U.S. ranges from 2.5% for telecommunications to 16.0% for clinical trials management.

Overall G7 Results. Percentage Cost Advantage/Disadvantage Relative to the U.S.

TORONTO REGION

One of the Most Cost-Effective

Business and Investment Climates in the World

The Toronto Region continues to offer international investors significant advantages over their U.S. counterparts. As far as rankings are concerned, Toronto’s relative position in the rankings has changed little from the 2004 results. In terms of our prime competitors – large North American cities with population count over 2 million – Toronto has lower overall business costs than 18 of the 19 large U.S. cities in the study. The lone city with lower business costs than Toronto is Atlanta, and the cost advantage over the Toronto region is only 0.1%. The following charts provide comparative rankings between the Toronto Region and cities in the U.S., Europe and Asia.

LABOUR, FACILITY AND UTILITY COSTS

Key to Toronto Region’s Global Cost Competitiveness

Labour Costs

Key among the location-sensitive cost components is labour. The KPMG study cites labour costs as the most important business cost factor in a company’s selection of a new location. Labour costs comparisons are based on 42 job positions, and include wages and salaries, statutory benefits (government pension plans, medical plans, etc.) and all other benefits typically provided by employers.

Of the G7 countries, Canada had the lowest total labour costs. Canada has a 3 percent average per employee cost advantage over Italy, its closest competitor, and an 11 percent advantage over the United States.   For manufacturing operations, labour costs typically represent 55 to 73 percent of total location-sensitive costs. For non-manufacturing operations the range is typically between 76 to 87 percent.   The Toronto Region is well positioned with a labour cost advantage over its rival U.S. and European cities.

 Facility Costs  

Utility Costs

The cost competitiveness of managing and operating a new facility in Canada is made even more cost effective with competitive overall utility costs, a nearly 2 cent or 21 percent savings compared to that of the U.S. per kilowatt hour (kWh) rate. The rate is also lowest in comparison to the Netherlands, Singapore and the G7, where Canada has on average an almost 3 cent or 25 percent cost advantage -- significant savings for large facilities.

TORONTO REGION’S SECTOR LEADERSHIP

A Decisive Advantage

Regional Overview

Measured against international hubs of commerce, such as London, New York and Tokyo, the Toronto Region ranked among the lowest-cost large international cities in the G7. Many companies prefer to locate in larger international cities, such as Toronto, which offer the benefits of:

The KPMG study examined business costs in 128 cities for 17 business operations. In all, Canadian cities were identified more cost-competitive in 12 of 17 business operations among G7 countries.

Software

The software design industry serves a wide range of markets including, business enterprise software, office, financial services, educational and entertainment sectors. Business operations range in size from hundreds of programmers to smaller companies serving niche customer markets.

Toronto Region….

Employing more than 148,000 people in over 3,362 ICT facilities, the Toronto Region’s ICT cluster rivals historical leaders such as San Francisco and New York, and is ahead of such technology centres as Boston and Washington D.C.

Source: E&B Data, ICT Industry--GTA Profile, 2004

Corporate Services

This sector includes any business support operation that interacts primarily through electronic communications such as back office operations and call centres.

Toronto Region….

Companies are choosing near and home-shore locations
to minimize risks. Out of 40 countries, Canada is ranked
9th as one of the top global services location ahead of
the US, UK and Japan.

Source: A.T. Kearney, Global Services Location Index, 2005

Biomedical R & D

The biotechnology sector encompasses a wide range of applications such as pharmaceuticals, medical testing, agriculture, environmental management and DNA fingerprinting.

Toronto Region….

The Region is home to more than half of Canada’s brand pharmaceutical manufacturers, and Toronto is home to 80% of the country’s generic drug manufacturers.

