Monday , 17 June 2024

Where Does Your Country Rank Among the Top 25 In Global Manufacturing Cost Competitiveness?

Years of steady change in wages, productivity, energy costs, currency values, and other factors are quietly but dramatically redrawing the map of global manufacturing cost competitiveness.

The edited excerpts above, and those below, come from an article entitled The Shifting Economics of Global Manufacturing – How Cost Competitiveness Is Changing Worldwide by Harold L. Sirkin, Michael Zinser, and Justin Rose which first appeared on the site

To understand the shifting economics of global manufacturing, The Boston Consulting Group analyzed manufacturing costs for the world’s 25 leading exporting economies (accounting for nearly 90% of global exports of manufactured goods) along 4 key dimensions:

  1. manufacturing wages,
  2. labor productivity,
  3. energy costs, and
  4. exchange rates.

and, within the index, we identified 4 distinct patterns of change in manufacturing cost competitiveness:

  1. Under Pressure. Several economies that traditionally have been regarded as low-cost manufacturing bases appear to be under pressure as a result of a combination of factors that have significantly eroded their cost advantages since 2004.
  2. Losing Ground. Several traditional high-cost countries that were already relatively expensive a decade ago have lost additional ground, resulting in 16 to 30 percent cost gaps relative to the U.S.
  3. Holding Steady. From 2004 to 2014, the manufacturing cost competitiveness of a handful of countries held steady relative to the U.S.
  4. Rising Global Stars. Cost structures in Mexico and the U.S. improved more than in all of the other 25 largest exporting economies.

The new map (see HERE) increasingly resembles a quilt-work pattern of low-cost economies, high-cost economies, and many that fall in between, spanning all regions. In some cases, the shifts in relative costs are startling.

For the better part of 30 years Latin America, Eastern Europe, and most of Asia, have been viewed as low-cost regions while the U.S., Western Europe, and Japan have been viewed as having high costs but this worldview is now out of date. Who would have thought a decade ago that Brazil would now be one of the highest-­cost countries for manufacturing—or that Mexico could be cheaper than China?

The new 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.


One comment

  1. The following comment came to my personal email address which I would like to share with you. Add your own comment after having done so.

    “I was just reading the article on global manufacturing costs. If it were not for the source (The Boston Consulting Group) I would have dismissed it out of hand. However there has to be something fatally flawed with the analysis.

    Without even getting into a comparison between China and the U.S. if we look at Australia versus the U.S. they have Australia labour rates + productivity factor at twice that of the U.S. I will agree that Australia is not a world leader in the manufacturing sector but they are definitely not that far behind the U.S.

    In addition the reports sets “other” as comparable across the board at just under “80”. What is other? It would have to be things like cost of capital, infrastructure level and costs, taxation, etc. and those are definitely NOT comparable across all these economies.

    There are any number of simple comparisons like this that would make me seriously doubt this report’s conclusions.

    In addition you cannot simple define manufacturing as a single group. The underlying cost structures of making ladies knickers as opposed to commercial airliners are entirely different….I was involved in a global competitive analysis study myself years ago and one of the outcomes of that study was: if a product had less than 10% direct labour costs it could be made anywhere in the world and should therefore be located closest to its major market.

    I also hear lots of noise these days about labour productivity and it is certainly a big factor in manufacturing costs. There is also a lot of noise about wage inflation in China, which is currently running at 13%. However you need to balance that against labour productivity improvements that are running at a similar level.

    I spent 15 years in manufacturing and based on that experience I would suggest this report is seriously flawed.”