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					Oh Canada!
A cost-analysis of working with a Canadian communications
company.
Robert Swick, Dan Pirro
May 24, 2002


Abstract
Technology companies are continuously under pressure from many fronts. They
must invest large sums into R&D to improve products. They must move quickly in
and out of markets to maximize returns. And they are ex pected to show tremendous
sequential growt h. Recently, technology companies have come under attack in the
financial markets as well – adding more stress to an already intense environment.

While the economic principle of “increase production, reduce costs and increase
profits” applies to all businesses, this paradigm has been amplified in technology in
part because of Moore‟s Law – an observation by Intel co-founder Gordon Moore
which hypothesized that transistor density (read processing power) would double
every 18 months. In other words, everything happens faster and wit h greater impact
in technology businesses.

For marketers to be successful in the technology sector then, the programs they
develop need to follow similar guidelines. In other words, they must generate
increasing interest in the company and its products, while continuing to drive
marketing expenses down. The early adopters of desktop publishing and Internet
marketing gained an advantage over their competitors in driving marketing costs
down while improving “touch rates”. Now, everyone has access to the same
technology so that advantage has disappeared.

A purely economic approach to reducing mark eting costs has recently presented
itself. American bas ed marketers electing to do business with Canadian marketing
suppliers can save 50% or more on their mark eting production costs.

The following paper outlines Montreal‟s strategic and economic advantage in
providing marketing services to US -based technology companies, and also examines
some of the common concerns that have kept more American companies from doing
business with Canadian suppliers.
Purely economics

US dollar buying power
 It‟s no secret to any Canadian. The Canadian “loonie” has just been hammered
 compared to the US dollar over the past decade. While this presents certain
 economic difficulties, it also creates some excellent trade advantages for Canadian
 companies.

  An examination of the exchange rates over the last two years shows how the
  Canadian dollar has hovered in the 60 -cent range (Figure 1). Inverting the rates
  shows how one ($1) US dollar is actually wort h over $1.50 Canadian (Figure 2).




Figure 1
Source: Yahoo! Inc.




Figure 2
Source: Yahoo! Inc.


  Some may argue that goods and servic es are probably higher priced in Canada,
  and that duties and taxes will eat away at any dollar exchange advant age. While
  this may be true on high profile “trade goods” such as lumber, auto parts, oil and
  gas, and other commodities, the truth is, it does not affect most services and “non
  government” business transactions. These are transactions where the government
  does not have a large influence in trade. Marketing and communications falls into
  this latter category.

  To illustrate the US dollar buying power in Montreal, consider this simplified
  example for a moment:

            You and your companion stroll into a fine Mont real restaurant. You
            have a delicious meal with a good wine and spend about $125
            CDN (excluding tip) – equivalent to what you‟d expect to pay in any
            major city. Add the customary federal and provincial taxes and
            you end up with a bill of $143.78 (again, excluding tip). Now, as a
            non-resident, you are not required to pay tax. So you actually only
            pay the original $125. You pay by credit card. Upon returning
            home, your credit card statement shows the purchase at $125
            CDN. Given the average exchange rates we‟ve witnessed over
            the last two years, your actual purc hase price is about $80 US.

  The credit card statement proves how you save real money. And the best part is,
  the quality of the food, wine and service were world-class. Therein lies the real
  value. You spend less money for equal or better quality.


In the future, everything will be free
  Well, we‟re not there yet. But we are not far either. The cost of doing business
  between the US and Canada is very cheap indeed. Consider these costs (in CDN
  dollars): overnight courier $25 CDN; email and DSL Internet $45/mo; long distance
  telephone charges 7 cents/minute.

  Consider also that free trade and a close political relationship allows for the relative
  free movement of goods and services and people. Travel to and from Canada
  from the US requires only a valid driver‟s license. While air travel is at times
  seemingly expensive, discounted fares are usually easy to find – recent examples:
  Montreal – San Francisco return approx. $675 CDN; Montreal – Newark return
  approx. $375 CDN.

  All of these services have made it possible to facilitate and speed business
  between companies situated in different cities. The use of these services is now
  commonplace in enterprises of all sizes.

  Without going into complex statistical analysis, on average, it‟s plain to see how it
  costs about the same (and most times less due to prevailing exchange rates) to do
  business with a Montreal based company as it does with a similar company based
  just about any where in the US.
Cost of living and salary differential

Cost of living in Montreal
 Recent studies have shown that Montrealers enjoy a relatively high standard of
 living. Mont real is a world-class city that somehow evolved differently than the
 sprawling metropolises of cities like New York, Los Angeles and Toronto.

