A very interesting report from The Boston Consulting Group evaluates the manufacturing performance during the last decade, and identifies surprising trends to be considered for your new sourcing strategy.
The United States and Mexico are the Rising Global Starts
Every change in the world economy can have a surprising impact on manufacturing here in the United States. In an August 2014 report entitled, “The Shifting Economics of Global Manufacturing,” The Boston Consulting Group (BCG) studied how cost competitiveness is changing worldwide. Under pressure are such former stalwarts as China, Brazil and Russia, while Mexico is quickly becoming an emerging star on the worldwide stage. With a 2014 manufacturing cost index of only 91 including labor, electricity, natural gas and other factors, Mexico’s cost structure improved the most of any country studied, and is now even cheaper than China.
BCG’s analysis revealed that some of the reasons behind Mexico’s impressive surge include sustained productivity gains, energy cost advantages in electricity and natural gas, moderate wage growth and stable exchange rates. Of these, BCG states that the biggest factor in Mexico’s favor is its cost of labor. Mexican wages have not increased as dramatically as those in China. When adjusted for productivity, the average Mexican labor costs are now about 13% lower than China’s, 20 and 30 percent lower than Japan, Germany, Italy and Belgium. With these improved capabilities, the barriers to offshore manufacturing for American companies are quickly disappearing.
Other factors which might tip the scale in Mexico’s favor include numerous free trade agreements, favorable supply chain logistics, high safety standards, decreased transportation costs, a strong work ethic and social responsibility, and the ability to deliver a high quality product. In fact, Mexico is once again challenging other world economies in such industries as apparel, automotive, appliances, electronics, transportation equipment, furniture, and textile manufacturing, basically high labor content operations. The report concluded that an ambitious agenda of reform will bolster Mexico’s competitiveness even further.
At MFI International, we have always believed in the power and ability of the Mexican workforce and its manufacturing economy. We have been a leading provider of cost-efficient and flexible manufacturing solutions since the early 80’s, managing different industry and economical trends, against competitors in Asia and Central America. As an experience and trusted North American manufacturer we advise companies to review their current sourcing strategy and future manufacturing plans; take a close look at total landed costs, supplier base, higher inventory costs, tangible and intangible quality factors, and other hidden or not visible costs associated with having an entire supply chain managed from the far East, or even Central America.