|By Marketwired .||
|August 19, 2014 12:01 AM EDT||
CHICAGO, IL -- (Marketwired) -- 08/19/14 -- Dramatic shifts in cost competitiveness around the world over the past decade are starting to spur a number of companies to change their global sourcing and manufacturing investment strategies, according to a new report by The Boston Consulting Group (BCG). The report, titled The Shifting Economics of Global Manufacturing: How Cost Competitiveness Is Changing Worldwide, is being released today.
Global automakers are expanding production in the UK, for example, which has emerged as one of Western Europe's lowest-cost manufacturing locations, while at the same time they are slashing capacity in Australia, now one of the most expensive. In Mexico, where manufacturing costs are now estimated to be cheaper than those of China, Asian electronics manufacturers such as Foxconn and Sharp are expanding production.
"Many companies are beginning to see the world in a new light," said Harold L. Sirkin, a BCG senior partner and coauthor of the report. "They are finding that many old perceptions of low-cost and high-cost countries are out of date, and they are starting to realign their global sourcing and production networks accordingly."
The Shifting Economics of Global Manufacturing expands on earlier BCG research into changes in direct manufacturing costs among the world's 25 largest goods-exporting nations since 2004. That research, released in April, found that several economies still often perceived as low-cost manufacturing nations -- such as China, Brazil, Russia, and the Czech Republic -- are no longer much cheaper than the U.S. In some cases, they are estimated to be even more expensive, according to the new BCG Global Manufacturing Cost-Competitiveness Index. The index also found that the competitiveness of historically high-cost nations, such as the U.S. and the UK, has significantly improved.
The BCG Global Manufacturing Cost-Competitiveness Index is a new tool that sheds light on the shifting cost dynamics of global production. The index compares changes in direct costs between 2004 and 2014 in the world's 25 leading export economies along four dimensions: manufacturing wages, productivity, energy costs, and currency exchange rates. An interactive graphic on bcgperspectives.com shows how the cost position of each of those 25 economies has changed between 2004 and early 2014 relative to the others.
The new report analyzes the factors driving the cost shifts in greater detail in several economies, such as Australia, India, Mexico, and the UK, and the impact of changing costs on those nations' manufacturing competitiveness. The report also offers recommendations on how companies and governments can respond.
Several countries that have most improved their competitiveness over the past decade are already attracting new manufacturing investment and jobs, while investment is declining in some of those that have lost ground in the BCG index. In the UK -- where the direct-manufacturing cost structure has improved by up to an estimated 10 percentage points in the index over other leading Western European exporters since 2004 -- automobile output has increased by around 50 percent since 2009. According to the Financial Times, auto production is projected to grow by another one-third by 2017 to 2 million units annually, thanks to around $17 billion in new investment by automakers such as Jaguar Land Rover, Nissan, Honda, and the BMW Group's MINI.
Contrast the UK's performance with that of Australia, the country whose global cost competitiveness deteriorated the most from 2004 to 2014, according to the BCG index. Australian auto production has contracted by half since 2004, and Ford Australia, Toyota, and General Motors' Holden subsidiary plan to shut their factories by 2017. Overall investment in Australian manufacturing fell by 6 percent between 2004 and 2012. A major reason is that Australia's booming natural resources sector helped push manufacturing wages up by about 48 percent over the past decade and Australia's currency up by 21 percent against the U.S. dollar. Overall manufacturing labor productivity, however, fell by 1 percent over the same ten-year period.
"Improving the productivity of each worker is becoming an increasingly important factor in manufacturing competitiveness across the globe," said Michael Zinser, a BCG partner who is coleader of the firm's Manufacturing practice. "This is especially true as the once-considerable wage gaps between developed and developing economies continue to shrink."
The shifting cost positions of Mexico and China have also influenced investment. In 2004, China's average manufacturing costs were estimated to be 6 percent higher than Mexico's, according to the BCG index. Mexico is currently around 4 percent cheaper on average. Chinese manufacturing wages have nearly quintupled since 2004, while Mexican wages have risen by less than 50 percent in U.S. dollar terms. Adjusted for productivity, Mexican labor costs are now estimated to be 13 percent lower than those of China. Partly as a result, Mexican exports of electronics -- an industry dominated by China for more than a decade -- have more than tripled, to $78 billion, from 2006 to 2013. Asian companies account for one-third of investment in Mexican manufacturing. Taiwanese electronics manufacturing giant Foxconn, China's largest single investor, says it now exports 8 million PCs a year from its 5,500-worker facility in Chihuahua state, and a major expansion is in the works.
