European Tribune - Low-cost, high-cost? Look again.

Low-cost, high-cost? Look again.

by afew
Wed Aug 30th, 2006 at 12:52:07 PM EST

Here's something I don't think we (I?) really noticed at the time (beyond a mention in an LTE comment by TGeraghty and possibly an indirect reference in this piece by Jerome). It's the 2006 edition of Competitive Alternatives, a survey of business costs run by KPMG. And it's interesting because it knocks yet another brick out of the wall of conventional wisdom.

Said CW lets it be understood that the "Anglo-Saxon model" is low-cost for businesses, while in the Eurozone -- and France in particular -- costs (particularly labour-associated) are thought to be dissuasive. But according to KPMG's survey :

The 2006 Competitive Alternatives study is the most thorough comparison of international business costs ever undertaken by KPMG. This study contains valuable information for any company seeking a cost advantage in locating international business operations.

(The US is used as BASELINE; to its left are countries with a cost advantage; SG = Singapore...)

The cost of labour seems far from being the obstacle it is often claimed to be:

Labor Costs Are Key

Labor cost comparisons are based on 42 job positions.

Labor costs include wages and salaries, statutory benefits (including government pension plans, medical plans, etc), and all other benefits typically provided by employers. <...>

Singapore has the lowest salary and wage costs among the nine countries examined, followed by Italy, France, and the United Kingdom.
Costs for statutory plans, as a percentage of payroll, are lowest in Canada, followed by the US, the Netherlands and Singapore.
Costs for other employer(sponsored benefits, as a percentage of payroll, are lowest in Japan, followed by France, Singapore, and Canada.
Combining these three elements, total labor costs are lowest in Singapore, followed by Canada, Italy, and France.

What about business taxation?

Income taxes typically represent 3 to 10 percent of location-sensitive costs:

For manufacturing operations, Singapore, offers the lowest effective tax income rate, followed by the United Kingdom, the Netherlands and Canada.
For R&D operations, Canada, the United Kingdom, France and the United States all offer significant R&D tax incentives.
For other non-manufacturing operations, Singapore, the United Kingdom, the Netherlands and France offer the lowest effective income tax rates.

France doesn't seem to be exactly stifling enterprises with tax...

Here are the overall rankings for several sectors:

Germany looks more high-cost (but may provide specific infrastructure advantages), while France, the Netherlands, and Italy, three Eurozone countries, offer lower business costs than the UK and the US.

The Competitive Alternatives site provides detailed data for those who would like to take a look.

(Thanks to Laurent GUERBY for the link to French economics blogger Olivier Bouba-Olga, who used this KPMG report to back up a comment.)

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Low-cost, high-cost? Look again. | 22 comments (22 topical, 0 editorial, 0 hidden)

Re: Low-cost, high-cost? Look again. (none / 0)

An important strand, if we credit the CW with any conection with reality (which is open to debate) is that the one arena where the US model[] shines is "corporate services."
Now, I don't understand what "corporate services" are really, so I'm off to read the links. If anyone already knows, please enlighten me!

[] One other thing this highlights is that despite the rhetoric and the awful state of parts of the UK's social provision it still sits much more towards a European model than a US one. It's time we accepted that part of the US model is just related to having a honking great country to play around in.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Aug 30th, 2006 at 12:34:27 PM EST

Re: Low-cost, high-cost? Look again. (none / 1)

Doh, don't use an asterisk as a footnote marker, otherwise you get odd bolding activity in your comment!

by Metatone (metatone [a|t] gmail (dot) com) on Wed Aug 30th, 2006 at 12:35:09 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

Aha!

D. Corporate Services
1. Back Office / Call Centers
This industry includes any business support operation that interacts primarily through electronic communication. Typical operations would include inbound call centers (e.g. customer enquiries, internal helpdess), outbound call centers (e.g. telemarketing, teleresearch). IT/data processing, and other admnistrative functions. Back office/call center operations may be subsidiary operations of a parent firm, or may be outsourced to an independent service provider.

So, the US model is really good for shifting the economy from competitiveness in activities such as manufacturing and R&D towards call centres.

Not really sure what to make of that.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Aug 30th, 2006 at 12:43:15 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

I was just typing that answer to your comment.

Yes, the US advantage is at entry-level labour costs, meaning they have a low minimum wage that isn't always respected.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 12:45:13 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

Supposedly India is pulling in a large amount of corporate service type activity from both the US and Europe. I would think it would be necessary to include them to get an accurate global picture.

by Richard Lyon (rllyon@gmail.com) on Wed Aug 30th, 2006 at 12:50:44 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

Well, Singapore is included in the KPMG study for the first time.

But frankly, I think we know there are lower costs elsewhere in the world. The main interest here is to see that the usual narrative about US/UK economies doing it right and Eurozone economies doing it wrong is shown to be BS.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 12:56:33 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

The running argument between the US/UK and the Eurozone while the Asian foxes are cleaning both hen houses is quaint.

by Richard Lyon (rllyon@gmail.com) on Wed Aug 30th, 2006 at 01:00:07 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

So what do we do? Look at the huge disparity in labour costs and do what?

