Metros from All 50 States Used to Compare Business Costs within U.S. and Internationally

The declining value of the U.S. dollar and other business cost considerations are giving the U.S. a favorable cost advantage compared to other industrialized nations in Europe, Japan and Australia, according to a new biennial report from KPMG. The 2008 Edition of KPMG’s Competitive Alternatives collects data over a range of industries, such as precision manufacturing and biomedical R&D, to compare 136 metro areas in 10 countries. When looking at aggregate national business costs across various sectors, Japan and Germany are 14.3 percent and 16.8 percent higher, respectively, than the U.S. Canada’s overall business costs are 0.6 percent lower than the U.S., and Mexico’s costs are 20.5 percent lower than those of the U.S.
 
To create the U.S. business costs comparisons, KPMG examined 59 metropolitan areas throughout all 50 states and Puerto Rico. The report delved into the varied business costs over a 10-year planning horizon for 17 different operations in each metro, which were grouped into the following four industry clusters:

• Manufacturing (such as electronics assembly, pharmaceuticals, and medical devices);
• R&D (such as electronic systems testing and clinical trials management);
• Software (advanced software and content development); and,
• Corporate Services (back offices and call centers)

The location-dependent business costs used to calculate each metro’s relative competitiveness consisted of: labor costs such as wages, workers’ compensation, pensions and medical plans; facility costs, which include industrial construction and leasing office space; income taxes from the local to federal levels; non-income taxes such as taxes on capital and property; utility costs including electricity and telecommunications charges; and, transportation costs.
 
Examining countries over a two-year period, significant shifts are evident in business costs between last month’s release and the previous edition. Whereas in 2006 Australia, France, the United Kingdom, Netherlands and Italy were all determined to have overall lower costs than the U.S., in 2008 all of these countries were gauged as more expensive than the U.S. From 2006 to 2008, the cost advantage in Canada shifted 4.9 percentage points higher, bringing it close to parity with the U.S. These dramatic jumps resemble similar fluctuations in exchange rates, as the British pound increased its exchange rate by 14 percent compared to the U.S. dollar, the Canadian dollar rose 17 percent comparatively, and the euro rose 24 percent in the past two years.
 
This year’s edition also examines some non-cost competitiveness factors for the first time. While not incorporated into the overall cost calculations, the report compares countries by educational attainment, various measures of science employment, and R&D expenditures per GDP. Other non-cost factors identified included demographics, availability of skilled labor, environmental regulations, crime rates and energy supply, in addition to others.
 
Practitioners may find the report’s information useful to examine the details of the cost structure of various localities, especially as compared to other U.S. and international metro areas. The website of the report also offers an interactive tool to compare metros within various business sectors, which may be of use to companies looking to expand or relocate their business operations.
 
The appendices of the 2008 version of KPMG’s Competitive Alternatives report also contain detailed information on each of the 136 metros highlighted in the report, which can be found at: http://www.competitivealternatives.com/