Is it time to relocate—or perhaps simply consider relocating—some operations? That depends on where those operations take place, according to a new report. Indeed, dramatic shifts in cost competitiveness around the world over the past decade have prompted some companies to change their global sourcing and manufacturing investment strategies, Boston Consulting Group (BCG) analysts write in “The Shifting Economics of Global Manufacturing: How Cost Competitiveness Is Changing Worldwide.”
“Many companies are beginning to see the world in a new light,” says 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 “They are finding that many old perceptions of low-cost and high-cost countries are out of date, and are starting to realign their global sourcing and production networks accordingly.”
The BCG research compares changes in direct costs between 2004 and 2014 in the world’s 25 leading export economies by evaluating four factors: manufacturing wages, productivity, energy costs, and currency exchange rates. The report analyzes the impact of those factors in several economies, such as Australia, India, Mexico and the UK, as well as the impact of changing costs on those nations’ manufacturing competitiveness.
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. For example, global automakers are expanding production in the UK, which has emerged as one of Western Europe’s lowest-cost manufacturing locations, BCG found. Conversely, automakers are reducing capacity in Australia, which is now one of the most expensive countries for manufacturing. As has been noted before, Mexico’s manufacturing costs are now estimated to be cheaper than those of China, so it’s no wonder Asian electronics manufacturers such as Foxconn and Sharp are expanding production in Mexico, BCG reports.
The potential for some of those operations to return to the U.S. has not gone unnoticed. House Democratic Whip Steny H. Hoyer points out that the “Make It in America” plan focuses on creating the best conditions for American businesses to manufacture their products, innovate and create jobs in the U.S. Doing so will set the country on “a solid path forward to a future of greater competitiveness, more jobs and long-term economic success,” he explains.
The Make It in America plan for the 113th Congress is focused on four key priorities, says Hoyer. Two of those priorities are to promote the export of U.S. goods, and encourage businesses to bring jobs and innovation back to the U.S.
I was interested to see another priority is to adopt and pursue a national manufacturing strategy. American manufacturers face international competitors that benefit from other nations’ carefully crafted manufacturing strategies, Hoyer says. Such comprehensive strategies include tax incentives, investments in research, skills development initiatives and support for infrastructure projects to help their manufacturers get ahead. A sustained national focus is necessary to ensure U.S. policies are appropriately targeted and flexible to help U.S. manufacturers compete. To do so, the U.S. must create a well-developed national strategy of its own, Hoyer explains.
The final Make It in America priority is to train and secure a twenty-first century workforce, but I’ll leave that topic for tomorrow.
In the meantime, what are your thoughts on relocating—or potentially relocating—operations due to rising costs in other countries? Secondly, what are your thoughts on a formal national strategy focused on supporting manufacturing in the U.S.?