This was the first time Australia has participated in the study.

Narrowly ahead of Australia in cost competitiveness was Canada, whereas the most expensive countries to set up and do business were Japan and Germany.

The United States, seventh in the rankings, had the greatest improvement in cost-competitiveness since 2002 of any of the countries in the study mainly due to the decline in the value of the US dollar relative to all major world currencies, KPMG said.

By comparison, Australia holds an 8.5% cost-advantage over the United States.

KPMG's 2004 Competitive Alternatives study measured 27 cost components - such as labour, taxes and utilities - applied to business operations in 11 countries: Australia, Canada, France, Germany, Iceland, Italy, Japan, Luxembourg, the Netherlands, the UK and the US.

The research included an analysis of these costs in 121 cities worldwide. The study's basis for comparison was the after-tax cost of start-up and operation for 12 types of business, over a 10-year span.

"This study offers a comprehensive guide for comparing global business costs and contains essential information for any company seeking a cost advantage in locating international business operations," Mitch Craig, KPMG national partner in charge of risk advisory services said.

"The study revealed that Australia has the lowest business costs for eight of the 17 business operations considered in the overall results. Most of these business operations being a part of the manufacturing and software industries.

"From the results of the survey, it is evident that Australia is a cost effective location to establish a business. In addition, Australia is geographically well positioned as an access point to the growth markets in Asia."

James Allt-Graham, KPMG partner in charge, business performance services, said facility ownership, transport, utility costs and taxes were the most significant location sensitive costs in the survey, with Australia rating well in all these categories.

"Although business costs and related location issues are important considerations in the site selection process, companies should be sure to also assess the impact of other incentives offered by governments that may alter the cost-attractiveness of alternative sites," he said.

According to the study, labour costs typically represent 56% to 72% of location-sensitive costs for manufacturing operations and 75% to 85% for non-manufacturing operations. Facility costs represent the second largest location-sensitive cost factor, with taxes being another key factor.

"Australia is at an advantage in all of these business costs with the study revealing that initial investment costs for a new industrial facility are the lowest in the United States, followed by Australia, Canada and France," Allt-Graham said.

The Australian cities included in the study were Melbourne, Sydney, Brisbane, Adelaide, and Canberra. In the analysis of cities with populations of 2 million or greater, Melbourne ranked second internationally. Whereas when comparing Australian cities, Adelaide is ranked in the survey as the least costly city to set up and do business, closely followed by Brisbane and Canberra.

Commenting on the cost-competitiveness of cities in the study, Allt-Graham said, "There is often a trade-off between larger cities with deeper labour pools and better support infrastructure, and smaller cities, which tend to have lower labour and facility costs."

"While cost is an important factor, selecting the best site for a business operation requires balanced consideration of many factors, including business environment, cost of living, and quality of life issues," Craig said. MiningNews.net