The Boston Consulting Group just updated their manufacturing cost index. It shows that producing in Mexico can be cheaper than in China. And that China costs are nearly on par with those of the US — the difference is only 4%!
The BCG cost index helps buyers look beyond wages (which often make a small portion of a product’s total cost). However, buyers still need to add a lot of factors in their calculations of the cheapest production area — ideally they would use Womack & Jones’ formula.
What is particularly interesting is the trends. Some countries like the US and Mexico have made great progress in terms of cost competitiveness, as is illustrated in this article (see the map).
It matches the changes in strategies I have noticed among foreign buyers and manufacturers. I could sum it up this way:
|Feeling: “China is so cheap, let’s move all we can over there”||Feeling: “China is still cheap, but for how long?”||Feeling: “China is getting expensive and the trend is not stopping”|
|Strategies: Starting factories in China, switching OEM production to China||Strategies: Keep moving production over to China, but with less of a long-term commitment||Strategies: Work on productivity gains for China operations; productions that really need to be in China to be in inland provinces|
Naturally, these trend impact different industries in very different ways. For those electronics or power tools buyers, China is still the center of the world. In certain textiles categories, though, the rest of Asia was already attractive ten years ago.
What do you see?