The slogan, “Time is Money, Efficiency is Life”, has driven China to become the world’s largest manufacturing power over the last decade. But the era of cheap China seems to be drawing to an end now. A similar issue is happening in another part of the world. Australia, the old auto-manufacturing giant, is seeing an increasing number of auto-production lines drawing out of the country and moving to lower-cost destinations around the world. The global manufacturing industry is currently undergoing dramatic changes.
The UK has been trying to improve its competitiveness over the last few years and is finding success in its auto-manufacturing industry. According to the Financial Times, UK’s automobile output has increased by around 50 percent since 2009, and production is projected to increase by another third by 2017. This favorable result is due primarily to the government investment promotion policy. It offers tax incentives and very cheap loans to investors. It also promotes business research and creation, which helps firms improve quality and reliability. The labor cost in the UK is relatively lower than other European countries, and therefore we are seeing many big automakers like Nissan and Honda moving their manufacturing plants to the UK.
“Improving the productivity of each worker is becoming an increasingly important factor in manufacturing competitiveness across the globe,” said Michael Zinser, a BCG partner in the firm's manufacturing practice. This is very obvious when we look at Mexico and China. Although these two countries both have relatively low labor costs compared to other countries, manufacturers are more willing to construct plants in Mexico. This is because, after adjusting for productivity, Mexican labor costs are estimated to be 13 percent lower than those of China. Since customers nowadays want products in their hands quickly, companies needs the manufacturers to produce their products in a shorter period of time. As a result of this trend, Mexico’s electronics exports have tripled over the last seven years.
Because of the dramatic shift in cost competitiveness around the globe, the traditional perceptions of low-cost and high-cost countries are no longer held. Facing this global change, companies must rethink their manufacturing strategy in order to meet increasing consumer demand and to maximize profits. The new globalEDGE newsletter provides more insight into the changing global manufacturing industry!