The most competitive Countries

KPMG, a well-known society based in Switzerland and working at the international level within 144 Country belonging to the revision, advising and enterprises’ control sector, recently carried out and published a survey on enterprises’ costs undertaken by entrepreneurs of 9 different industrial Countries from North America, Europe and Pacific Asia.This wide research, called “Competitive Alternatives”, born with the aim to provide with precious information those enterprises wishing to choose for their own international activities, an operational office on the basis of costs competitiveness. Choosing the best site where to relocate one’s enterprise could be a key factor affecting the time being and the performance patterns of the enterprise itself and therefore crucial for someone’s business.The survey, carried out along 8 months, sized the incidence of 27 combined cost factors registered according to location variables and to the place taken in exam.The most influential factors are multiples, such as the cost and quality of life, the working environment, but above all, cost for enterprises, which consist inthe row material prices and the labour cost, including the logistic supplying chain, services and financial services and not as last, those due to the taxation level of the considered Country.

In details, the survey took in exam 128 cities located in Canada, France, Italy, Japan, Germany, the Netherlands, Singapore, United Kingdom and the United States; for what concern Italy, the cities of Vicenza, Florence, Livorno, Turin, Naples and the Friuli Venezia Giulia, have been closely investigated.These cities have been selected on a geographical, economic and population mixed factors basis; moreover, each city has been placed within a value scale according with its own typology: cities in a reorganisation phase, emerging cities or “mature” cities.The first ones are characterised for being in a precarious conditions, even if at the moment are in a recovery stage, also thanks to diverse incentives.However, they present average wages very low: within this category, the KPMG includes Livorno; the second ones are cities where happened a significant economic growth and they show mild costs; here we find Vicenza; the third and last ones are metropolitan areas, cities already developed from the industrial point of view, which present higher costs.Within this category, the survey includes Naples.

Soon after, the survey explores 17 industrial categories, included in four large sectors: production R&D, software and services to the enterprises. Picture no. 1 shows the four industrial sectors, categories and finally, single activities per object studied.

PICTURE 1: ENTERPRIESE ANALYSED BY KPMG SURVEY

Source: KPMG LLP, Competitive Alternatives, p. 3, modified.

Taking the United States as reference point, the survey shows how costs, in regards to materials and tools for producers, nowadays supplied at the worldwide level, do not change according the production place.Difference in costs between different Countries is, therefore, very low; however, the two Countries that obtained the best results are United Kingdom and Germany (chart 1).Costs heavily affecting the software sector are, on the opposite, the labour ones, which slightly change according with the Country and with the Region.In this, Japan and Singapore are firsts.Costs differences are more marked for what concern R&D activities, because of the differences in labour costs of skilled scientists and technicians and because of the different taxation costs on the top of these activities.Countries with the lower labour costs are the Netherlands, Canada, France and Italy. Finally, little costs difference between Countries in the business management consultant because of the labour costs, which has a different weight according to contracts; in this sector United States stand out.

CHART 1: RESULTS PER INDUSTRIAL SECTORS

PRODUCTION

RESEARCH & DEVELOPMENT

SOFTWARE

BUSINESS SERVICES

Source: KPMG LLP, Competitive Alternatives, p. ii, modified.

Synthesising results obtained by the survey, the labour cost is the one primarly considered, which has been assessed through 42 professions.It includes wages and salaries, assistance schemes (i.e. pensions, health care, etc) and others advantages currently paid by employees.For other productive activities, labour cost presents an average percentage between 55% and 73% on the overall costs linked to the territory; for non productive activities, it swing between 76% and 87%.Such a cost slightly changes form a Country to another.In fact, among the 9 Countries taken in exam, Singapore, followed by Italy, France and United Kingdom, presents the lower costs in terms of wages and salaries.Costs for compulsory welfare schemes, in terms of percentage on a total wage, are lower in Canada, in the Netherlands and in Singapore.Other costs supported by the employee (always in a percentage basis on the overall wage) are lower in Japan, followed by France, Singapore and Canada. In other words, the combination of the above elements brings to the conclusion that the labour costs are lower in Singapore, followed by Canada, Italy and France.

Another item considered is the cost of plants, which represent the second cost clusters for importance on a company balance and it is interlinked to the territory.For production activities, plants ownership costs (funding included) represent the 10% - 22% of the overall of costs linked to the territory. Land and construction costs, to build a new industrial plant, are lower in Canada, followed by Italy, the United Sates and France. For non-productive activities, offices renting costs, including all costs (taxes which generally are charged on the tenant) can vary between 4% and 13%. Italy is the Country with the lower rent prices, followed by Germany, the Netherlands and Singapore.

