In another sign that America is becoming more competitive in manufacturing, a recent study shows that by 2015 the average cost of importing products from China will be about the same as the cost of manufacturing them in the United States. Now that is good news!
Business advisory firm AlixPartners analyzed manufacturing costs & patterns in the United States and various low-cost countries as part of its manufacturing sourcing outlook report. This report shows that the US is now equal to Mexico in ‘attractiveness’ as a source for manufacturing operations and is on track to achieve cost parity with China in 2 years or so. In the survey of 137 C-level manufacturing company executives, 37% said they would choose the US as their preferred location – a huge leap over the 2011 response of 19%. An equal number of executives cited Mexico as the most attractive nearshoring location. These are important statistics since 84% of the manufacturing executives said that a decision to nearshore their manufacturing would be an important one during the next year. This survey shows that it is indeed safe to say that nearshoring and reshoring decisions are moving to the ‘front burner’ in 2013.
The survey, conducted in March 2013, was conducted with manufacturing-related companies across more than 10 industries with about half of the respondents having annual revenue of $1 billon or more and all respondents sourcing production across multiple continents.
Approximately 58% of survey respondents said that for production that had either already been nearshored or is being considered for nearshoring, they have either reduced or expect to reduce their total “landed cost” by 5% to 20%. Landed cost is the calculation of all of the aspects of bringing a product to its point of sale including transportation costs, duties and the expense of inventory in transit.
If current trends remain in place, the AlixPartners study finds that on average by 2015 the cost of importing manufactured products from China will be about the same as manufacturing them in the U.S. However, other key low-cost countries, such as Mexico and India, will remain highly competitive which highlights the need for case-by-case analysis of numerous factors by companies when evaluating the opportunity for nearshoring or reshoring. According to AlixPartners’ analysis, Mexico and India have maintained cost advantages of 15% to 20% to China which is similar to the advantage levels China enjoyed over other low-cost countries in the early 2000’s.
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