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KPMG Guide Analyzes Key Business Location Factors

KPMG (3/22/2012)
Both business costs and quality of life issues "significantly influence the competitiveness of locations for different types of business," KPMG's Competitive Alternatives: Guide to International Business Location Costs concluded in the 2012 edition of its survey.

The report cited Area Development's Annual CorporateSurvey results, comparing business-related and quality-of-life factors most frequently cited by business executives in 2011 and 2009.

According to KPMG's report, our survey revealed significant changes and yet some similarities in ranking of site selection factors.

While highway availability and labor costs continue to be top ranked considerations, the two concerns switched places between 2009 and 2011. In 2011 highway accessibility was cited as the top concern of business executives responding to the survey, followed by labor costs.

"The infrastructure of the mature economies remains much more developed than in the high growth countries, although aging infrastructure is often cited as posing a threat to competitiveness for the mature countries," the report found. "With public finances in the mature economies being tight, it may prove challenging for governments to fund necessary infrastructure upgrades."

"In the high growth countries, the emphasis has been on building new infrastructure to meet the demands of rapidly expanding economies, growing populations and fast paced urbanization. China is the top rated high growth country for the quality of its physical distribution networks, reflecting its massive expansion of transportation infrastructure in recent years. By contrast, the physical infrastructure improvements in India have been much slower, and chronic problems with its transportation networks persist."

Tax exemptions, ranked as 3rd most important in 2009 and 2010 surveys, dropped to 8th place in 2011. "This shift likely reflects a diminished ability of US states to offer tax exemptions as they grapple with budget cutbacks. This phenomenon is also being experienced by some international jurisdictions, especially in Europe, as they deal with diminished government revenues and ongoing deficit and debt problems," KPMG experts reported.

It should be noted while the availability of tax exemptions was cited as less of a factor in site selection, availability of a favorable corporate tax rate rose from being the fifth most important factor to the fourth for business executives in 2011.

In 2011 the availability of finding a skilled labor force was tied with labor costs as being the second most important factor in site selection, rising from sixth place in 2009. State and local tax incentives tied with occupancy and construction costs for fifth place, according to the Area Development survey.

The KPMG experts surmised this switch is due to an increased focus on business operational considerations and growing concerns about accessing skilled talent as labor markets gradually strengthen again following the 2009 recession.

Proximity to major markets, which ranked 15th and 17th in 2009 and 2010, moved up to the 9th most important factor in 2011, "likely reflecting the effects of increasing energy and transportation costs," the survey concluded.

KPMG found "a wide range of regulations impact on businesses, both in the countries where they operate and in the countries with which they trade. "

"Permitting for new facilities is an important aspect for expanding and relocating firms, with permitting delays having the potential to represent a major cost associated with establishing a new facility," KPMG's analysis said.

To assess this issue, KPMG enlisted a World Bank comparison revealing the number of days required to obtain all necessary permits for building a new warehouse.

According to the World Bank report, obtaining permits for building a new warehouse was fastest in the United States, with the process taking an average of 26 days, followed by Canada at 73 days, Germany, where it could take 97 days, and the United Kingdom where permitting takes about 99 days.

In contrast the World Bank survey reported the permitting process is estimated to take 258 days or almost nine months in Italy. Permitting takes longest in Brazil where the process can take over a year or as many as 469 days. In Russia permitting usually takes more than a year with the average at 423 days; in China permitting can take slightly less than a year with 311 days and in India it usually takes as many as 227 days.

Among the high growth countries, Mexico is the only country where permitting can be completed in an 81 day time frame comparable to what the report refers to as "leading mature countries."

Crime rates, the availability of healthcare facilities, housing costs and availability, and quality of life issues also continue to represent important factors when it comes to choosing business location, the report concluded.

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