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"Many companies are making manufacturing investment decisions on the basis of a decades-old worldview that is sorely out of date," said Harold L. Sirkin, a BCG senior partner and a coauthor of the analysis.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.

The Boston Consulting Group
Eric Gregoire
Global Media Relations Manager

Tel +1 617 850 3783
Fax +1 617 850 3701
[email protected]

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
DXWordEXPO New York 2018, colocated with CloudEXPO New York 2018 will be held November 11-13, 2018, in New York City and will bring together Cloud Computing, FinTech and Blockchain, Digital Transformation, Big Data, Internet of Things, DevOps, AI, Machine Learning and WebRTC to one location.
DXWorldEXPO LLC announced today that ICOHOLDER named "Media Sponsor" of Miami Blockchain Event by FinTechEXPO. ICOHOLDER give you detailed information and help the community to invest in the trusty projects. Miami Blockchain Event by FinTechEXPO has opened its Call for Papers. The two-day event will present 20 top Blockchain experts. All speaking inquiries which covers the following information can be submitted by email to [email protected] Miami Blockchain Event by FinTechEXPO also offers s...
@DevOpsSummit New York 2018, colocated with CloudEXPO | DXWorldEXPO New York 2018 will be held November 11-13, 2018, in New York City. From showcase success stories from early adopters and web-scale businesses, DevOps is expanding to organizations of all sizes, including the world's largest enterprises - and delivering real results.
The dynamic nature of the cloud means that change is a constant when it comes to modern cloud-based infrastructure. Delivering modern applications to end users, therefore, is a constantly shifting challenge. Delivery automation helps IT Ops teams ensure that apps are providing an optimal end user experience over hybrid-cloud and multi-cloud environments, no matter what the current state of the infrastructure is. To employ a delivery automation strategy that reflects your business rules, making r...
Dion Hinchcliffe is an internationally recognized digital expert, bestselling book author, frequent keynote speaker, analyst, futurist, and transformation expert based in Washington, DC. He is currently Chief Strategy Officer at the industry-leading digital strategy and online community solutions firm, 7Summits.
"We started a Master of Science in business analytics - that's the hot topic. We serve the business community around San Francisco so we educate the working professionals and this is where they all want to be," explained Judy Lee, Associate Professor and Department Chair at Golden Gate University, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
Digital Transformation and Disruption, Amazon Style - What You Can Learn. Chris Kocher is a co-founder of Grey Heron, a management and strategic marketing consulting firm. He has 25+ years in both strategic and hands-on operating experience helping executives and investors build revenues and shareholder value. He has consulted with over 130 companies on innovating with new business models, product strategies and monetization. Chris has held management positions at HP and Symantec in addition to ...
DXWorldEXPO LLC announced today that Dez Blanchfield joined the faculty of CloudEXPO's "10-Year Anniversary Event" which will take place on November 11-13, 2018 in New York City. Dez is a strategic leader in business and digital transformation with 25 years of experience in the IT and telecommunications industries developing strategies and implementing business initiatives. He has a breadth of expertise spanning technologies such as cloud computing, big data and analytics, cognitive computing, m...
Cloud-enabled transformation has evolved from cost saving measure to business innovation strategy -- one that combines the cloud with cognitive capabilities to drive market disruption. Learn how you can achieve the insight and agility you need to gain a competitive advantage. Industry-acclaimed CTO and cloud expert, Shankar Kalyana presents. Only the most exceptional IBMers are appointed with the rare distinction of IBM Fellow, the highest technical honor in the company. Shankar has also receive...
DXWorldEXPO LLC announced today that Kevin Jackson joined the faculty of CloudEXPO's "10-Year Anniversary Event" which will take place on November 11-13, 2018 in New York City. Kevin L. Jackson is a globally recognized cloud computing expert and Founder/Author of the award winning "Cloud Musings" blog. Mr. Jackson has also been recognized as a "Top 100 Cybersecurity Influencer and Brand" by Onalytica (2015), a Huffington Post "Top 100 Cloud Computing Experts on Twitter" (2013) and a "Top 50 C...
Daniel Jones is CTO of EngineerBetter, helping enterprises deliver value faster. Previously he was an IT consultant, indie video games developer, head of web development in the finance sector, and an award-winning martial artist. Continuous Delivery makes it possible to exploit findings of cognitive psychology and neuroscience to increase the productivity and happiness of our teams.
There is a huge demand for responsive, real-time mobile and web experiences, but current architectural patterns do not easily accommodate applications that respond to events in real time. Common solutions using message queues or HTTP long-polling quickly lead to resiliency, scalability and development velocity challenges. In his session at 21st Cloud Expo, Ryland Degnan, a Senior Software Engineer on the Netflix Edge Platform team, will discuss how by leveraging a reactive stream-based protocol,...
Enterprises have taken advantage of IoT to achieve important revenue and cost advantages. What is less apparent is how incumbent enterprises operating at scale have, following success with IoT, built analytic, operations management and software development capabilities - ranging from autonomous vehicles to manageable robotics installations. They have embraced these capabilities as if they were Silicon Valley startups.
The standardization of container runtimes and images has sparked the creation of an almost overwhelming number of new open source projects that build on and otherwise work with these specifications. Of course, there's Kubernetes, which orchestrates and manages collections of containers. It was one of the first and best-known examples of projects that make containers truly useful for production use. However, more recently, the container ecosystem has truly exploded. A service mesh like Istio addr...
As DevOps methodologies expand their reach across the enterprise, organizations face the daunting challenge of adapting related cloud strategies to ensure optimal alignment, from managing complexity to ensuring proper governance. How can culture, automation, legacy apps and even budget be reexamined to enable this ongoing shift within the modern software factory? In her Day 2 Keynote at @DevOpsSummit at 21st Cloud Expo, Aruna Ravichandran, VP, DevOps Solutions Marketing, CA Technologies, was jo...