Mexico most affordable place to do business: report

A man works at U.S. thermoplastics maker in Monterrey, near the border with Texas, October 29, 2009.

TORONTO (Reuters) - Mexico retained its top ranking as the most affordable place to do business, while the United States dropped to eighth, according to KPMG's report about cost-effective competition among 10 countries.

The Competitive Alternatives 2010 study, which KPMG publishes every two years, found that Mexico had an 18.2 percent business cost advantage relative to the United States, which was treated as the baseline.

Canada ranked second with costs that were 5 percent lower, while the fifth place United Kingdom, at 1.8 percent, pulled ahead of the United States as an affordable jurisdiction for business.

This was partly because of exchange rate advantages where the Canadian dollar and British pound depreciated against the U.S. dollar during the study period.

Meanwhile, Japan slipped to last place, partly because of the strength of the yen, and two of its major cities, Osaka and Tokyo, had the highest business costs among 41 international cities examined, the report said.

The United States dropped to eighth from third, while the Netherlands improved to third after a seventh place showing in 2008. Rankings for most countries, which include Australia, France, Germany, and Italy, were otherwise generally consistent.

The study measured 26 cost components such as labor, taxes, real estate and utilities, as well as non-cost factors such as infrastructure and the regulatory environment, as well as personal cost of living and quality of life. The results of the global study were announced in Toronto.

"The global recession has not been the only factor impacting international business over the last two years," said Simon Harding, associate partner in KPMG's Advisory Services practice and head of its Canadian Strategic & Commercial Intelligence practice.

"Divergent trends in exchange rates, utility and transportation costs, taxes, and incentives have all helped to shape the international competitiveness environment in 2010."

The report also found that the two Mexican cities studied, Monterrey and Mexico City, ranked first and second, respectively.

Canada's major cities were all judged highly, with Montreal (third), Vancouver (fifth) and Toronto (sixth), and ahead of all major U.S. cities. The highest cost U.S. cities included Los Angeles (34th), New York City (37th) and San Francisco (39th).

The Netherlands had the lowest business costs in Europe, which were 3.5 percent below those in the United States, and 1.7 percentage points lower than in the United Kingdom.

(Reporting by Ka Yan Ng; editing by Rob Wilson)