U.S. manufacturing losing competitiveness?

American manufacturers slipped from 5th to 8th in a new a ranking of cost competitiveness released by AlixPartners LLP, a global business-advisory firm.

The study shows that Mexico continues to lead as the number-one low-cost country (LCC) for outsourcing from the U.S., while China, improving considerably over last year's study, still came in 6th.

"There is no doubt that economic forces worked against U.S. manufacturers this past year," said Stephen Maurer, a managing director with AlixPartners and a leader of the firm's Manufacturing Improvement practice. "This study shows that despite recent improvement in U.S. productivity, hungry global competitors have become even more formidable, both as out-sourcing destinations and as competitors to U.S. companies."

In last year's study, the Index showed that Mexico had jumped ahead of both China and India to take the top spot as the low-cost manufacturing source for the U.S. for the market basket of parts analyzed. It also showed that U.S. manufacturers gained ground on most overseas LCCs. The 2010 study shows that China has made a strong comeback, recouping much of its cost advantage relative to the U.S. However, China's improvement was not enough to wrest back the top ranking from Mexico, or the No. 2 ranking from India.

Vietnam, Russia and Romania, newly entering the ranks of the study this year, made impressive showings as No. 3, No. 4 and No. 5, respectively -- all edging out China. Meantime, almost all of the countries analyzed improved their cost competitiveness relative to U.S. manufacturers.

Overhead, Equipment, Tooling Costs Also Deserve a Look
The study also helps highlight some of the complexity in determining the true lowest-cost manufacturing location. "While most people think of labor, shipping and exchange rates as the principle variables in evaluating outsourcing costs, a variety of overhead costs can have a dramatic impact on the bottom line, and are often overlooked," noted Steve Hilgendorf, a director in AlixPartners' Manufacturing Improvement practice. "Things like electricity rates, tax burden and construction costs all vary widely from country to country, and in many otherwise low-cost countries, capital equipment and tooling are actually more expensive than in the U.S., because they largely need to be imported."

"In today's highly dynamic environment, our study is a powerful tool for companies to understand the true costs underpinning their manufacturing and supply-chain strategies," said Maurer. "In the past, you could be relatively comfortable that the manufacturing-strategy decisions you made today would still be valid two or three years from now. That's not necessarily the case any more. Today's reality calls for constant vigilance and flexible strategies to ensure that companies stay ahead of global changes, rather than fall victim to them."

Click here for highlights of the study.

Share this page: