Oh Canada by mudoc123


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

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 expected to show tremendous
sequential growth. 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 with 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 marketing costs has recently presented
itself. American based marketers electing to do business with Canadian marketing
suppliers can save 50% or more on their marketing 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

  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 worth over $1.50 Canadian (Figure 2).

Figure 1
Source: Yahoo! Inc.

Figure 2
Source: Yahoo! Inc.

  Some may argue that goods and services are probably higher priced in Canada,
  and that duties and taxes will eat away at any dollar exchange advantage. 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 Montreal 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 purchase 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 anywhere 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. Montreal is a world-class city that somehow evolved differently than the
 sprawling metropolises of cities like New York, Los Angeles and Toronto.

  Even with the high tax rate and seemingly lower salaries, Montrealers do have
  significant purchasing power. According to a study conducted in 2001 by
  Runzheimer 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 Montreal
    is indeed a very affordable place to live (Figure 4).

Figure 4
  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 Switzerland, Prices and Earnings Around the Globe: An
international comparison of purchasing power, Swiss Economic Research, 2000
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
  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 various consumption items
                   for selected cities worldwide - 2000
                               Zurich = 100
    (The higher the index, the higher the price of goods and 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
 Chicago      93.4      853        London           104.9            747          Stockhol         84.2            3.43
  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
Stockholm     76.2      695          Los             85.9            611         New York          69.2            2.82
  Paris       73.0      667          Paris           85.5            611            Hong           68.6            2.80
 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
 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 rents for an unfurnished 3-
                  room apartment,
                 medium category
          Selected cities worldwide - 2000
                    Zurich = 100
         (The higher the index, the higher
                      the rent)
   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. Recent 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 new
                                     home - 2000
                            Several North American regions
                                    Montreal = 100
                      (The higher the index, the higher the rent)
           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
Average price for a new home in Canada and median price for a existing home in the United States.
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 these 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,

    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 into 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

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 offices 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 metropolis. 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
  targeted 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 Montreal
  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 EZone is a geographic area in
  Montreal where many technology startups and small cap ventures have located
  their offices 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, pharmaceuticals, and Information
  Technologies. In fact, sixteen university-level institutions across the province grant
  approximately 6,200 degrees every year in the applied sciences. The Université
  de Montréal (French language) and McGill University offer specific programs in
  cryptography, and local researchers 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 Montreal on par with New
  York City for its large and diverse multimedia offerings. Additionally, Hollywood 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 financial incentive
  programs for these disciplines have resulted 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 biotechnology sector is a good example of technological growth. According to
  Ernst & Young, 40% of Canadian biotechnology companies today are located 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 significant 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 Americans are very proud of their heritage and talents – and so they
 should be. Americans and American institutions are at the forefront 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 Montreal
 based companies 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 quite fluently.

 Language aside, Canada is viewed as a foreign country by many Americans.
 Canadians, on the other 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 Shatner were all Canadians.

 In summary, the quality of work produced in Canada is second to none. And
 Canadian workers realize 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 comparisons

Program cost comparisons
  It is virtually impossible to scientifically 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 with 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 absolute 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 proposal 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-proprietary work
  created by graphic artists, illustrators, copywriters and code developers is generally
  royalty free.
   Budget pressures for technology marketers are nothing new. The competitive
   landscape continuously forces marketing managers in this business sector to balance
   tried and true marketing programs with innovative new ideas while keeping costs in

    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 workforce and applied sciences
    university network, plus the benefits Montreal gains from a lower employee
    compensation 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-distance, 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 computer,
   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.

  Exchange rates data: http://finance.yahoo.com/
  Cost of Living in Quebec:
  Investing in Quebec:
  Runzheimer – relocation and employee compensation specialists:
  Adage.com salary survey 2001: http://www.adage.com/news.cms?newsId=33625
  Marketing Magazine‟s Canadian agency salary survey 2001: www.marketingmag.ca
  Moore‟s Law: www.intel.com
  Canada Mortgage and Housing Corporation: http://www.cmhc-schl.gc.ca
  National Association of Realtors: http://www.nar.realtor.com

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