Comparison of Business Costs for Northern Ontario Cities
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COMPARISON OF BUSINESS COSTS FOR NORTHERN ONTARIO CITIES Prepared for: Prepared by: City of North Bay Economic Development MMK Consulting Inc. Sault Ste. Marie Economic Development Corporation Glenn Mair Thunder Bay Community Economic Development Corporation Treena Cook Timmins Economic Development Corporation December 8, 2014 Contents Introduction and methodology........................................ 1 Introduction and objective 1 Study scope 2 Methodology 5 Cost comparison results................................................... 7 Overall results 7 Comparison of selected jurisdictions 8 Results by major sector 9 Results by industry 11 Comparison by cost component .................................... 12 Significance of cost factors 12 Labour costs 13 Facility costs 14 Transportation costs 15 Utilities 17 Financing costs 18 Taxes other than income 18 Income tax 21 Appendix A – Detailed Comparisons ....................................... 23 Introduction and methodology Introduction and objective In March of 2014, KPMG released a major study, Competitive Alternatives, KPMG’s Guide to International Business Location Costs1. That study compared the cost of doing business in more than 100 cities in ten countries, including Canada and the United States. The range of cities included in the Competitive Alternatives 2014 study included Toronto and Sudbury in Ontario, along with 30 other Canadian cities and 74 cities in the US. The municipalities of North Bay, Sault Ste. Marie, Thunder Bay, and Timmins (collectively the “Municipalities”) did not participate as part of the main, published Competitive Alternatives 2014 study. However, the Municipalities now wish to have their communities added to the established comparative analysis, to obtain a better understanding of the costs of doing business in their respective cities relative to other cities regionally, nationally, and cross-border in the US. The objective of this report is to provide the Municipalities with an overview of the cost competitiveness of their cities within the province of Ontario, and in comparison to other selected cities in Canada and the United States. This report provides: An overall business cost index for each municipality Specific cost indices for the four sectors and subsectors analyzed in the Competitive Alternatives report (digital services, R&D, corporate services and manufacturing) Specific cost indices for each of the 19 individual industry-specific model business operations that underlie the analysis An analysis and comparison of specific business cost factors that both underlie and help explain the results for the industries and sectors compared. Many different approaches exist to assessing the cost of doing business in any given city. This study utilizes both analytical approaches and major data sources similar to those that are often used in corporate site selection projects. Thus, this study presents a comparison of business costs as they may be perceived by a mid-to-large sized company (and/or its advisors) undertaking a site selection study across the range of jurisdictions included in this analysis. While great care has been taken in performing this analysis and developing the findings, the comparisons presented are of a general nature and should not be interpreted as a definitive or final opinion on the merits of locating any specific facility in one jurisdiction over another. This report has been prepared for the exclusive use of the municipalities of North Bay, Sault Ste. Marie, Thunder Bay, and Timmins. Each municipality has agreed that this report will represent a confidential report to the collective group of Municipalities. MMK Consulting does not take any responsibility for any distribution of this report to third parties by any of the Municipalities. 1 MMK Consulting manages many aspects of the Competitive Alternatives study on behalf of KPMG. 1 Study scope Business costs in context Selecting the best site for a business operation requires careful consideration of a wide range of factors, including business costs, the business environment, cost of living, and quality of life. The following table illustrates some of the major factors that can influence the site location decisions. However, the relative importance of each of these site location factors, along with others not shown in this table, will vary among different industries, and even among individual firms within particular industries. For many firms, a logical first step in locating or relocating a business operation is to perform a high-level scan of which jurisdictions represent cost-competitive locations, as represented by the top left quadrant of the table. This study is designed to address this issue of relative business costs. Comparison cities The comparisons presented in this report reflect new research for four cities in northern Ontario—North Bay, Sault Ste. Marie, Timmins, and Thunder Bay. For purposes of comparison, results for these cities are shown relative to 10 other cities selected from among the 131 cities included in Competitive Alternatives 2014: Other Ontario cities: Sudbury, Toronto, Chatham-Kent Other Canadian cities: Moncton (NB), Montreal (QC), Winnipeg (MB), and Vancouver (BC) US regional cities: Cedar Rapids (IA), Minneapolis (MN), and Saginaw (MI). 2 The analysis is based on the greater metropolitan area of each of the 14 cities. This approach allows for a realistic comparison between locations, recognizing that many business facilities choose to locate in suburban or urban-fringe areas of large metro areas. Sectors and industries This study compares seven different business-to-business (B2B) service sector operations and 12 different manufacturing operations, as detailed in the following table. The 19 individual business operations have been chosen to reflect industries that are regularly seen making site selection decisions through the assessment of multiple jurisdictions. Each of the business operations examined reflects a representative, industry-specific business that has been defined in detail and modeled to analyze its pro forma operating costs in each of the study locations. The 19 business operations cover a wide range of operating requirements, including labor, facility, and capital requirements. Results for all 19 business operations are presented in Chapter 2. 3 The hierarchy of sector and industry analysis for Competitive Alternatives is illustrated below. This hierarchy helps to illustrate the relationships between the overall results, sector results, and industry-specific business cost results presented in this report. The overall results for all cities and countries represent the top level of the analysis hierarchy and incorporate business modeling outcomes from both the services sector and the manufacturing sector. Those results are ultimately based on the analysis of 19 individual industry-specific business operations, as shown in the bottom (red) level of the analysis hierarchy. Sectors and subsectors form the middle (green) level of the analysis hierarchy, connecting and combining results for reasonably similar types of business operation. The Competitive Alternatives study, and this report, highlight results for four key sectors and subsectors—digital services, R&D, corporate services, and manufacturing. Cost factors This study analyzes the same range of 26 location-sensitive cost factors as were included in the Competitive Alternatives 2014 study, as detailed in the following table (overleaf). These major location-sensitive cost factors generally represent between 35 and 90 percent of total operating costs for the specific business operations examined in this study. Some significant costs (major plant and equipment; commodity raw materials, parts, and subcomponents for the manufacturing process) tend to be governed by world market prices or are fixed at other levels of the supply chain, and do not vary substantially by location. These fixed costs are more substantial for manufacturing operations than for service operations, and are held constant (in US dollars) for comparison purposes. A number of less significant cost factors, such as advertising, accounting services, and office supplies, may be location- sensitive, but do not have a material impact on the overall comparison and are not examined in this study. 4 Except as noted below (re exchange rates) and on Page 6, all cost data used in this study are current as of the last quarter of 2013, which was the effective date for all data and analysis contained in the published Competitive Alternatives 2014 study. Methodology This study is based on the same methodology as the KPMG Competitive Alternatives study. Key methodological aspects of the Competitive Alternatives study relevant to this report are summarized as follows. Determination of US baseline index The four largest US cities by population—New York, Los Angeles, Chicago, and Dallas Fort Worth—are used to calculate the US national results and form the baseline index of 100.0 against which business costs in other cities are compared. Due to the generally lower business costs seen in Canada and in smaller cities in general, all cities examined in this report show business costs below the US baseline of 100.0. Exchange rates All figures in this report are expressed in US dollars unless otherwise stated. Canadian dollar amounts have been converted to US dollars at an exchange rate of US$1.00 = Cdn$1.09 (Cdn$1 = US$0.9174). This exchange rate represents the current default Canada-US exchange rate in the Competitive