Welcome!

News Feed Item

Study Reveals Striking Shifts in Global Manufacturing Costs Over the Past Decade

New BCG Cost-Competitiveness Index Finds Mexico Is Less Expensive Than China, the UK Is the Low-Cost Manufacturer of Western Europe, and Many Emerging Markets Known for Low Costs Are No Longer Cheaper Than the U.S.

CHICAGO, IL -- (Marketwired) -- 04/25/14 -- Manufacturing cost competitiveness around the world has changed dramatically over the past decade -- so dramatically that many old perceptions of low-cost and high-cost nations no longer hold, according to new research released today by The Boston Consulting Group (BCG).

In manufacturing, Brazil is now one of the highest-cost countries, for example, and the UK is the cheapest location in western Europe. Mexico now has lower manufacturing costs than China, while costs in much of eastern Europe are basically at parity with the U.S. These are among the findings of the new analysis, which is part of BCG's ongoing research into the shifting economics of global manufacturing. Cost competitiveness is becoming increasingly important as organizations around the world rethink their manufacturing networks and as governments recognize the economic importance of a stable manufacturing base.

To shed light on the shifting cost dynamics of global production, the firm has developed a new tool -- BCG's Global Manufacturing Cost-Competitiveness Index -- that tracks changes in production costs over the past decade in the world's 25 largest goods-exporting nations. The index covers four direct economic drivers of manufacturing competitiveness: wages, productivity growth, energy costs, and currency exchange rates. The 25 countries account for nearly 90 percent of global exports of manufactured goods.

The 10 countries with the lowest manufacturing costs, according to the index, include a mix of nations from around the world. Six of the 10 are in Asia, while several others are in North America and eastern Europe. A number of other countries have experienced extreme drops in cost-competiveness: Australia has the highest manufacturing-cost structure of the 25 -- around 30 percent higher than the U.S.

"Many companies are making manufacturing investment decisions on the basis of a decades-old worldview that is sorely out of date," said Harold L. Sirkin, a BCG senior partner and a coauthor of the analysis. "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 research identified four distinct patterns of change in manufacturing cost competitiveness over the past decade that involve most of the 25 economies studied.

  • Under Pressure. Five economies traditionally regarded as low-cost manufacturing bases -- China, Brazil, the Czech Republic, Poland, and Russia -- have seen their cost advantages erode significantly since 2004. The erosion has been driven by a confluence of sharp wage increases, lagging productivity growth, unfavorable currency swings, and a dramatic rise in energy costs. China's manufacturing-cost advantage over the U.S. has shrunk to less than 5 percent. Costs in eastern European nations are at parity or above costs in the U.S.

  • Losing Ground. Several countries that were already relatively expensive a decade ago, primarily in western Europe, have fallen even further behind. Relative to the costs in the U.S., average manufacturing costs in Belgium rose by 6 percent; in Sweden, 7 percent; in France, 9 percent; and in Switzerland and Italy, 10 percent. Higher energy costs and low productivity growth -- or even productivity declines -- are the chief reasons.

  • Holding Steady. A handful of countries held their manufacturing costs constant relative to the U.S. from 2004 to 2014 and have significantly improved their competitiveness within their regions. Declining currencies, along with productivity growth that largely offset wage hikes, helped keep overall costs in check in Indonesia and India. The UK and the Netherlands, on the other hand, have kept pace thanks to steady productivity growth. As a result, the cost structures of Indonesia and India have improved relative to Asia's other major exporters, while the UK and the Netherlands have boosted their cost competitiveness relative to other exporters in western and eastern Europe.

  • Rising Stars. The overall manufacturing-cost structures of Mexico and the U.S. have significantly improved relative to nearly all other leading exporters across the globe. The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage that is largely driven by the 50 percent fall in natural-gas prices since large-scale production of U.S. shale gas began in 2005. Mexico now has lower average manufacturing costs than China. Overall costs in the U.S., meanwhile, are 10 to 25 percent lower than those of the world's ten leading goods-exporting nations other than China.

"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," said Michael Zinser, a BCG partner who is coleader of the firm's Manufacturing practice. "These changes should drive companies to rethink their sourcing strategies, as well as where to build future capacity. Many will opt to manufacture in competitive countries closer to where goods are consumed."

The findings have implications for both companies and governments as they consider their manufacturing options. Several countries that have lost ground since 2004 risk becoming even less cost competitive if current wage and productivity trends continue. In some nations with low direct-manufacturing costs, BCG found that competitiveness could be undermined by other factors, such as a difficult business environment or poor logistical infrastructure.

"With a better understanding of where rising costs and other factors are putting their manufacturers at a disadvantage, countries can take more effective action to shore up competitiveness," said Justin Rose, a BCG partner and a coauthor.

The authors recommend that companies reassess their global production and sourcing footprints in light of today's cost structures and trends. Manufacturers need to look beyond wages and take into account total costs, including differences in productivity and hidden costs. "When companies build new manufacturing capacity, they are typically placing bets for 25 years or more," said Sirkin, who along with Zinser and Rose is coauthor of The U.S. Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback ([email protected], 2012). "They must carefully consider how relative cost structures have changed -- and how they are likely to evolve in the future."

To request a summary of the research or arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter and LinkedIn.

