Competitive Alternatives - Highlights

KPMG's Guide to International Business Location

Cost Trends

Rankings of all countries in the 2008 and 2010 editions of Competitive Alternatives, and details of key cost trends that have influenced the results of each country in the 2010 study, are detailed in the following table.

Country	Significant Cost Trends	2010		2008
Country	Significant Cost Trends	Index	Rank	Rank
Australia	• 4% currency appreciation against the US$ • Decrease in sea and air freight rates • Increase in electricity rates • Decrease in natural gas rates • New refundable R&D tax credit replaces old deduction-based R&D tax incentives	97.8	4	4
Canada	• 6% currency depreciation against the US$ • Increase in employee benefit costs • Federal and provincial tax reductions	95.0	2	2
France	• Local tax reform, new tax on value added • Decrease in sea and air freight rates • Increase in office lease costs¹	98.3	6	5
Germany	• Decrease in sea freight rates • Decrease in electricity and gas rates • Increase in office lease costs¹	102.6	9	10
Italy	• Special tax incentive for 2010 investments • Decrease in sea and air freight rates • Decrease in employee benefit costs • Increase in office lease costs¹	100.0	7	8
Japan	• 24% currency appreciation against the US$ • Decrease in sea and air freight rates • Decrease in electricity and gas rates • Decrease in employee benefit costs	107.6	10	9
Mexico	• 17% currency depreciation against the US$ • Increase in federal corporate and sales tax rates due to growing government deficit • Final phase-in of new minimum tax regime • Decrease in natural gas rates • Increase in office lease costs¹	81.8	1	1
Netherlands	• Enhancement of existing R&D tax incentives • Decrease in sea freight rates • Decrease in natural gas rates • Decrease in employee benefit costs	96.5	3¹	7
United Kingdom	• 18% currency depreciation against the US$ • Decrease in sea and air freight rates • Increase in electricity rates • Tax depreciation on industrial buildings is being eliminated • Increase in office lease costs¹	98.2	5	6
United States	• Some tax increases due to state deficits • Largest increase in salary costs¹ • Increase in employee benefit costs • Decrease in real estate costs in some cities • Increase in electricity rates • Decrease in natural gas rates	100.0	8¹	3

1 Reflects shift in study focus to major cities in the 2010 edition.

Rankings for most countries are generally consistent between 2008 and 2010. The two exceptions are the Netherlands, which has seen a notable improvement in its ranking, and the United States, which has seen a notable decline.

These changes are due in part to the shift in study focus for the 2010 edition of Competitive Alternatives, to base the national comparisons on business costs for the largest cities in each country, rather than the mix of different sized cities compared in previous editions. This change has improved the national ranking of the Netherlands, due to its relatively homogeneous cost structures across the country, while worsening the ranking of the United States, which sees much greater variation in costs between its largest cities and smaller regional ones.

While most variations in country results are explained by the trends identified in the table above, some caution must be applied in the interpretation of historical trends due to ongoing refinements to the costing methodology used in successive editions of Competitive Alternatives.

The results of this study are sensitive to exchange rates. Exchange rates used in this study, along with comparative rates from the time of the previous (2008) study, are as follows:

Exchange Rates¹
Currency	2008 Edition	2010 Edition	% Change²
Euro	€0.68	€0.68	0.0%
UK £	£0.50	£0.61	-18.0%
Canadian $	CA $1.00	CA $1.06	-5.7%
Mexican Peso	MX $10.87	MX $13.07	-16.8%
Australian $	AU $1.14	AU $1.10	3.6%
Japanese ¥	¥111.27	¥89.86	23.8%

1	Per US$.
2	2-year appreciation relative to US$.

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Competitive Alternatives report cover

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