Greater Montréal takes top spot again as most cost-competitive city in North America

Competitive Alternatives 2016: A study released by KPMG on March 30, 2016

Highlights:
  • At close to 15% this year, Greater Montréal’s cost advantage relative to the U.S. average has nearly doubled since the study was last published in 2014.
  • This strong improvement is due mainly to the depreciation of the Canadian dollar against its U.S. counterpart. Montréal’s cost advantage varies significantly from one sector to another, with costs 25% or more below the baseline in strategic sectors that qualify for targeted tax credits.

The 2016 edition of KPMG’s Competitive Alternatives confirms that Montréal has the lowest operating costs among North America’s 20 largest cities, holding on to the top spot in the rankings.

The study looks at 26 cost factors for 19 business operations in each of the cities surveyed. National results are based on the average results for major cities in each country. The costs are compared to the U.S. baseline, which reflects average business costs for the four largest U.S. metro areas (New York City, Los Angeles, Chicago and Dallas-Fort Worth).

According to the report, Greater Montréal’s cost advantage has almost doubled from 8% in 2014 when the last edition of the study was published to 14.8% over the U.S. baseline across all sectors in 2016. This significant gain in competitiveness is mainly due to the depreciation of the Canadian dollar relative to its U.S. counterpart. Table 1 below shows changes in cost indices for the Montréal metropolitan area from 2002 to 2016.

Table 1

KPMG points out, however, that all main international cities have seen strong improvements in their cost competitiveness compared to U.S. cities in 2016 as a result of the appreciation of the U.S. dollar. The exchange rate used for Canadian cities in the 2016 report is C$1.34/US$, as opposed to C$1.05/US$ in 2014.

Brief overview of global rankings

  • Canada holds steady in second place in the country ranking, behind Mexico, and sees its cost advantage over the U.S. double from 7.2% in 2014 to 14.6% in 2016. National results for Canada reflect the combined results for two major cities: Montréal and Toronto.
  • Mexico again ranks ahead of all study countries in cost competitiveness. In 2016, Mexico’s business cost advantage stands at 22.5%, “higher than at any point in this decade,” according to KPMG.
  • The Netherlands maintains its third spot in the global ranking. Italy and Australia move up into the top 5 this year, taking over the positions the UK and France held in 2014.

Chart 1

  • The high value of the U.S. dollar has driven down the cost of doing business in all countries except the U.S., when measured in U.S. dollar terms. According to KPMG, “the U.S. now stands out as a high cost business location relative to its peers.” The UK pound is the only study currency to come close to holding its value relative to the U.S. dollar in 2016 vs. 2014.

Results for Canada and its two biggest cities

  • Once again this year, the Montréal metropolitan area ranks 1st among North America’s 20 largest cities for its low business costs across all sectors. Chart 2 shows operating cost competitiveness indices for the largest cities in North America.
  • The chart also shows a significant cost gap between Canada’s two cities and major U.S. cities. Tampa, the city with the lowest business costs in the U.S., has a cost index that is 11% higher than for Montréal. New York City has seen the largest increase in business costs, which are 22.9% higher than in Montréal.

Chart 2

Montréal, by sector

  • Enjoying a 31.0% cost advantage, Montréal’s clinical trial management sector leads the industry with the lowest business costs in 2016, pushing ahead of the video game industry, whose cost advantage stands at 29.7%.
  • The international financial services sector ranks third for business costs in Montréal (28.7%), followed by the electronic systems testing sector (28.1%) in fourth place. The two sectors also ranked third and fourth in 2014.
  • The biomedical R&D sector has cracked the top 5 this year, posting the fifth-lowest business costs in Montréal (26.9% cost advantage).
  • Significant incentive support for R&D activities in Canada, from both federal and provincial governments, helps to position R&D as the sector in which Canada holds its greatest cost advantage, with total costs 27.7 percent below the US baseline.

Methodology

The report examines 26 cost factors for 19 business operations in each of the cities surveyed. Main cost factors include labour costs, taxes, transportation costs, utility costs and facility costs. National results are based on the average results for major cities in each country. For example, national results for Canada reflect the average business costs for Montréal and Toronto. The costs are compared to the U.S. baseline, which reflects average business costs for the four largest U.S. metro areas (New York City, Los Angeles, Chicago and Dallas-Fort Worth).

The study compares start-up and operating costs after taxes over a 10-year period for more than 100 cities in 10 countries: Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the United Kingdom and the United States.

The KPMG index is calculated for 19 sectors grouped into four categories:

  • Digital services: Software development and video game production.
  • R&D services: Biomedical R&D, clinical trial management, electronic systems development and testing.
  • Corporate services: International financial services and shared services centres.
  • Manufacturing: Aircraft parts, food processing, medical device manufacturing, auto parts, metal machining, electronics assembly, advanced batteries/fuel cells, precision components, plastic products, specialty chemicals, pharmaceutical products, telecom equipment.


Additional information

The full report is available at:
http://mmkconsulting.com/compalts/reports/compalt2016_report_vol1_en.pdf

The executive summary is available at: https://www.competitivealternatives.com/reports/compalt2016_execsum_en.pdf

By Marie-Hélène Le Rossignol
Analyst, Economic Research Division

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