  E ven with the high tax rate and seemingly lower salaries, Montrealers do have
  significant purchasing power. According to a study conducted in 2001 by
  Runz heimer Canada, a leading employee relocation and compensation
  management consulting firm, Montreal has one of the lowest costs of living due in
  large part to free health care and affordable tuition (Figure 3).




Figure 3
Source: Runzheimer Canada, 2001.
    A recent UBS (Union Bank of Switzerland) study on prices and earnings, carried
    out in 58 of the world's cities in the second quarter of 2000, showed that Mont real
    is indeed a very affordable place to live (Figure 4).




Figure 4
1
  The price index is the total cost of a basket of 108 goods and services, excluding
rents, weighted principally by European consumer habits.

Source: Union Bank of S witzerland, Prices and Earnings Around the Globe: An
international comparison of purchasing power, Swiss Economic Res earch, 2000
Edition.
Using data from the same study, it is possible to calculate a purchasing power index
(Figure 5). The study also provides information on the prices of various current
consumption items. Montreal compares very favorably in this respect as well.




Figure 5
1
  The household purchasing power index is the result of dividing the net hourly wages by the cost of the
total basket, excluding rent.

Source: Union Bank of Switzerland, Prices and Earnings Around the Globe: An international comparison of
purchasing power, Swiss Economic Research, 2000 Edition.
   Figure 6 shows a select group of items, namely food, services and public
   transportation. In this respect, Montreal again shows very favorable results.




                 Price index of va rious consumption items
                    for selected cities worldwide - 2000
                                Zurich = 100
    (The highe r the index, the higher the price of goods a nd services)
                   1                                         2
            Food                                 Services                                Public transport
                                                                                   (bus, tram or underground) 3
  City        Index    CDN $         City           Index           CDN $           City          Index            CDN $
 Tokyo        164.1    1,499        Tokyo           138.0            985         Frankfurt        110.8            4.52
 Zurich       100.0     913          Oslo           116.2            826            Oslo          105.8            4.31
New York      94.6      865       New York          114.7            815          London          102.5            4.18
   Los        94.1      860      Stockholm          110.6            781           Zurich         100.0            4.07
 Angeles
 Chicago      93.4      853        London           104.9            747         Stockhol          84.2            3.43
                                                                                    m
  Oslo        83.4      762         Zurich          100.0            713           Tokyo           82.5            3.36
  Hong        80.3      733        Chicago           99.3            702          Chicago          69.2            2.82
  Kong
Stockholm     76.2      695         Los              85.9            611         New York          69.2            2.82
                                   Angeles
  Paris       73.0      667          Paris           85.5            611           Hong            68.6            2.80
                                                                                   Kong
 Vienna       68.7      627       Frankfurt          78.7            555          Toronto          62.8            2.56
Frankfurt     67.9      620        Toronto           77.2            543         Montreal          62.8            2.56
  Milan       66.3      606         Vienna           76.7            543           Los             62.2            2.54
                                                                                  Angeles
 London       62.4      569      Hong Kong           76.5            543           Vienna          60.0            2.44
 Toronto      61.6      563       Montreal           75.6            543            Paris          53.1            2.16
Montreal      60.7      555         Milan            63.2            453           Milan           33.6            1.37

   Figure 6

   1 The cost of a weighted food basket containing 39 items.
   2 A basket of services featuring 19 items (including the cost of a house cleaner, a visit to the hairdresser,
   dry cleaning, total monthly phone bills, a meal in a restaurant and the price of a cinema ticket).
   3 Price of a one-way ride on public transport (bus, tram or underground) of about 10 km (6 miles) or at
   least 10 stops.

   Source: Union Bank of Switzerland, Prices and Earnings Around the Globe : An international comparison
   of purchasing power, Swiss Economic Research, 2000 Edition.
  Affordable housing is another major contributor to Montreal‟s excellent cost of
  living. The UBS study also shows that it is less expensive to rent an apartment in
  Montreal than in many major cities across the world (Figure 7).


        Index of re nts for an unfurnished 3-
                  room apartment,
                  medium category
          Selected c ities worldwide - 2000
                     Zurich = 100
         (The highe r the index, the higher
                        the rent)
                                1,2
   City                 Index                    CDN $
   London               214.2                    4,607
   Hong Kong            203.7                    4,380
   New York             192.1                    4,131
   Tokyo                188.9                    4,063
   Los Angeles          157.4                    3,384
   Chicago              157.4                    3,384
   Zurich               100.0                    2,151
   Paris                85.3                     1,834
   Oslo                 80.5                     1,732
   Toronto              71.6                     1,539
   Vienna               71.6                     1,539
   Frankfurt            71.6                     1,539
   Milan                70.5                     1,517
   Stockholm            52.6                     1,132
    Montreal            41.6                     894
Figure 7

1 Average monthly rents (excluding extreme values) on the free housing market at the time of this survey.
2 The rents quoted are for apartments built after 1980 (3 rooms, kitchen, bathroom, no garage, including
all ancillary costs) that provide a typical local standard of comfort and are close to the city center.