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
SYS-CON Events announced today that Interoute, owner-operator of one of Europe's largest networks and a global cloud services platform, has been named “Bronze Sponsor” of SYS-CON's 20th Cloud Expo, which will take place on June 6-8, 2017 at the Javits Center in New York, New York. Interoute is the owner-operator of one of Europe's largest networks and a global cloud services platform which encompasses 12 data centers, 14 virtual data centers and 31 colocation centers, with connections to 195 add...
The Software Defined Data Center (SDDC), which enables organizations to seamlessly run in a hybrid cloud model (public + private cloud), is here to stay. IDC estimates that the software-defined networking market will be valued at $3.7 billion by 2016. Security is a key component and benefit of the SDDC, and offers an opportunity to build security 'from the ground up' and weave it into the environment from day one. In his session at 16th Cloud Expo, Reuven Harrison, CTO and Co-Founder of Tufin, ...
SYS-CON Events announced today that T-Mobile will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. As America's Un-carrier, T-Mobile US, Inc., is redefining the way consumers and businesses buy wireless services through leading product and service innovation. The Company's advanced nationwide 4G LTE network delivers outstanding wireless experiences to 67.4 million customers who are unwilling to compromise on ...
SYS-CON Events announced today that HTBase will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. HTBase (Gartner 2016 Cool Vendor) delivers a Composable IT infrastructure solution architected for agility and increased efficiency. It turns compute, storage, and fabric into fluid pools of resources that are easily composed and re-composed to meet each application’s needs. With HTBase, companies can quickly prov...
SYS-CON Events announced today that Infranics will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Since 2000, Infranics has developed SysMaster Suite, which is required for the stable and efficient management of ICT infrastructure. The ICT management solution developed and provided by Infranics continues to add intelligence to the ICT infrastructure through the IMC (Infra Management Cycle) based on mathemat...
SYS-CON Events announced today that Cloudistics, an on-premises cloud computing company, has been named “Bronze Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Cloudistics delivers a complete public cloud experience with composable on-premises infrastructures to medium and large enterprises. Its software-defined technology natively converges network, storage, compute, virtualization, and management into a ...
Building custom add-ons does not need to be limited to the ideas you see on a marketplace. In his session at 20th Cloud Expo, Sukhbir Dhillon, CEO and founder of Addteq, will go over some adventures they faced in developing integrations using Atlassian SDK and other technologies/platforms and how it has enabled development teams to experiment with newer paradigms like Serverless and newer features of Atlassian SDKs. In this presentation, you will be taken on a journey of Add-On and Integration ...
There are 66 million network cameras capturing terabytes of data. How did factories in Japan improve physical security at the facilities and improve employee productivity? Edge Computing reduces possible kilobytes of data collected per second to only a few kilobytes of data transmitted to the public cloud every day. Data is aggregated and analyzed close to sensors so only intelligent results need to be transmitted to the cloud. Non-essential data is recycled to optimize storage.
"I think that everyone recognizes that for IoT to really realize its full potential and value that it is about creating ecosystems and marketplaces and that no single vendor is able to support what is required," explained Esmeralda Swartz, VP, Marketing Enterprise and Cloud at Ericsson, in this SYS-CON.tv interview at @ThingsExpo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Interoute has announced the integration of its Global Cloud Infrastructure platform with Rancher Labs’ container management platform, Rancher. This approach enables enterprises to accelerate their digital transformation and infrastructure investments. Matthew Finnie, Interoute CTO commented “Enterprises developing and building apps in the cloud and those on a path to Digital Transformation need Digital ICT Infrastructure that allows them to build, test and deploy faster than ever before. The int...
The essence of cloud computing is that all consumable IT resources are delivered as services. In his session at 15th Cloud Expo, Yung Chou, Technology Evangelist at Microsoft, demonstrated the concepts and implementations of two important cloud computing deliveries: Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). He discussed from business and technical viewpoints what exactly they are, why we care, how they are different and in what ways, and the strategies for IT to transi...
Culture is the most important ingredient of DevOps. The challenge for most organizations is defining and communicating a vision of beneficial DevOps culture for their organizations, and then facilitating the changes needed to achieve that. Often this comes down to an ability to provide true leadership. As a CIO, are your direct reports IT managers or are they IT leaders? The hard truth is that many IT managers have risen through the ranks based on their technical skills, not their leadership abi...
Without a clear strategy for cost control and an architecture designed with cloud services in mind, costs and operational performance can quickly get out of control. To avoid multiple architectural redesigns requires extensive thought and planning. Boundary (now part of BMC) launched a new public-facing multi-tenant high resolution monitoring service on Amazon AWS two years ago, facing challenges and learning best practices in the early days of the new service.
Niagara Networks exhibited at the 19th International Cloud Expo, which took place at the Santa Clara Convention Center in Santa Clara, CA, in November 2016. Niagara Networks offers the highest port-density systems, and the most complete Next-Generation Network Visibility systems including Network Packet Brokers, Bypass Switches, and Network TAPs.
All organizations that did not originate this moment have a pre-existing culture as well as legacy technology and processes that can be more or less amenable to DevOps implementation. That organizational culture is influenced by the personalities and management styles of Executive Management, the wider culture in which the organization is situated, and the personalities of key team members at all levels of the organization. This culture and entrenched interests usually throw a wrench in the work...