Transport costs can slightly change too according to the sector and they can vary between 1% and 15% of costs linked to the territory for producing activities taken in exam.Such costs are diverse according with the product kind and the market considered. However, they tend to be lower in the Netherlands, in Singapore, in the United Kingdom and in Germany.

Afterwards, the survey considered as third important item, the utilities costs, which represent the 2% - 9% of costs linked to the territory. Lower costs related to power are in Canada and France, while the Netherlands and the United Kingdom offers lower costs in relation to the natural gas.

Tax income, finally, represents a cost percentage linked to the territory, which swing between the 3% and 10%. For what concerns productive activities, Singapore offers the lower tax incomes, followed by United Kingdom, the Netherlands and Canada.For R&D activities, Canada, United Kingdom, France and United States are all offering tax incentives. For R&D activities, Canada, United Kingdom, France and United States offer considerable incentives. For non-productive activities, tax incomes show lower level in Singapore, in the United Kingdom, in the Netherlands and in France.

In summing the survey results further up (chart 2 and 3), there is the need to remember that the United States are representing the Country to which are compared all the others.Given that enterprises costs are expressed by indexes, and that to the United States has been allocated an index of 100.00, consequently, an index lower than 100 imply lower costs in the United States and vice versa.Chart 2 shows the United States at the seventh position out of nine, which are total of the examined Countries.

CHART 2: LIST OF THE MOST COMPETITIVE COUNTRIES IN TERMS OF COSTS

Source: KPMG LLP, Competitive Alternatives, p. 6, modified.

Among other Countries taken in exam, Singapore is the one with the higher competitiveness in costs if compared to the United States; in fact, in here there is a costs reduction equal to 22.3%, an index of 77.7 and, therefore, Singapore is place on the top of the list. With a current GDP per head at the same level of some European Countries, Singapore is the first among the New Industrialised Countries to be included within the Competitive Alternatives Survey.

Canada holds the leadership among the G7 Countries in relation to enterprise costs curb, in fact, its cost index (94.5) involved an advantage of 5.5% in respect to the United States and this place Canada at the second place of the survey scale.

France and the Netherlands scored the best results among European Countries; costs are substantially the same between the two Countries, with a competitiveness of 4.4% above the USA.

Between Italy and the United Kingdom, there is a similarity in costs for enterprises: both keep cost competitiveness above the 2% in respect the United States.Italy, with an index of 97.8 places itself at the fifth position as most competitive Country in terms of costs.

Japan (in eighth position) and Germany (ninth position) are the less competitive Countries among the all Countries taken in exam. The cost disadvantage in comparison with the United States is respectively of the 6.9% and 7.4%.

CHART 3: ADVANTAGE AND DISADVANTAGE PERCENTAGES OF COUNTIES COMPARED WITH USA

Source: KPMG LLP, Competitive Alternatives, p. i, modified.

In detail, chart 4 shows Italian cities position within the list of the most competitive Continental Europe Countries.It is possible to notice how Naples is placed at the eighth position, followed by Friuli Venezia Giulia region, which is tenth, and by Livorno is eleventh, Vicenza is the thirteenth and to finish by Florence which is placed at the fourteenth position.

CHART 4: ITALY COMPETITIVENESS WITHIN CONTINENTAL EUROPE

Source: KPMG LLP, Competitive Alternatives, Italian summary p. 4, modified.

Finally, there is some room for short considerations on the trends of costs in comparison with the 2004 costs of Competitive Alternatives.Costs differences among Countries taken in exam have been reduced and, most of them came closer to USA referring values.Specifically, Japan saw the largest earning in terms of costs competitiveness thanks to the Yen recovery in relation to the American dollar and to the constraint of enterprises local costs.

Canada kept the first placement among the G7 Countries, notwithstanding the size of its own advantage has been reduced because of the strong revaluation along the last years of the Canadian dollar against the USA dollar.

Last consideration concerning this survey is related to the fact that the considered costs are floating according the exchange rates; therefore, for a fair interpretation of results exhibited, it would be appropriate taking in consideration the exchanges rate illustrated in table 1

TABLE 1: EXCHANGES RATE 2004-06

Source:KPMG LLP, Competitive Alternatives, Italian Summary p. 2.

For more information, to see full survey results or to consult the Competitive Alternatives 2006 full survey text, please vist the website www.competitvealternatives.com.

Daniela Bruniera
"L'Economia della Marca Trevigiana", n.4 - 2006