U.S. Performing Well for Cost Competitiveness in Manufacturing
Traditionally, Asia and the Eastern European countries have been viewed as areas to buy from when it comes to manufacturing. Various practices and overhead expenses play a role in the cost of manufacturing to which countries such as China have historically been able to undercut many suppliers. However, recent studies show that this isn’t completely the case in today’s comparisons of manufacturing costs, and purchasers need to be aware of the change within the balance. In fact, countries that were once believed to be expensive to purchase from have been found to be less costly than originally thought.
According to analysis from the Boston Consulting Group, the United States and Mexico are rated as rising stars due to the decrease in costs for manufacturing. Overall, costs in the United States have decreased from 10- to 20-percent lower than many of the world’s top 10 leading exporting nations — with the exception of China. This is evidence that many of the beliefs that US manufacturing is too expensive, prompting many companies to seek sourcing projects from overseas.
The index that the BCG utilizes takes into consideration four major aspects of manufacturing. This includes the growth of productivity, energy costs, currency rates and wages. Within this index, the 25 countries listed represent almost 90 percent of the exports of manufactured goods worldwide.
During the analysis, BCG found specific patterns that attribute to the change for the exporting nations and how each affected the other. These four patterns are:
Since 2004, many of the low-cost manufacturing sites have deteriorated in terms of financial advantage. Wage increases, lagging growth in productivity, rises in energy costs and other factors have changed the overall costs of these nations. It is this impact that has turned Brazil, one of the lower-cost manufacturing areas prior to 2004, into one of the highest-cost manufacturing countries.
In European countries, energy costs and low productivity growth are the prominent reasons for many of these areas to become more expensive to utilize than before. Countries that were expensive to use before have only worsened over time. Belgium, Sweden, France, Switzerland and Italy have all increased in cost compared to those of the United States between 6 and 10 percent.
While some countries are faced with declining currency rates, the growth of productivity to compensate has kept some areas holding steady in terms of costs. Countries such as the United Kingdom and the Netherlands have kept a steady pace of productivity growth, assisting in competitiveness as other countries experience more harsh conditions.
North American manufacturing interests have improved thanks to the decrease in natural gas prices, the steady growth of production, the stability in wages and stable currency exchange rates. It is these factors that have helped Mexico surpass many Chinese exporting manufacturers in terms of lowered costs.
Two of the major contributing factors for the shift in manufacturing costs are wages and energy. While wages may not be an easy cost to eliminate or adapt, technologies for energy are developing rapidly. Many manufacturers are beginning to turn to using renewable sources in order to compensate for high energy costs. Elements such as wind, solar and geothermal technologies are being attached to new manufacturing establishments more often than in previous years. However, gasoline prices for shipping still play an integral part in the overall costs for distributing goods.
Statement: This post is only the personal view of the author and does not represent the opinions of ALLPCB.com.