Not all countries are taking full advantage of their low-cost advantages, however. The report found that global competiveness in manufacturing is undermined in nations such as India and Indonesia by several factors, including logistics, the overall ease of doing business, and inflexible labor markets. "A lot of factors other than wages and exchange rates weigh heavily on corporate decisions about where to locate production," said Justin Rose, a BCG partner and coauthor. "These challenges must be overcome before they can translate low costs into a surge of investment and exports across a broad range of industries."
Rather than seeing the globe in terms of low cost versus high cost, the report recommends that companies base manufacturing decisions on "a more current and sophisticated understanding of competitiveness" within regions. Companies should reassess their manufacturing footprints and explore investments that can improve productivity. They should fully account for logistics and obstacles to efficiently conducting business that can add hidden costs and risk. Companies should also understand the implications of changing manufacturing locations on their entire supply chains to avoid surprises, such as unforeseen shipping and import duty costs.
Companies should also expect that volatility will continue and that relative cost competitiveness around the world will remain dynamic. "The winners are likely to be companies that align their operations with the shifting economics of global manufacturing -- and build in the flexibility to shift gears as those economies continue to evolve," 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 (Knowledge@Wharton, 2012).
A copy of the report can be downloaded from bcgperspectives.com.
To 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.
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
Global Media Relations Manager
Tel +1 617 850 3783
Fax +1 617 850 3701
Skeuomorphism usually means retaining existing design cues in something new that doesn’t actually need them. However, the concept of skeuomorphism can be thought of as relating more broadly to applying existing patterns to new technologies that, in fact, cry out for new approaches. In his session at DevOps Summit, Gordon Haff, Senior Cloud Strategy Marketing and Evangelism Manager at Red Hat, discussed why containers should be paired with new architectural practices such as microservices rathe...
Sep. 1, 2015 01:00 AM EDT Reads: 406
SYS-CON Events announced today that G2G3 will exhibit at SYS-CON's @DevOpsSummit Silicon Valley, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Based on a collective appreciation for user experience, design, and technology, G2G3 is uniquely qualified and motivated to redefine how organizations and people engage in an increasingly digital world.
Aug. 31, 2015 11:00 PM EDT Reads: 499
Any Ops team trying to support a company in today’s cloud-connected world knows that a new way of thinking is required – one just as dramatic than the shift from Ops to DevOps. The diversity of modern operations requires teams to focus their impact on breadth vs. depth. In his session at DevOps Summit, Adam Serediuk, Director of Operations at xMatters, Inc., will discuss the strategic requirements of evolving from Ops to DevOps, and why modern Operations has begun leveraging the “NoOps” approa...
Aug. 31, 2015 10:30 PM EDT Reads: 397
Too often with compelling new technologies market participants become overly enamored with that attractiveness of the technology and neglect underlying business drivers. This tendency, what some call the “newest shiny object syndrome,” is understandable given that virtually all of us are heavily engaged in technology. But it is also mistaken. Without concrete business cases driving its deployment, IoT, like many other technologies before it, will fade into obscurity.
Aug. 31, 2015 09:00 PM EDT Reads: 366
Organizations from small to large are increasingly adopting cloud solutions to deliver essential business services at a much lower cost. According to cyber security experts, the frequency and severity of cyber-attacks are on the rise, causing alarm to businesses and customers across a variety of industries. To defend against exploits like these, a company must adopt a comprehensive security defense strategy that is designed for their business. In 2015, organizations such as United Airlines, Sony...
Aug. 31, 2015 07:15 PM EDT Reads: 482
The Internet of Things is in the early stages of mainstream deployment but it promises to unlock value and rapidly transform how organizations manage, operationalize, and monetize their assets. IoT is a complex structure of hardware, sensors, applications, analytics and devices that need to be able to communicate geographically and across all functions. Once the data is collected from numerous endpoints, the challenge then becomes converting it into actionable insight.
