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Canada steps from shadows to proclaim advantages

By Philip S. Moore, Inside Tucson = Business
Published on=20 Monday, April 17, 2006

A well-managed Tucson company should do its research = and=20 development somewhere in Canada, its distribution locally and, maybe, = its=20 assembly in Mexico.

That was the option presented to about three = dozen=20 local business leaders at a special breakfast meeting, sponsored by the=20 Aerospace, Manufacturing and Information Technology Cluster of Southern = Arizona=20 and the Consulate of Canada.

Offering a look at the competitive=20 alternatives between major U.S. and Canadian cities, as well as other = cities=20 around the world, prepared by MMK Consulting, an affiliate of KPMG=20 International, the presentation offered insights into the opportunities = for=20 expansion north of the border.=20

Speaking at the breakfast, MMK = President Stuart=20 MacKay said, =E2=80=9CThere are benefits to be had by business on both = sides of the=20 border.=E2=80=9D For the many companies that have operations in the U.S. = and Canada, the=20 key is to know what they are, =E2=80=9Cto be able to get the most out of = them.=E2=80=9D

With the list of competitive alternatives = available, he said it=20 becomes obvious the benefits to be had from establishing research and=20 development operations in Canada. It also becomes easier to see the = costs and=20 benefits of locating software development and even call centers=20 there.

This is a message the Canadian Trade Commission has been = trying to=20 make in Europe and the U.S. Preparing a series of marketing appeals = based on the=20 KPMG-MMK Consulting report, Canada has described the cost and tax = advantages and=20 even immigration advantages, which make it easier to import foreign = technical=20 workers than would be possible in the U.S.

Among developed = nations, only=20 Singapore is consistently less expensive, while in comparisons of worker = skill=20 and productivity, as well as overall cost of doing business and labor=20 environment, Montreal, Toronto and Vancouver, B.C. account for three of = the top=20 five cities.

In aerospace, agribusiness, automotive, chemicals,=20 electronics, medical devices, metal compounds, pharmaceuticals, = precision=20 manufacturing, telecommunications, biotechnology and clinical = development, as=20 well as software, World Wide Web and multimedia design, Canada is ranked = either=20 first or second for the developed world.

MacKay said a major part = of that=20 advantage is in labor rates, which continue to be better than in the = U.S.,=20 largely because of the smaller cost of employee benefits, thanks to the = Canadian=20 national healthcare plan. =E2=80=9CHealthcare benefits, north of the = border, are only=20 about 1 percent of compensation. They can be 7 percent or higher in the = U.S.,=E2=80=9D=20 MacKay said. =E2=80=9CPersonal income tax is higher because of it, but = when it comes to=20 doing business, this is a benefit because the public is paying the cost = of=20 medical care, not the company.=E2=80=9D

Because of higher = guaranteed wages, McKay=20 said low-skilled workers can be more expensive than the U.S., = =E2=80=9Cbut high-skilled=20 workers and managers are less expensive.=E2=80=9D

Facilities in = Canada are more=20 expensive to purchase, but comparable lease and electricity costs are = another=20 Canadian advantage, due to hydroelectric and natural gas = production.

For=20 Canadian domestic and foreign companies, the biggest advantage for = research and=20 development companies comes from tax incentives. =E2=80=9CIn this kind = of business,=20 there are significant advantages. Tax credits are generous, and they can = mean=20 much lower business income tax, if any.=E2=80=9D

In making the = comparisons,=20 MacKay said he wasn=E2=80=99t able to do direct cost and opportunity = comparisons,=20 because Tucson wasn=E2=80=99t included in the KPMG-MMK Consulting study, = =E2=80=9Cbut we expect=20 to be looking at that in the future.=E2=80=9D He said growing Canadian = building product=20 exports to the Tucson area, as well as expanded ties between Canadian = and Tucson=20 optics firms and environmental research groups =E2=80=9Care making = Tucson a lot more=20 important to study.=E2=80=9D

Even without Tucson in the = comparison, Tucson-based=20 Consul and Trade Commissioner for Canada, Rick Stephenson, said, = =E2=80=9CIt has obvious=20 implications for Southern Arizona. The original study was completed in = 1994, and=20 since then, these numbers have served as a valuable way to see where = each area=20 ranks and what=E2=80=99s important to consider when you=E2=80=99re = looking for some place to=20 expand.=E2=80=9D

He said, =E2=80=9CTucson companies, like others, = are always looking to=20 expand and they=E2=80=99re keenly interested in cost advantages. Through = presentations=20 like this, we=E2=80=99re saying, ?Take a look at = Canada.=E2=80=99=E2=80=9D

Contact Philip S.=20 Moore at pmoore@azbiz.com or at = (520)=20 295-4138.

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