Source: Union Bank of Switzerland, Prices and Earnings Around the Globe : An international comparison
of purchasing power, Swiss Economic Research, 2000 Edition
The cost of a new home is also considerably lower in Montreal compared to other
large cities across the US and even Canada. Rec ent statistics from the Canada
Mortgage and Housing Corporation (the Canadian government‟s national housing
agency) and the National Association of Realtors (a national industry agency)
demonstrate Montreal‟s winning position for affordable housing (Figure 8).
                    Index of the average (or median) price of a ne w
                                       home - 2000
                            Several North Ame rica n regions
                                     Montreal = 100
                       (The highe r the index, the higher the re nt)
           City or Region                        New home
           Montreal                              100.0                169,233
           Ottawa                                132.0                223,357
           Toronto                               175.8                297,550
           Vancouver                             248.0                419,625
           US Midwest                            106.8                180,749
           US South                              114.6                193,967
           US North-East                         122.7                207,631
           US West                               165.2                279,515

Figure 8
1
    Average price for a new home in Canada and median price for a existing home in the United States.
2
    The exchange rate used for the conversion: 1 $ US = 1,4852 $ CDN.

Source: Canada Mortgage and Housing Corporation and National Association of Realtors.
For more information, contact the CMHC and the NAR.



     For our purposes, the most important things to note about all of thes e statistics are
     as follows:
     -    Montreal‟s favorable comparison versus New York, Los Angeles, Chicago and
          Toronto; and
     -    how this favorable comparison of cost of living translates into comparably
          lower wages and lower business expenses. Which in turn, get passed on as
          lower costs to companies doing business with Montreal based enterprises.


The salary calculator
  Yearly salary surveys conducted by Marketing Magazine (Canada‟s premiere
  marketing and advertising industry resource) and Ad Age (a top US industry
  publication) typically show that average salaries for similar positions are equal in
  absolute dollars.

     In other words, the average salary for an ad agency Account Executive in the US is
     $50,000 (US), according the 2001 salary survey conducted by Ad Age and market
     research company Irwin Broh Associates (published by Ad Age, December 12,
     2001)

     The equivalent Canadian study, published October 29, 2001 by Marketing
     Magazine, shows the salary range for Account Executives in Canada to be
     between $30, 000 to $60,000 CDN.

     Similar trends show up across the board for most agency positions. Similar studies
     show similar trends in technology positions such as design engineering, product
     management and so on.
In real dollars, equivalent employee salaries actually translate int o a benefit for
Canadian employers selling products and services into the US market. What it
means is that a Canadian based marketing company is paying its employees and
other business expenses in Canadian dollars, but is collecting revenue in US
dollars.

The exchange rate allows Canadian companies to charge lower prices for similar
goods and services as may be found in the US, while at the same time maintaining
satisfactory profit margins.
Why major corporations do not setup head office s in Montreal

Politics create a unique environment for small business
 A major discussion on this topic is beyond the scope of this paper – we‟ll leave that
 for The Economist magazine. Suffice it to say that provincial and federal politics
 over control of Quebec, Montreal‟s province, have created a negative environment
 for „Big Business‟.

  The most commonly cited issue why major corporations do not settle in Montreal
  (or in fact, have left Montreal since the late 70‟s) has much to do with Quebec‟s
  separatist government and its policies of succeeding from Canada, as well as the
  government‟s strong enforcement of French as the official language of the
  province. Add to that poor fiscal policies that do not compete with the better
  practices of other major cities (as far as big business is concerned), and you get
  what is Montreal today.

  Fact is, in the early days, Montreal was once the center of North America
  commerce competing with New York for wealthy European settlers. Now the city
  has really become a small enterprise met ropolis. As mentioned, big businesses
  across a wide range of sectors, have long forgotten Montreal as a „head office‟
  location of choice – Toronto has taken that honor. Nevertheless, history and
  target ed government investment programs have created tremendous industries in
  auto manufacturing, aerospace, pharmaceutical research and new technologies.