Aug. 31, 2015 07:00 PM EDT
Puppet Labs has announced the next major update to its flagship product: Puppet Enterprise 2015.2. This release includes new features providing DevOps teams with clarity, simplicity and additional management capabilities, including an all-new user interface, an interactive graph for visualizing infrastructure code, a new unified agent and broader infrastructure support.
Aug. 31, 2015 06:30 PM EDT Reads: 522
Consumer IoT applications provide data about the user that just doesn’t exist in traditional PC or mobile web applications. This rich data, or “context,” enables the highly personalized consumer experiences that characterize many consumer IoT apps. This same data is also providing brands with unprecedented insight into how their connected products are being used, while, at the same time, powering highly targeted engagement and marketing opportunities. In his session at @ThingsExpo, Nathan Trel...
Aug. 31, 2015 06:00 PM EDT Reads: 243
Amazon and Google have built software-defined data centers (SDDCs) that deliver massively scalable services with great efficiency. Yet, building SDDCs has proven to be a near impossibility for ‘normal’ companies without hyper-scale resources. In his session at 17th Cloud Expo, David Cauthron, founder and chief executive officer of Nimboxx, will discuss the evolution of virtualization (hardware, application, memory, storage) and how commodity / open source hyper converged infrastructure (HCI) so...
Aug. 31, 2015 04:45 PM EDT
In their Live Hack” presentation at 17th Cloud Expo, Stephen Coty and Paul Fletcher, Chief Security Evangelists at Alert Logic, will provide the audience with a chance to see a live demonstration of the common tools cyber attackers use to attack cloud and traditional IT systems. This “Live Hack” uses open source attack tools that are free and available for download by anybody. Attendees will learn where to find and how to operate these tools for the purpose of testing their own IT infrastructu...
Aug. 31, 2015 04:30 PM EDT Reads: 459
The web app is agile. The REST API is agile. The testing and planning are agile. But alas, data infrastructures certainly are not. Once an application matures, changing the shape or indexing scheme of data often forces at best a top down planning exercise and at worst includes schema changes that force downtime. The time has come for a new approach that fundamentally advances the agility of distributed data infrastructures. Come learn about a new solution to the problems faced by software organ...
Aug. 31, 2015 04:30 PM EDT
With the Apple Watch making its way onto wrists all over the world, it’s only a matter of time before it becomes a staple in the workplace. In fact, Forrester reported that 68 percent of technology and business decision-makers characterize wearables as a top priority for 2015. Recognizing their business value early on, FinancialForce.com was the first to bring ERP to wearables, helping streamline communication across front and back office functions. In his session at @ThingsExpo, Kevin Roberts...
Aug. 31, 2015 03:15 PM EDT
IBM’s Blue Box Cloud, powered by OpenStack, is now available in any of IBM’s globally integrated cloud data centers running SoftLayer infrastructure. Less than 90 days after its acquisition of Blue Box, IBM has integrated its Blue Box Cloud Dedicated private-cloud-as-a-service into its broader portfolio of OpenStack® based solutions. The announcement, made today at the OpenStack Silicon Valley event, further highlights IBM’s continued support to deliver OpenStack solutions across all cloud depl...
Aug. 31, 2015 03:00 PM EDT Reads: 248
Red Hat is investing in Tesora, the number one contributor to OpenStack Trove Database as a Service (DBaaS) also ranked among the top 20 companies contributing to OpenStack overall. Tesora, the company bringing OpenStack Trove Database as a Service (DBaaS) to the enterprise, has announced that Red Hat and others have invested in the company as a part of Tesora's latest funding round. The funding agreement expands on the ongoing collaboration between Tesora and Red Hat, which dates back to Febr...
Aug. 31, 2015 02:45 PM EDT Reads: 377
With the proliferation of connected devices underpinning new Internet of Things systems, Brandon Schulz, Director of Luxoft IoT – Retail, will be looking at the transformation of the retail customer experience in brick and mortar stores in his session at @ThingsExpo. Questions he will address include: Will beacons drop to the wayside like QR codes, or be a proximity-based profit driver? How will the customer experience change in stores of all types when everything can be instrumented and a...
Aug. 31, 2015 02:30 PM EDT Reads: 457