Quebec City: A Gateway to United States and Europe
The world’s top financial organizations and business publications agree Canada should be at the forefront of American and international investors’ decision-making processes:
- Both Forbes and Bloomberg say Canada is the best G-20 country in which to do business;
- The Economist predicts that, from 2014 to 2018, Canada will be the best G-7 country in which to do business;
- According to the World Bank, Canada is the easiest G-7 country in which to start a business;
- For the sixth consecutive year, the World Economic Forum has declared Canada’s banking system the soundest in the world;
- Canada’s corporate tax rates are the lowest in North America.
Future growth and influence are assured with Canada’s bilateral and multilateral trade agreements offering international investors unparalleled access to markets the world over. With the Comprehensive Economic and Trade Agreement between Canada and the EU coming into force, foreign investors will have preferential access to some 980 million consumers, with a combined GDP of $35 trillion. This jumps to more than 2.3 billion consumers once the Trans-Pacific Partnership and bilateral talks involving India, Korea and Japan are completed. These opportunities coupled with projected expenditures in Canada of $800 billion in oil and gas, mining defense and shipbuilding and municipal infrastructure projects, gives some sense of just how exciting investment opportunities in Canada really are.
Spotlight on Quebec City
One city that is gaining a lot of attention is Quebec City, the capital of the province of Quebec. In contrast to its “old world charm,” the Quebec City metropolitan region has become one of the most competitive and innovative cities in North America. As one of the leading knowledge-based economies in Canada it had one of the highest GDP growths in the country during the last decade at +23 percent, with one in two jobs created in the knowledge economy.
Crucial for American and European companies looking to expand internationally, the start-up costs of setting up operations in the Quebec City metropolitan region are far less than elsewhere in Canada or in the United States.
Citing KPMG’s 2014 Competitive Alternatives study, business location costs are 9.3 percent cheaper in Quebec City, relative to the U.S. average. This cost advantage stood at 5.8 percent in 2012. Quebec City ranks No. 1 worldwide among similarly sized metropolitan regions (500,000 to 2 million inhabitants), up from No. 2 in 2012.
The reasons for these cost advantages are myriad, but include;
- A strategic geographic position in North America
Located only 100 kilometers (60 miles) from the U.S. border, the Quebec City metropolitan region is less than two hours flying time from New York City, Philadelphia and Toronto.
- A strong industrial diversity
The economic face of the Quebec City region has changed as its industrial base diversified to incorporate new and unique niches of excellence within sectors that play a key role in the world economy. The region’s seven industries — life sciences; IT and electronics; value-added materials and transportation equipment; insurance and financial services; agri-food processing, environment and energy; and tourism — generate 44 percent of the region’s GDP, which totals $33.1 billion. Sub-sectors that have recorded the strongest growth in recent years are optics/ photonics, geospatial, multimedia industry, biopharmaceuticals, nutraceuticals, cosmeceuticals, medical technologies and insurance.
- Low operating costs
Overall, it is 9.3 percent cheaper on average for a company to set up operations and do business in the Quebec City region than in U.S. cities.
KPMG’s study examines various cost factors associated with labor, facilities, transportation, utilities and tax in 19 operating sectors. In this regard,Quebec City offers a marked competitive advantage among similarly-sized metropolitan regions worldwide. In the R&D sector, the region ranks second worldwide thanks to cost advantages in the areas of clinical trials (25.3 percent cheaper), electronic systems development (24.6 percent) and biotechnology (19.3 percent). Digital services are another source of strength for Quebec City, which was ranked No. 1 due to its competitive position in video game production (25.6 percent) and software development (18.8 percent). Quebec City also came in first for business services, supported by international financial services (24.6 percent) and shared service centers (14.9 percent). Although it only accounts for 6.4 percent of the regional economy, Quebec City’s manufacturing sector is also ranked No. 1 worldwide, with special emphasis on medical equipment (6.6 percent), pharmaceutical products (5.4 percent) and telecom equipment (5.4 percent).
Among similar-sized North American cities, Quebec City ranks favorably in terms of corporate tax breaks. In Quebec City, the corporate income tax rate is 6.0 percent (all sectors combined). The total effective tax rate (i.e. the entire tax burden less tax relief) is 37.2 percent in Quebec City, compared with an average of 61.1 percent for the U.S. cities.