Actually, I don't think there's anything quaint about the "running argument". It still seems to matter a lot to the US/UK side who keep their think-tanks, pundits, and media at work on it...

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 01:09:35 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

I think that the reason the various spinmeiters like to focus on it is because they have no idea what to do about the real imbalances that are developing and those imbalances for the most part are serving the interest of the multi-nats who fund think tanks. Turning the whole thing into a sports contest is very useful for diverting the attention of the masses from the state of the emperor's nakedness.

It seems to me that facing reality is always a good place to begin.

by Richard Lyon (rllyon@gmail.com) on Wed Aug 30th, 2006 at 01:17:33 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

I'll be content, at least for this diary, with facing one aspect of reality...

I don't quite see how your point holds: if the think tanks are funded by corporate interests that make hay out of the world labour glut, (and I agree they are), then I don't think they focus on the "Anglo-Saxon v Eurozone" issue out of sheer bewilderment, as in "they have no idea what to do". Either they are simply using the "Anglo-Saxon model" issue as a smoke screen (that would be your second interpretation), or the issue has substance. This particular drum has been banged for so long and with such insistence that I have difficulty with either the bewilderment or the smoke screen view.

Unless you're separating "spinmeisters" from "think tanks"?

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 02:51:57 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 1)

The economics establishment which is the think tanks and much of academia are like generals always planning to win the last war. All of their "free trade" orthodoxy is focused on what they THINK would have mitigated the impact of the great depression. Anybody who suggest that the realities in today's world might be fundamentally different is a heretic. That's probably equal parts of delusion and spin.

I think that it is inevitable that the economic power balance of the world has to be rearranged by the abilities and energy of a couple of billion people in Asia. They simply will not be shut out from a world economy that has been run almost entirely by Americans and Europeans. I think it might be possible to manage the transition in a way that reduces the inevitable disruption to the lives of ordinary people. By not discussing the reality we are missing any possible oportunities to do this. Instead we are rehashing the arguments that might have had some relevance 50 years ago.

by Richard Lyon (rllyon@gmail.com) on Wed Aug 30th, 2006 at 03:23:50 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 1)

I don't dispute the main point about Asian economies (though my impression is that it's the Western corporate world that is calling them in rather than "They simply will not be shut out"). But saying this doesn't mean there are no other issues of substance elsewhere.

And, you know, your dismissal of a very considerable propaganda machine as the work of a bunch of defeated generals re-fighting the war before last, and of arguments concerning American (would-be) hegemony and the EU as 50-year-gone maybe relevant, seem to me to take airy wing above reality.

But, as you see no interest in the topic presented above, we'd better just agree to differ.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 04:39:53 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

I did do a story based on these graphs. I need to dig it up.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Wed Aug 30th, 2006 at 12:38:46 PM EST

Re: Low-cost, high-cost? Look again. (none / 0)

I used both Scoop archive search and site Google and came up with only those two refs. Using KPMG and "costs" as keywords.

But I thought it might well have been covered somewhere.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 12:43:25 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 1)

Note that Olivier Bouba-Olga wrote a full article on the KPMG report.

by Laurent GUERBY on Wed Aug 30th, 2006 at 02:02:00 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

Yes, I saw it. It seemed mostly to concentrate on the French data (which is reasonable enough).

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 03:00:07 PM EST
[ Parent ]

Here it is (none / 0)

http://www.eurotrib.com/story/2006/3/22/82314/3142

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (jeromeguillet@yahoo.fr) on Wed Aug 30th, 2006 at 12:46:21 PM EST
[ Parent ]

Re: Here it is (none / 0)

Do you keep a private archive of your posts????

Anyway, I think it's worth flagging again.

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 12:50:48 PM EST
[ Parent ]

Re: Here it is (none / 0)

But I look twice and see your search-defeating typo: KMPG for KPMG!

When locusts move on, they leave nothing behind

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Aug 30th, 2006 at 12:52:11 PM EST
[ Parent ]

Re: Here it is (none / 0)

You didn't try it on Daily Kos?

Could be great data to illustrate how business judge health care costs, etc...

by Laurent GUERBY on Wed Aug 30th, 2006 at 02:03:19 PM EST
[ Parent ]

Re: Low-cost, high-cost? Look again. (none / 0)

Damn...this is a good article though...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Wed Aug 30th, 2006 at 02:45:33 PM EST

Thanks for this ... (none / 0)

...my economics studies are four decades old, so I might as well not know anything. But I found this extremely interesting. Thanks for highlighting it for us.

by Meteor Blades (Meteor Blades) on Wed Aug 30th, 2006 at 02:49:54 PM EST

Low-cost, high-cost? Look again. | 22 comments (22 topical, 0 editorial, 0 hidden)

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