Source: Craytek Management Inc., Toronto Cluster Report, 2004

TORONTO REGION

Your Destination for International Competitiveness

Compared to U.S. cities, Toronto is one of the most cost-effective locations in North America, across all industry sectors. Most importantly, the cost gap is significant enough that exchange rates would have to increase substantially to alter Toronto’s cost competitive position. Even with a 10% increase in the value of the Canadian dollar relative to the U.S. dollar, many Canadian operations in the study would still enjoy a marginal cost advantage over U.S. operations.

The 2006 KPMG Competitive Alternatives study demonstrates the strength and competitiveness of the Toronto Region. It positions the Toronto Region as a destination that offers real competitive advantage, a compelling business case for international investors who seek growth in their business and bottom line.

The Toronto Region at a Glance

Quick Facts:

Toronto Region Industry Sectors in a North American context (ranked by employment)   Rank   Industry 2nd   Automotive 3rd   Information and Communication Technologies 3rd   Financial Services 3rd   Film and Media 3rd   Food and Beverage 3rd   Business and Professional Services 4th   Biotechnology and Pharmaceuticals   Source: Institute for Competitiveness and Prosperity 2002; E&B Data, 2004

 TORONTO REGION OR GREATER TORONTO AREA

The Greater Toronto Area consists of 29 municipalities and regions—a total area over 2,700 square miles (7,000 square km) with a growing population of over five million. Creativity, opportunity and value define its advantage.

   About the Greater Toronto Marketing Alliance

The Greater Toronto Marketing Alliance (GTMA) is a public-private partnership that serves as the key point of contact for businesses exploring opportunities in the Greater Toronto Area (GTA). The partnership brings together the 29 municipalities and regions in the Greater Toronto Area, the governments of Ontario and Canada, not-for-profit organizations, and a broad cross section of private sector corporations.

Drawing on the expertise and resources of our partner organizations, the GTMA actively promotes the Greater Toronto Area internationally, and provides companies with professional assistance in evaluating, planning and implementing an expansion or move to the GTA.

GTMA business information and site selection services are fully confidential and are provided at no cost. Investors working with the GTMA receive support and expert guidance from human resource consultants, financial and legal advisors, and commercial/industrial real estate professionals. They also benefit from key contacts with corporate executives and senior government officials.

By providing all-encompassing services to investors, the GTMA helps facilitate investment in the Greater Toronto Area and ensures the region is positioned internationally as a preferred business location.

Greater Toronto Marketing Alliance

Tel:

Email:

greatertoronto.org

    About the City of Toronto

With a population of 2.6 million people, Toronto is the 5th largest city in North America and one of the fastest growing. 800,000 of its 1.4 million person workforce have a post secondary education. Toronto residents come from more than 120 different countries connecting the City to the world and speak almost as many languages making the city a unique and vibrant cultural mosaic. It is a City of creativity and innovation. Whether it is proteomics or debit cards Toronto researchers and businesses are leaders in their fields.

As the country’s corporate and financial capital, Toronto is home to more top-ranked national and international companies than any other Canadian city. Eight Toronto-based corporations are part of Fortune’s Global 500 list and several others fall into the Fortune 1,000.

Toronto has a remarkably diverse economy ensuring stability and resilience. The Institute for Competitiveness and Prosperity found the City to be in the top five ranking among North American cities in 16 of 20 sectors including: biotech/medical/pharmaceutical, information and communications technologies, financial services, food and beverage, fashion, industrial and graphic design, and tourism. Toronto’s policy of waiving development charges for industrial and commercial projects makes it a very cost competitive location to establish a business.

The City has also earned an international reputation for its unrivalled quality of life, offering an impressive array of cultural, entertainment and recreational attractions in a safe, clean and welcoming cosmopolitan environment. It is a City of unlimited possibilities where businesses prosper.

City of Toronto, Economic Development Division

Tel:

Email:

www.toronto.ca/business

The City of Toronto and the Greater Toronto Marketing Alliance were co-sponsors of the

2006 KPMG Competitive Alternatives Study

 For further information visit  Canada Cost Advantages