The best cities for business in Canada

Our survey of 41 major urban centres in Canada finds that bigger isn't necessarily better.

It's all too easy to poke holes in Molson Inc.'s recent business plans, particularly in light of the proposed merger with Adolph Coors Co., which as yet has failed to win over shareholders. The company's latest gambit, though — a $35-million state-of-the-art brewing palace in Moncton, N.B. — actually makes a lot of sense. Moncton is centrally located in Molson's hitherto weakest sales territory, the Maritimes; it has a bilingual workforce that must appeal to the Montreal-based brewer; and it provides proximity to the U.S. northeast, a prime market for beer exports. But Moncton is also the best place to open a business in Canada outside Quebec, according to a new Canadian Business study. Not bad for the sleepy little town of 120,000, most noted for its aptly named tidal bore, and Magnetic Hill, a natural optical illusion where cars appear to roll uphill.

Setting up a 250-person business in Moncton costs $3.6 million less than doing the same thing in Vancouver — Canada's most expensive and worst-performing English-speaking city, according to our survey, which examined the operating costs of doing business (salaries and benefits, construction costs, utilities, taxes, travel and equipment costs), the cost of living, economic growth and crime rates in each of the country's 40 largest metropolitan areas, plus Charlottetown. (This year's survey separated out English-Canadian and Quebec cities, reflecting their differences in culture, business climate, laws and corporate appeal.)

Not that it's all doom and gloom for big cities. Even Vancouver's economic fortunes, along with those of British Columbia, are on the verge of a revival thanks to a pro-business government elected three years ago. In fact, Vancouver attracted two of the most coveted U.S. corporate relocation projects last year: eBay Inc. set up a support centre in Burnaby, and JPMorgan Chase & Co. opened a major financial services office. Toronto, meanwhile, is getting Apotex Inc.'s $627-million expansion of its generic drug manufacturing business, and CanWest Global Communications Corp. is looking to build its media headquarters in the Big Smoke rather than in its hometown of Winnipeg.

Business operating costs are typically lower in places such as Moncton, Saguenay, Que., and Peterborough, Ont., and so is the cost of living. There are also more esoteric advantages, such as greater accessibility to local politicians, better labour relations and being a star employer in a smaller pond.

Whatever the incentive, corporations are choosing seemingly out-of-the-way locations for many of their new projects. For example, Bank of Montreal picked Barrie, Ont., for a new data centre that could provide up to 600 jobs by 2008. Hot nutriceutical manufacturer Fortius Canada Inc. stepped out of Calgary to join Charlottetown's burgeoning biotech cluster. And Sun Life Assurance Co. is setting up a call centre in Lethbridge, Alta., even though it initially thought the city, some 170 kilometres south of Calgary, would be too small. John Boyd, president of site location consultant Boyd Co. Inc. in Princeton, N.J. — which assisted in our Best Cities ranking — says Sun Life's move is a textbook example of why big companies are moving into smaller locations. “Higher labour productivity, lower turnover, and greater community involvement are all reflective of smaller-market cities,” says Boyd. “Smaller-market cities are also more likely to provide the level of cost reductions necessary to write off the significant and escalating upfront costs associated with a move.” That is an important consideration, since moving a mid-sized business can cost up to $7.5 million in employee relocation, severance and incentive pay, and consulting fees.

Blake Hutcheson, president of real estate firm CB Richard Ellis in Toronto, notes some businesses have to be in certain cities, regardless of the cost, though. The hottest office markets in Canada right now are in downtown Calgary, Vancouver and Toronto — all expensive places to operate a business. “If you make a decision to be in Canada and you have to be in Toronto because you're in the financial services industry, then it becomes a competition between downtown or some of the city's peripheral areas,” Hutcheson says. There's often “a psychological barrier,” he adds, in looking further afield to places such as Barrie or Hamilton.

Nevertheless, Molson, like Sun Life, also decided to go small — and chose Moncton over a larger Atlantic city. It's just one of many businesses that have recently picked Moncton. Others include Irving Personal Care Ltd., owned by the Irving family, which opened a $60-million baby-diaper manufacturing plant in June; and Shur-Gain, a division of Maple Leaf Foods, which is building a $15-million feed mill. It's a far cry from the 1970s and 1980s when Moncton lost the CN Rail shops, which at one point employed more than a quarter of its workforce, Swift's meat packing plant and a bunch of other companies. Now, the city is far more diversified than its call-centre days of the 1990s, with manufacturing job growth currently keeping pace with call-centre employment.

