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Cost and Availability of Labor and Materials

2013 Global Manufacturing Competitiveness Index


Cost and availability of labor and materials continues to transform the global landscape significantly with respect to creating manufacturing competitive advantage. Historically, as reflected in the prior section regarding exports, numerous companies moved their production to emerging economies where labor and materials were cheaper. As a result, the economic prosperity of the citizens in these once low cost destinations has improved, giving rise to a growing middle class — and demands for higher wages.

As these countries continue to evolve and move up the product complexity ladder — and in turn, grow their economies and become involved in the production of more complex products — they are becoming less competitive on their labor advantage. They look more like developed countries and are beginning to shift production to lower cost countries for more commoditized products. China, for example, is now shifting production to countries like Thailand and Vietnam, and is one example of this dynamic.

Nonetheless, executives responding to the 2013 GMCI survey felt that China and India continue to provide the most significant labor and material cost advantage of the six focus countries highlighted in the 2013 GMCI. Not surprisingly, Brazil rounds out this group of three countries that executives felt provide a substantial advantage over the U.S., Germany, and Japan.

In ranking the components, executives viewed cost competitiveness of raw materials as the most important driver, followed closely by competitive wage rates, availability of raw materials, and lastly cost competitiveness of labor outside of wages (e.g., benefits).

It is important to note that increasingly countries appear to be taking a broader and longer-term approach to labor and material costs. Figure 10 demonstrates, for example, that though the U.S. has higher labor costs, it also has the highest labor productivity. On the other end of the spectrum, although China and India have made significant improvements in labor productivity over the last decade, their starting points are low, and therefore, they remain far behind the U.S.

At the same time, individual companies recognize that making sourcing decisions in order to simply gain access to low cost labor and materials is neither a strategic benefit nor a sustainable strategy over the long term. Moreover, as previously mentioned, lower cost destinations like China and India now have large middle class populations and significant domestic consumer demand. Hoping to seize these growth opportunities, many multinational companies are expected to continue to expand and grow operations in these markets.

2013 Global Manufacturing Competitiveness Index

Main page: Return to the 2013 Index overview
Continue reading: Country analyses, appendix A

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