The rising cost of manufacturing in China has dented the country's competitive advantage as a manufacturing location, according to the Global Manufacturing Cost-Competitiveness Index by the Boston Consulting Group.
Move over China, the US is the world's most promising manufacturing location, according to the latest Global Manufacturing Cost-Competitiveness Index by the Boston Consulting Group (BCG) issued in April 2014. The index tracks changes in production costs over the past decade in the world's 25 top exporting countries, and identified the US as a 'rising star' thanks to its decreasing domestic natural gas prices, increased worker productivity and the lack of pressure to raise wages.
China, on the other hand, still remains number one in the world for manufacturing competitiveness. But BCG reported that China's manufacturing cost advantage over the US has shrunk to less than 5%. BCG also stated that, in terms of cost alone, China is now outranked by Mexico. Furthermore, China faces pressure due to rising labour rates and transportation costs.
Mexico was highlighted as another rising star. According to BCG, the overall manufacturing cost structures in Mexico and the US have significantly improved relative to nearly all other leading exporters across the globe. The key reasons for this were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage, which in the US is largely driven by the 50% fall in natural gas prices since large-scale production of US shale gas began in 2005.
The UK ranked fourth on BCG's competitiveness scale and was pegged as the cheapest location in western Europe. China, Brazil, the Czech Republic, Poland, and Russia have all seen their cost advantages erode significantly since 2004. Already relatively expensive a decade ago but losing further ground is Belgium, Sweden, France, Switzerland and Italy.
"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 co-leader of the firm's manufacturing practice. "These changes should drive companies to rethink their sourcing strategies, as well as where to build future capacity." He surmised that many manufacturers will opt to source goods or manufacture in competitive countries that are closer to where goods are consumed.
