The latest study released by the Boston Consulting Group (BCG) showed a remarkable shift in the global manufacturing cost, and found that the United States is a rising star in terms of global manufacturing competitiveness. According to BCG, manufacturing cost competitiveness worldwide has changed significantly over the past decade, and the old perception regarding low-cost and high-cost nations is no longer accurate. BCG senior partner and co-author of the study, Harold L. Sirkin said, “Many companies are making manufacturing investment decisions on the basis of a decades-old worldview that is sorely out of date. They still see North America and Western Europe as high cost and Latin America, Eastern Europe, and most of Asia—especially China—as low cost. In reality, there are now high and low-cost countries in nearly every region of the world.”
The rising stars
The study found that Mexico and United States are among the rising stars in the over-all manufacturing cost structures. The manufacturing cost in both is significantly improved compared with almost all other leading exporters worldwide. The study found that Mexico’s average manufacturing cost is now cheaper than China’s. On the other hand, the United States’ manufacturing costs are now 10% to 25% cheaper than the ten leading goods-exporting countries except China. According to BGC, the improvement in the manufacturing cost in the U.S. was primarily due to stable wage growth, sustained productivity gains, steady exchange rates, and a huge energy advantage because of the 50% decline in the price of natural gas.
According to the study, China, Brazil, the Czech Republic, Poland, and Russia, which are traditionally considered as low-cost nations in terms of manufacturing costs, are under pressure. The study found that the cost advantages of these countries have been eroding since 2004 due to sharp wage increases, lagging productivity growth, unfavorable currency changes and dramatic increase in energy prices. The manufacturing cost advantage of China against the United States declined to less than 5%. The costs in Eastern Europe are similar or higher than the U.S. Other countries held their manufacturing costs at a constant level compared with the U.S. since 2004 until this year. The UK emerged with the cheapest manufacturing cost in Western Europe.
Michael Zinser, a BCG partner and co-leader of the firm’s manufacturing practice said, “While labor and energy costs aren’t the only factors that influence corporate decisions on where to locate manufacturing, these striking changes represent a significant shift in the economics of global manufacturing. Zinser added that the changes should encourage companies to reconsider their sourcing strategies and the location of their future capacity. The top 10 countries in terms of manufacturing competitiveness worldwide based on BGC’s ranking are listed below.
- United States
- South Korea
- United Kingdom