Ask Moncton Mayor Lorne Mitton why his city is getting all the corporate interest and, like every other municipal official in Canada, he starts talking about the lifestyle advantages and hard-working locals. “The No. 1 thing is our quality of life,” he says. “It's the people, in my opinion, that make this city.” Although probably true, it's a common refrain. Nearly every region in Canada has access to an educated talent pool, nearby universities and some form of recreation.

Actions speak louder than such generalizations, though, and Moncton has made significant strides in taking control of its destiny. For example, four years ago the city spent $2 million on a tract of downtown land so it could better attract the types of businesses it wanted. While tenants have been slow in moving in, Rogers Communications has set up a call centre, and Mitton is hoping a provincial courthouse, convention centre, another hotel and more housing will be built in the next five years. On the northwest outskirts of town, Moncton rezoned an empty field earmarked for residential construction and turned it into a shopper's paradise at the request of such big-box retailers as Costco and Wal-Mart. The city is even actively lobbying for a Canadian Football League franchise — or, at the very least, an exhibition game next summer.

Other projects have had more concrete results. Take Molson's decision to build in Moncton — its sixth brewery, after closing two others in Barrie, Ont., and Regina, Sask., during Dan O'Neill's six years at the company, first as COO and then CEO. Sure, Molson officials say they took a look at Moncton's “rich tradition in history” and “cultural diversity.” But what they don't mention is that five years ago Moncton constructed a new water treatment plant that ensures a sweet supply of beer's primary ingredient — and the brewer will need every drop, given the proposed plant has an annual capacity of 250,000 hectolitres (that's three million cases of 24). “There's no way a brewery would look at a location that didn't have excellent water,” says Mitton. “We did that on our own, a public-private partnership that we invested in without other government funding.”

Of course, to entice Molson to come to Moncton, New Brunswick kicked in a few freebies, most notably a forgivable loan of $3.5 million to help build the brewery and create 40 new jobs within three years of commencing operations — a handout that, not surprisingly, has rankled Moosehead supporters. But New Brunswick has never been shy about adding to the corporate kitty. Canadians won't soon forget the $23 million Malcolm Bricklin cadged from the province to support his ill-fated sports car scheme. Now New Brunswick — whose biggest city, Saint John, is the 28th largest in Canada — just has to find a few more believers. “If people have information that was dated from four or five years ago, then they don't have the full picture of what is in New Brunswick today,” Premier Bernard Lord says. “Our government has worked very hard to balance the books. There have been some major shifts in tax policy in the last four years in the province.”

Indeed. Five years ago, New Brunswick had Canada's highest corporate tax rates. Now it boasts the second-lowest in English Canada. The province also has no payroll taxes, as well as the lowest small-business tax rate (2.5%), and the highest threshold of what is defined as a small business, at $425,000 of taxable earnings. Those figures will move to 1% and $500,000 by 2007. Still, Lord knows that's not enough, so the province's business development arm also spends about $25 million a year on various campaigns. For example, in October the premier led a diplomatic and economic development mission to France, and he rarely misses an opportunity to promote New Brunswick's strengths to the rest of Canada. In fact, he personally made a point of visiting Molson's O'Neill to improve Moncton's chances. “I love getting involved in these files,” says Lord. “I find it makes a difference and I enjoy it.”

If New Brunswick is on the upswing, Moncton seems to be the city taking the biggest advantage. It now has the province's highest number of businesses and employees, and its largest retail market. But Mitton knows his city can't get complacent — especially since foreign investment into Moncton has now slipped to below even the Atlantic Canada average. Aside from the usual website and economic development activities, Moncton advertises heavily in various regional, national and international publications, and is promoting the establishment of a Halifax-Moncton growth corridor.

All that work has won many fans, including Derek Oland, CEO of Moosehead Breweries. “Moncton is clearly the economic leader for New Brunswick and for the Maritimes,” Oland said during a speech to local business leaders last year. “While government and its institutions support other cities extensively, Greater Moncton has gained an international reputation as the city that pulled itself up by the bootstraps.” And as our survey shows, Moncton is certainly ready to give the rest of Canada a kick.