It’s the USA and Mexico, according to a recent survey of senior business leaders. And the USA comes out #1 as well. When evaluating low-cost locations worldwide for the production of goods bound for the North American market, small and mid-size manufacturing executives say the USA and Mexico are at the top of the list, beating China by a margin of over four to one.
This study was completed earlier this year (2014) by Entrada Group, a company that helps international manufacturers transition to Mexico swiftly and cost effectively. Despite their bias towards locating in Mexico, the study found the USA to be the most attractive low-cost manufacturing location. Good news for us, indeed.
We have frequently reported news of US manufacturing growth, and also of increasing difficulties with relying on Chinese facilities. Obviously, transit time and the need for large inventories are among these issues. But with Chinese costs increasing at a rapid pace, management is finding US sourcing a better and better option.
The survey was conducted using responses from mostly VP level and higher from companies headquartered in the US and Canada. 70% of these respondents lead companies with less than 500 employees, and almost all manufacture items for the North American market.
This report, “Where in the World”, which you can obtain at https://www.entradagroup.com/survey2014/, listed these key findings:
1. Proximity is appealing. The USA is the most attractive low-cost manufacturing location among all the respondents. If the responding company already manufactures in two or more locations (headquarters plus one or more), Mexico and the US tied as the top choice.
2. Experience with Expansion Matters. Not surprisingly, companies that currently manufacture at two or more locations revealed a greater appetite for future expansion to a low cost location. 67% of companies that already manufacture in multiple locations say they plan additional expansion in the future, as compared to 33% of single location manufacturers.
3. Quality and the Bottom Line Both Count. We have long believed that quality is the overriding issue for long term success. There is no substitute for products that perform as advertised. Thus, it is gratifying to see this report note that high quality production is the most important factor when choosing a manufacturing destination. It is also instructive that motivation for past expansion was operating costs over high quality production by a 2-1 margin. If this was typical of past location decisions, it is not surprising that reshoring is on the rise.
4. Cost Savings are not always realized. Companies that expanded to a “low cost manufacturing location” achieved their goals to a large extent just half the time, with half realizing just moderate savings or worse.
5. Today China is the most common low-cost location, followed by Mexico. More than half of survey respondents currently manufacture product in China, and 35% manufacture in Mexico. 40% of firms that manufacture product in China also manufacture in Mexico. A presence in both countries makes sense for those delivering to regional markets. But it seems as if there is substantial movement away from China, and that’s good news for us.
If you are considering expansion, or better yet, bringing work back to the USA (reshoring), we hope you will keep us in mind. Proficient Sourcing has a very large list of excellent companies to assist your localizing supply of parts, assemblies, or even whole products, and you can find most capabilities listed here: https://proficientsourcing.com/disciplines/ .
A particularly useful tool for comparing country cost is the total cost of ownership (TCO) estimator, which was developed by Harry Moser, the founder of the Reshoring Initiative https://www.reshorenow.org/. This worksheet helps companies compare location costs of different countries. You can also find reshoring information to download on our website.