Several recent sources have reported good news on the near- and reshoring front. As one report says, who would have thought a decade ago that Brazil would now be one of the highest cost countries for manufacturing, or that Mexico would be cheaper than China?
The Reshoring Institute reports a continuing trend for manufacturing to move to Mexico, and also the US. This is very good news indeed! We at Proficient Sourcing stand by to assist anyone seeking improved manufacturing sources in the US. Let the trend continue!
The Boston Consulting Group (BCG) analyzed manufacturing costs for the world’s 25 leading exporting economies in their article “The Shifting Economics of Global Manufacturing”. Below is a recap of that article.
The BCG analysis revealed shifts in relative costs that demonstrate significant change over the past 10 years (2004-2014). The key manufacturing costs included in their analysis were manufacturing wages, labor productivity, energy costs, and exchange rates. The 25 economies studied account for nearly 90 percent of global exports of manufacturing goods.
The BCG Global Manufacturing Cost-Competitiveness Index has revealed shifts in relative costs that should drive many companies to rethink decades old assumptions about sourcing strategies and where to build future production capacity.
In developing the index, the BCG observed that cost competitiveness has improved for several countries (particularly the US!) and become relatively less attractive for others. Within the index, the BCG identified four distinct patterns of change in manufacturing cost competitiveness, which are these:
- Under Pressure. Several economies traditionally regarded as low-cost appear to be under pressure and cost advantages have significantly eroded since 2004. For example, at the factory gate, China’s estimated manufacturing cost advantage over the US has shrunk to LESS THAN 5%! Brazil is now estimated to be more expensive than much of Western Europe. Further, Poland, the Czech Republic, and Russia have also seen their cost competitiveness deteriorate on a relative basis. They are now estimated to be at near parity with the US.
- Losing Ground. Several traditional high-cost countries that were already relatively expensive a decade ago have lost additional ground, resulting in 16-30% cost gaps relative to the US. This is largely because of weak productivity growth and rising energy costs. Included in this category are Australia, Belgium, France, Italy, Sweden and Switzerland.
- Holding Steady. From 2004 to 2014 the manufacturing cost competitiveness of a handful of countries held steady relative to the US. Rapid productivity growth and depreciating currencies have helped keep costs in check in economies such as India and Indonesia, even as wages have increased.
- Rising Global Stars. Cost structures in Mexico and the US improved more than those in all of the other 25 largest exporting economies. Because of low wage growth, sustained productivity gains, stable exchange rates, and a big energy cost advantage, Mexico and the US are the current rising stars of global manufacturing. Boston Consulting Group now estimates that Mexico has lower average manufacturing costs than China on a unit-cost basis. And except for China and South Korea, the rest of the world’s top-ten goods exporters are 10-25% more expensive than the US.
The Reshoring Institute offers a comprehensive worksheet to assist in evaluating different countries’ costs of manufacturing. If you are interested in the Total Cost of Ownership Estimator, you can access it here: https://www.reshorenow.org/tco-estimator/. If you do use this tool, we would be especially grateful if you share your observations compared to the BCG’s cost index on our blog. Thank you in advance for that information.
https://www.bcgperspectives.com/content/articles/lean_manufacturing_globalization_shifting_economics_global_manufacturing/ is the website for the complete Boston Consulting Group article.