Companies that set up operations in the Quebec City region are eligible for a variety of tax incentives, primarily in the form of refundable tax credits, and support programs such as assistance for precompetitive research, support for hiring interns or training apprentices, loans for purchasing equipment or specialized technologies, and tax holidays for certain major projects. There are also generous tax credits for high-potential sectors such as multimedia, e-business and information/communications technology.
- A young and educated workforce
One of the most striking things about the Quebec City metropolitan region is that 90 percent of people of working age have at least a high school diploma. As a percentage of the total population, Quebec City ranks just behind Boston in terms of number of university students, and it has a larger proportion of graduate students than in any other major Canadian city.
- A thriving center for research
The Quebec City metropolitan region is home to some 6,000 researchers and associates, and the region has one of the highest concentrations of research centers in Canada, with nearly 400 labs, groups, consortiums, institutes and R&D centers, including:
- CHUQ, Canada’s leading biomedical research center;
- DRDC-Valcartier, Canada’s leading national defense research center
- INO, Canada’s leading applied optics and photonics research center;
- and, the Institute of Nutrition and Functional Foods (INAF), the first-ever nutraceutical focused research center in Canada.
It’s no wonder a growing number of companies are choosing to set up shop and do business there. The Quebec City metropolitan region is today home to 152 foreign company subsidiaries, excluding hotel, restaurant and retail operators. These subsidiaries are primarily American (47 percent) and European-owned (29 percent), and most (72 percent) operate in the key industrial sectors of the region: 33 percent in ICT and electronics; 18 percent in value-added materials and transportation equipment; 11 percent in the life sciences; and 5 percent in agri-food processing and environment and energy.
- Overcoming global challenges in a pro-active way
Beginning in the mid-1990s, leaders in the region sought ways to reduce the brain drain and make the community more attractive to international immigrants. The government of Quebec also took action to stimulate population growth by implementing family-friendly programs to encourage births, as well as strategies to regionalize immigration.
Since the beginning of the 2000s, Quebec City introduced major initiatives to attract skilled foreign workers. Drawn by the quality of life and employment opportunities, the number of immigrants to Quebec City has almost doubled since 2002 (+76 percent). The Quebec Government has been actively recruiting university graduates from all over the world to settle in Quebec. Representatives from its various diplomatic outposts regularly attend university job fairs to tout Quebec and connect them with potential local employers. For example, Quebec has been able to recruit a great number of talented foreign students studying in the United States, who, due to visa restrictions, are not able to continue working in the United States following graduation.
The timing couldn’t be better since the Quebec City metropolitan region job market started off 2014 with a bang. In the first quarter of 2014, Quebec City added 12,800 jobs compared with the fourth quarter of 2013. This gain came on top of the 11,100 jobs added during the previous quarter.
Building for the Future
In the mid-1990s, a broad-ranging strategic exercise mobilized all regional economic development stakeholders. This exercise led to the adoption of a strategic framework meant to respond to their concerns and propose solutions to support the region’s economic development.
Crucial among the challenges identified was the need to enhance the business environment and develop efficient infrastructures for companies looking to do business in Quebec City. Stakeholders mobilized to improve access to the region, develop an efficient intermodal platform, upgrade teaching and research expertise and establish high tech and industrial parks to make the region one of the most attractive in North America.
The Quebec Metro High Tech Park (QMHTP), for example, benefited from $500 million in infrastructure improvements between 2002 and 2012. It is today home to some 5,200 employees at 96 companies and research centers. Authorities are working to develop the 2 million square feet of space still available, to add another 3,000 to 4,000 workers in the near future.
Quebec City also has nearly 30 industrial zones and parks covering more than 300 million square feet that are home to approximately 3,600 companies employing nearly 64,000 workers. The development of the new Michelet and D’Estimauville innovation zones will provide additional space in the coming years.
With its blend of Latin creativity and Anglo-Saxon pragmatism, its low operating costs and a favorable climate for business development, Quebec City Metropolitan Region is the perfect gateway for U.S. companies looking to expand globally, and European companies looking to enter the North American market.
To further explore opportunities in the Quebec City region, Quebec International offers one-stop-shop services and turnkey support at every phase of the FDI lifecycle. For more info go to www.quebecinternational.ca.
Photo Credit: Office du tourisme de Québec / Jean-François Bergeron