Harold L. Sirkin, Bloomberg Businessweek, Friday April 25, 2014, published some research conclusions on manufacturing costs in different countries around the globe and verified that the fact U.S. cannot compete in the manufacturing arena with low-cost competitors such as China and Brazil, is no longer true.
I recently completed a review of manufacturing costs in the top 25 export economies with my colleagues Justin Rose and Michael Zinser. Our research shows that when the most important economic factors are considered—total labor costs, energy expenses, productivity growth, and currency exchange rates—Brazil is one of the highest-cost manufacturing nations in the world, Mexico is cheaper than China, China is virtually even with the U.S. (as are most of the traditionally “low-cost” countries of eastern Europe), and the low-cost leader in western Europe is none other than the country that launched the Industrial Revolution: the United Kingdom.
As Chinese labor costs rise, American productivity improves, and U.S. energy expenses fall, the difference in manufacturing costs between China and the U.S. has narrowed to such a degree that it’s almost negligible. For every dollar required to manufacture in the U.S., it now costs 96¢ to manufacture in China, before considering the cost of transportation to the U.S. and other factors. For many companies, that’s hardly worth it when product quality, intellectual property rights, and long-distance supply chain issues are added to the equation.
Previous cheaper havens, including Brazil, China, the Czech Republic, Poland, and Russia, experienced a significant increase in relative manufacturing costs since 2004 because of some combination of sharp wage increases, lagging productivity growth, unfavorable currency swings, and dramatic increases in energy costs.
The two countries making the greatest strides in manufacturing competitiveness were Mexico and the U.S. The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and the big energy advantage the U.S. has captured since the shale-gas boom began.
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