Mexico Continues to Lead as Lowest-Cost Country for U.S. Outsourcing; U.S. Closing Cost Gap with China.
In what may come as a surprise to U.S. and Canadian importers who have embraced China as a prime source of supply in recent years, the 2011 U.S. Manufacturing-Outsourcing Cost Index” released by Alix Partners identifies Mexico as the number one location for lowest landed-costs for U.S. and Canada customers. Not only has China fallen behind Mexico in terms of total landed-cost advantage, the Alix report lists other low-cost countries such as India, Vietnam, and Russia, albeit with higher costs, as now being more competitive than China.
While this latest information is not expected to result in a major shift away from China as a leading source of supply for North American companies, it gives credence to Mexico’s repeat performance as the lowest landed-cost supplier in 2010, continuing a trend towards that country’s competitive advantage since 2007.
In other words, as Mexico become more cost efficient and labor effective, and as manufacturers in the U.S. have taken note, so too should Canadian manufacturers interested in manufacturing and supply chain efficiencies.
Among the many factors affecting manufacturing costs, the Alix report focused on three critical areas for China in the years ahead: wage inflation, exchange rates, and freight costs. One thing all of these factors have in common of course is predictability, or more specifically, “unpredictability” in terms of forecasting accuracy. The Alix study used a number of scenarios in forecasting how this trend will play out in the years ahead, with various calculations for currency fluctuations and wage costs in China. Currency speculation is a subject for economists, but increases in Chinese labour costs is a trend that can already be quantified.
According to the AlixPartners 2011 U.S. Manufacturing-Outsourcing Cost Index, Mexico had the lowest landed costs for U.S. customers while other key low-cost countries (LCCs), including India, Vietnam, and Russia, had higher costs but remained more competitive than China. Looking ahead, as key general manufacturing cost drivers stabilize at more economically sustainable levels after the recession of 2008/2009, we expect LCCs’ competitiveness with the U.S. to erode. While Asian LCCs will likely be more impacted than Mexico, China may experience particular negative pressure on landed costs due to wage inflation, exchange-rate pressures, and higher freight rates.
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AlixPartners complete study: http://www.alixpartners.com/en/WhatWeThink/Manufacturing/2011USManufacturingOutsourcingIndex.aspx
About AlixPartners AlixPartners LLP is a global business-advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial-advisory services and information-management services. Founded in 1981, the firm has more than 900 professionals in offices around the world, and can be found on the Web at www.alixpartners.com