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60 Seconds with Stuart MacKay, President of MMK Consulting

Stuart MacKay, president of MMK Consulting, is the founder and co-author of Competitive Alternatives, KPMG’s Guide to International Business Location. Before 2001, MacKay worked with KPMG for 21 years, including 11 as a consulting partner.

2008 Cost-Competitiveness Rankings by Country

1. Mexico (79.5)
2. Canada (99.4)
3. United States (100)
4. Australia (100.2)
5. France (102.6)
6. United Kingdom (107.1)
7. Netherlands (107.3)
8. Italy (107.9)
9. Japan (114.3)
10. Germany (116.8)

Source: KPMG’s 2008 Competitive Alternatives study.

Business costs are expressed as an index, with the United States being assigned the baseline index of 100.

BF: Could the depreciation of the U.S. dollar actually help our economy since it has made the country a more cost-competitive business location?

SM: There is no question that the declining value of the U.S. dollar has significantly improved the United States’ cost competitiveness. Among G7 countries, the United States has pulled into a virtual tie with Canada in terms of relative business costs, ahead of France, the United Kingdom, Italy, Japan, and Germany. The drop in the value of the dollar has also helped to reduce the U.S. cost disadvantage against developing countries whose currency has appreciated against the dollar. Over the new few years, it will be interesting to see the extent to which U.S. producers can take advantage of the increased U.S. cost competitiveness, and, at least partially, stem the flow of manufacturing and business operations to low-cost, offshore jurisdictions over the past decade.

BF: Mexico’s emerging economy has made it the most cost-competitive location in the rankings. How seriously should companies consider Mexico as a viable location for their business?

SM: While the 2008 Competitive Alternatives study found that Mexican business operations have an average 20.5% cost advantage over comparable U.S. operations, Mexico also ranks at or near the bottom for most of the non-cost factors, such as worker skills and infrastructure. My assessment is that the gaps are narrowing, for both cost and non-cost factors.

With regard to costs, the 2008 Competitive Alternatives results is a smaller gap than many had expected in advance (although it is still very significant). With regard to non-cost factors, while Mexico remains less competitive than developed countries, many global firms have successfully set up business operations in Mexico in recent years, demonstrating that these disadvantages can be managed. Looking ahead, my expectation is that Mexico will likely continue to improve its competitiveness in non-cost factors, while continuing to offer significant cost advantages over G7 countries.

2008 Worldwide Competitive Analysis from KPMG and MMK

By Bill Trüb

In March, KPMG and MMK Consulting released its 2008 Competitive Alternatives study under the supervision of KPMG’s Strategic Relocation & Expansion Services practice. The biennial study provides an independent comparison of international business location costs in over 100 cities in 10 countries around the world. Here is some country by country analysis:

* Mexico ranks first among the countries studied, with business costs 20.5% lower than in the United States. This rating reflects Mexico’s status as the first emerging industrialized country to be included in Competitive Alternatives.

* The United States experienced the greatest gain in cost competitiveness since 2006, improving its position significantly against all other countries due to the depreciation of the U.S. dollar.

* France has the lowest cost structure among the European countries studied.

* The United Kingdom, the Netherlands and Italy are very closely grouped, ranking 6th through 8th, with business costs between 7.1 and 7.9 percent above the U.S. benchmark.

* Japan is still a relatively high-cost jurisdiction. However, it has gained some ground against other countries over the longer-term, due to its low inflation rates and the lower volatility of the yen compared to the U.S. dollar.

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