  In fact, the Quebec provincial government continues to poor millions of dollars into
  supporting small business initiatives in the technology sector. The Mont real
  Gazette reported on May 21, 2002 the provincial government‟s plans to provide
  $28 million dollars in tax incentives for 12 new companies to establish themselves
  in the EZone – creating 2600 new jobs. The E Zone is a geographic area in
  Montreal where many technology startups and small cap ventures have located
  their offic es and facilities. There are many active government programs that
  provide tax credits for R&D investment, as well as employee subsidies to
  employers within the technology sector.

  The financial support provided by the government allows small business with the
  liquidity to acquire assets and top talent. In turn, the lower operating costs help
  keep Canadian prices low when competing in the US market.
Montreal culture – the main strategic advantage

Educated, young work force
 There are four major university establishments in Montreal: two French -speaking
 and two English-speaking. Throughout the province, there were over 227,000
 students enrolled in 1999.

  Several institutions offer specialized training programs, particularly in leading -edge
  industrial sectors such as aerospace, pharmac euticals, and Information
  Technologies. In fact, sixteen university-level institutions across the provinc e grant
  approximately 6,200 degrees every year in the applied sciences. The Université
  de Mont réal (French language) and McGill University offer specific programs in
  cryptography, and local res earc hers Gilles Brassard and Claude Crépeau are
  considered to be two of the world's foremost cryptographers.


Creative arts and new media Mecca
  Montreal is no slouch when it comes to creative talent – a key resource for
  marketing companies. Wired magazine recently rated Mont real on par with New
  York City for its large and diverse multimedia offerings. Additionally, Holly wood is
  filming an ever-increasing number of major motion pictures in Montreal (in part
  because of scenery and lower cost, but also because of its pre and post production
  facilities and talent). Montreal also features numerous international festivals in
  comedy, jazz, film, fireworks and more.

  The low operating cost structure, combined with government financ ial incentive
  programs for these disciplines have result ed in a creative talent pool that is young,
  educated, affordable and, above all, very skilled.


High tech concentration
  In the last 20 years, the share of high technology in Quebec's exports has
  increased from 10% to 23%. Production in Quebec 's high -tech industries is two
  times higher than the Canadian average. Currently, Montreal supports 85% of the
  R&D activities in Quebec, representing close to 25% of R& D spending in Canada.

  The biot echnology sector is a good example of technological growth. According to
  Ernst & Young, 40% of Canadian biotec hnology companies today are loc ated in
  Quebec compared to 21% in 1994. In 1989, the industry was practically non -
  existent in the province, yet seven years later, Quebec boasts 89 biotechnology
  firms and predicts 200 near the turn of the century.

  The metropolitan Montreal area maintains a critical mass of 2,750 technology
  companies, which generate over 150,000 jobs. Over 550 technology companies, a
  majority of which are small - and medium-sized businesses, saw growth of 20% and
  more between 2000 and 2001.

  Montreal is ranked eighth in employment among the North American technology
  hubs, but it ranks only third behind Philadelphia and New York on a per capita
  basis and is at par with Boston and San Francisco/Silicon Valley.

  Interestingly enough, Montreal is one of only two cities where a complete aircraft
  can be built from start to finish. Montreal‟s „West Island‟ district is home to
  Canadian head office and R& D centers of the all of the top pharmaceutical
companies. And Montreal is less than a two-hour drive from Ottawa, Canada‟s
capitol, where Canada‟s highest concentration of IT companies have set up base.

The high tech concentration is important for two reasons. First, it demonstrates
Montreal‟s ability to hire and retain top talent in knowledge -based industries, and
second, the high quantity of technology jobs spawns a signific ant support
industry – not the least of which is a pool of marketing talent well versed in
technology businesses.
Getting over the ‘not made here’ syndrome

The language concern
  By and large Americ ans are very proud of their heritage and talents – and so they
  should be. Americans and American institutions are at the fore front of modern
  civilization. Without a doubt, America is a leader on virtually all fronts.

  The inherent tendency, naturally, for American companies is to want to deal with
  other American companies. Beyond the economic advantages that Mont real
  based com panies offer, American businesses do in fact share a common
  language, set of values and so on.

  Language in Montreal, is a real concern for American businesses. This is because
  Montreal demographics represent the city as being about 80% French speaking. In
  reality, however, the language of technology is English. Knowledge-workers are
  predominantly English speaking (raised and educated). This is because the main
  market for technology goods is the US. Except for language, Montrealers actually
  live a typically American lifestyle and culture – from cars to books, sports to
  movies, music to TV, and food to clothes. Furthermore, language is never really an
  issue as most Montrealers, regardless of the industry they work in, are bilingual
  and many speak three or more languages quit e fluently.

