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 bcgperspectives.com
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:
- manufacturing wages,
- labor productivity,
- energy costs, and
- exchange rates.
and, within the index, we identified 4 distinct patterns of change in manufacturing cost competitiveness:
- 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.
- 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.
- Holding Steady. From 2004 to 2014, the manufacturing cost competitiveness of a handful of countries held steady relative to the U.S.
- 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regions while the U.S., Western Europe, and Japan have been viewed as having high costs but this worldview is now out of date.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.