The Boston Consulting Group (BCG) has published a report saying the map of global manufacturing cost competitiveness has to be redrawn.
According to BCG, a “rough, bifurcated conception” of the world has driven corporate manufacturing investment and sourcing decisions over the past three decades, with Latin America, Eastern Europe and most of Asia seen as low-cost regions. Meanwhile, the US, Western Europe and Japan have been viewed as having high costs.
“This worldview now appears to be out of date,” BCG’s Harold L. Sirkin, Michael Zinser, and Justin Rose now claim.
“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 new map increasingly resembles a quilt-work pattern of low-cost economies, high-cost economies, and many that fall in between, spanning all regions.”
To understand the shifting economics of global manufacturing, BCG analysed manufacturing costs for the world’s 25 leading exporting economies along four key dimensions: manufacturing wages, labor productivity, energy costs, and exchange rates. These 25 economies account for nearly 90 percent of global exports of manufactured goods.
“In some cases, the shifts in relative costs are startling,” Sirkin, Zinser and Rose found. “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?
“While London remains one of the priciest places in the world to live and visit, the UK has become the lowest-cost manufacturer in Western Europe. Costs in Russia and much of Eastern Europe have risen to near parity with the US.”
In addition, 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 US.
According to BCG, this is largely because of weak productivity growth and rising energy costs. The countries losing ground include Australia, Belgium, France, Italy, Sweden and Switzerland.
What’s more, cost structures in Mexico and the US improved more than in all of the other 25 largest exporting economies. “Because of low wage growth, sustained productivity gains, stable exchange rates, and a big energy-cost advantage, these two nations are the current rising stars of global manufacturing,” the report stated.
The full BCG Global Manufacturing Cost-Competitiveness Index can be viewed online.