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Manufacturing Competitiveness: China's Exports Losing Low-cost Advantages

Penny Brooks

1st May 2014

Boston Consulting Group have produced a fascinating new report which investigates the competitiveness of the world's top 25 goods exporting nations. Their press release highlights significant changes in the world order over the last decade.

The newly-minted BCG Global Manufacturing Cost-Competitiveness Index incorporates four factors:

  1. Energy costs
  2. Productivity
  3. Wages
  4. Exchange rates

That analysis shows that Mexico now has lower manufacturing costs than China, while Brazil is now one of the highest-cost countries, and the UK is the cheapest location in western Europe.

BCG suggest that global businesses who are making decisions about where to base their manufacturing are probably basing those decisions on out-of-date assumptions about where their costs will be lowest. China’s manufacturing-cost advantage over the U.S. has shrunk to less than 5 percent. Two major reasons combine here; China has suffered a sharp increase in wage costs, and also in energy costs, while in the US wages have not grown and they have a huge energy-cost advantage that is largely driven by the 50 percent fall in natural-gas prices since large-scale production of U.S. shale gas began in 2005.

Meanwhile declining currencies, along with productivity growth that largely offset wage hikes, helped keep overall costs in check in Indonesia and India. The UK and the Netherlands, on the other hand, have kept pace thanks to steady productivity growth, while average manufacturing costs in Belgium rose by 6 percent; in Sweden, 7 percent; in France, 9 percent; and in Switzerland and Italy, 10 percent - largely due to lower productivity growth and high energy costs.

To add a bit more detail to the picture, read this report in the FT, and watch the 4-minute report on the BBC's World Business Report - starting at 3.20 minutes into the programme.

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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