Shifts in Cost Competitiveness Spurring Change in Investment Strategies of Companies

A number of companies are changing their global sourcing and manufacturing investment strategies, spurred by dramatic shifts in cost competitiveness around the world over the past 10 years, according to a new report by The Boston Consulting Group (BCG).

That research 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.

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 “They are finding that many old perceptions of low-cost and high-cost countries are out of date, and they are starting to realign their global sourcing and production networks accordingly.”

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.

 

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