  Language aside, Canada is viewed as a foreign country by many Americans.
  Canadians, on the ot her hand view America as an economic partner, political ally
  and best friend (on virtually all fronts). Particularly in business, the US is viewed by
  Canadians as the market to be in. Make no mistake, Canadian business is very
  much in tune with US business, political and social issues – and Canadians view
  these issues as their very own.


The quality of work concern
  Quality of Canadian work may still be a concern for some American businesses. In
  other words, the thinking may be „Can it be done as good up there as it can be
  done here?‟

  The answer is a resounding Yes! Canada, quite simply, has very high standards in
  education, quality of life, health sciences, research and even production.

  The Firebird and Camaro have been built in Montreal for decades. The regional
  jets that fly overhead are built here. Several well-known prescription and OTC drug
  brands sold in the US have been developed in Montreal. Major motion pictures
  such as The Score (Robert DeNiro) and Driven (Sylvester Stallone) were filmed in
  Montreal. Not to mention top Hollywood stars like Pamela Anderson, Jim Carrey
  and William Shat ner were all Canadians.

  In summary, the quality of work produc ed in Canada is second to none. And
  Canadian workers realiz e that they are not just working for goods and services to
  be sold in Canada, but that these goods and services must compete and win in the
  US market.
Marketing program cost compari sons

Program cost comparisons
  It is virtually impossible to scientific ally compare marketing and communications
  programs executed in Canada vs the US. There are too many hard -to-measure
  variables such as program scope and proficiency level of the agency performing
  the work.

  My personal experience of working wit h agencies on both sides of the border for
  over a decade have allowed me to compare these costs across a wide range of
  marketing programs. In general, my experience has been that Canadian marketing
  and communications firms typically quote and bill at the same amount or less than
  their American counterparts in abs olute dollars. When exchange rates are figured
  in, the Canadian pricing has always been lower.

  It goes without saying that a good starting point for any marketer would be to
  request a propos al for their program(s) by at least one Canadian and one US firm,
  and then compare the companies‟ competencies and pricing.


Ownership and copyrights
 There has been much debate within the creative arts community about who owns
 the work. While the practice largely differs from one artist or company to another,
 the general practice in Montreal is that the work ultimately belongs to the company
 that commissions it (except where expressly prohibited by law).

  For the client, this generally means that any artwork that is created specifically for
  them, can be used, without additional charge in any way they see fit and for
  however long a period of time they desire. In short, any non-propriet ary work
  created by graphic artists, illustrators, copywriters and code developers is generally
  royalty free.
Conclusion
   Budget pressures for technology marketers are nothing new. The competitive
   landscape continuously forces marketing manag ers in this business sector to balance
   tried and true marketing programs with innovative new ideas while keeping costs in
   check.

    Due to a culmination of various factors, Montreal is emerging as a strategic center for
    providing marketing and communications services for companies involved in the
    technology sectors. Montreal‟s business composition, which is vastly technology
    focused, as well as its extensive knowledge -based work force and applied sciences
    university network, plus the benefits Montreal gains from a lower employee
    compens ation structure, government financial incentive programs and the Canadian
    dollar exchange differential, all combine to produce a very strong argument why US
    technology companies should consider using Canadian marketing and
    communications firms.

    Considering the above-mentioned factors, as well as the proliferation of the Internet,
    email and low-cost long-distanc e, Montreal marketing and communications firms offer
    a significant cost advantage over their equivalently skilled US counterparts.




About the author
   Dan Pirro is a published marketing and communications strategist who has worked in
   directing marketing and communications strategies and programs in the comput er,
   telecom, and IT industries within startup, medium-sized and large enterprises. Dan is
   Chief Strategist at Emergium, a full service marketing and communications company
   focused on getting technology companies out in front in their market segments. He
   can be reached at dan.pirro@emergiumtech.com.
RESOURCES:

  Exchange rates data: http://finance.yahoo.com/
  Cost of Living in Quebec:
  http://www.infostat.gouv. qc.ca/ vq/index.htm?lg= an&th=8& rt=1&cp=index.htm
  Investing in Quebec:
  http://www.infostat.gouv. qc.ca/iq/index.htm?lg=an&th= 1&rt=1&cp=index.htm
  Runz heimer – relocation and employee compensation specialists:
  http://www.runzheimer.com/dcrc/scripts/dcrintro.asp
  Adage.com salary survey 2001: http://www.adage.com/news.cms?news Id=33625
  Marketing Magazine‟s Canadian agency salary survey 2001: www.marketingmag.ca
  Moore‟s Law: www.intel.com
  Canada Mort gage and Housing Corporation: http://www.cmhc -schl.gc.ca
  National Association of Realtors: http://www.nar.realtor.com

				
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