UK Leads the Way for Business Cost Competitiveness in the Mature Markets

Michelle Remo, “Big 4″ observer
March 23, 2012 /

The UK has been ranked as the lowest cost destination in which to do business amongst established markets, according to research out this week by KPMG International.

KPMG’s Competitive Alternatives survey witnessed the UK move from fourth place among mature countries in 2010 to top spot this year, aided by a combination of lower post-recession costs for labour, industrial facilities, and utilities, plus corporate tax cuts and a lower value for the pound due to the European debt crisis.

KPMG’s Competitive Alternatives looks at 26 significant business cost elements, including labour, taxes, real estate, transport and utilities in more than 100 cities in 14 countries around the world. The four largest US metro areas—New York City, Los Angeles, Chicago, and Dallas-Fort Worth— form the US baseline against which costs for major cities in other countries are compared to determine the national results. Costs associated with doing business in Manchester and London were studied and UK came out 5.5 percent lower than the US.

The UK scored highly for low cost opportunities in the corporate services and manufacturing sector, offering the lowest effective rates of corporate income tax. The UK also had the lowest labour costs of any of the other seven countries studied in the mature markets.

Chris Morgan, UK Head of Tax Policy commented: “The UK’s top ranking amongst the mature markets shows that the changes to the corporation tax system in recent years, making it more territorial and reducing the headline rate, are having an impact and improving the competitiveness of the UK on the world stage.

“Announcements made by the Chancellor in his budget that the headline rate of corporation tax will drop to 24 percent in April takes the UK from having the 20th highest rate in the European Union to 15th, and will also puts us below the global average rate of around 24.5 percent, which is more good news for companies looking to establish themselves here.”

The 2012 edition is the first edition of KPMG’s Competitive Alternatives study to examine the major high growth countries and compare cost competitiveness in Brazil, Russia, India, China and Mexico. To that end, the study found that China and India are the low cost leaders among all countries studied, with overall business costs 25.8 and 25.3 percent below the US baseline, respectively.

Low labour costs drive the advantage for China and India, with China offering the lowest costs in the manufacturing sector and India in the services sectors.

Despite a surge of interest from many companies in serving Brazil’s large and growing domestic market, costs in Brazil are higher than in the other high growth countries and approach the cost levels of the leading mature countries. Brazil’s wage levels, including minimum wage standards, are significantly above those of the other high growth countries studied, and a heavy tax burden also impacts Brazil’s total cost performance.

The research comes hot on the heels of the Global Cities Investment Monitor, compiled by the Greater Paris Investment Agency and KPMG this month, which ranked London as the top destination for foreign investment, beating Shanghai, Hong Kong and Sao Paolo.

Richard Reid, London Chairman at KPMG and Head of high growth markets said: “These findings will be a real boost for our reputation globally as we face many challenges but opportunities from the fast growing economies of China, India and Brazil and highlight the need to continue with investment in our infrastructure and keep a watchful eye on issues around regulation and taxes which could damage our ability to remain competitive.

“With global events such as the Diamond Jubilee and the 2012 Olympics being staged here, the UK has a huge opportunity to keep the eyes of the world focussed on what we have to offer in terms of a skilled workforce, culture and commerce which can only help in boosting our reputation as an exciting place in which to live, work and do business.”

 

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