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Dramatic Shifts In Manufacturing Costs Are Driving Companies To US, Mexico
hackingbear writes: According to a new Cost-Competitiveness Index, the nations often perceived as having low manufacturing costs — such as China, Brazil, Russia, and the Czech Republic — are no longer much cheaper than the U.S. In some cases, they are estimated to be even more expensive. Chinese manufacturing wages have nearly quintupled since 2004, while Mexican wages have risen by less than 50 percent in U.S. dollar terms, contrary to our long-standing misconception that their labors were being slaved. In the same period, the U.S. wage is essentially flat, whereas Mexican wages have risen only 67%. Not all countries are taking full advantage of their low-cost advantages, however. The report found that global competiveness in manufacturing is undermined in nations such as India and Indonesia by several factors, including logistics, the overall ease of doing business, and inflexible labor markets.
Chinese manufacturing wages have nearly quintupled since 2004
They're going to have growing pains. Developing a middle class and shifting from expendable factory workers to knowledge workers doesn't happen overnight. We had our own struggles during the era of the robber-barons. I hope they have an easier time of it.
Another race to the bottom.
I wonder if the landing is going to be soft and comfy.
Faster! Faster! Faster would be better!
When it gets down to it — talking trade balances here — once we've brain-drained all our technology into other countries, once things have evened out, they're making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here — once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel — once the Invisible Hand has taken away all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y'know what? There's only four things we do better than anyone else:
music
movies
microcode (software)
high-speed pizza delivery
.
Prisencolinensinainciusol. Ol Rait!
US culture and Mexican culture have more in common than US and Chinese and India cultures. There is a lot of US culture influence into Mexican culture, for example TV shows and movies, Christmas stuff, etc. This means that Mexican workers and managers are more likely to understand American's way of work than people from China and India. Both countries also have almost the same timezones, so there is a big overlap in working hours. This facilitates meeting hours. No more 6 AM and 8 PM meetings. If you have to go to visit the factory, you're only 2 to 6 hours away, not 20 hours o more.
Yes it is. Stop viewing it as crushing wages and more a normalization of wages. It takes time to cycle out bad habits from manufacturing companies here int he US (and in some part due to labor unions although unions are not all bad).
For example i've seen plants where people work their way up, as they have more years, and as they gain higher pay, they move to different jobs. But the reality is you shouldn't have a 30-50$/h person driving a fork lift. But due to the way they organize them selves and their people that is what you see.
I'm all for a fair wage for a fair job. But that wage should be based on the contribution to the goals, to the product. And as someone moves up in rake and wage they should be expected to contribute more value.
The mentality that everyone is entitled to an x% wage increase for every year of service for the simple fact of being there doesn't make sense. Doing it because they increase their knowledge and skills that can be contributed back to the organization does make sense.
The off shoring of jobs to 3rd world conuntries for manufacturing due to cheap labor that they could abuse is also a failing of the company, but it is made possiable in part by the 1st world workers not being able to show the value added for the ratesthey command. As this balance equalizes the rates and contribution should also. At that point (and what seems to be happening) is that the offshore people are starting to command more for the value they are giving, and with that there comes the question of if the difference in labor costs justifies the increase in logistics cost. There is a tipping point where the difference will cause the Jobs to move back, and be more distributed.
When it comes to logistics costs, unless you are in extreme high capital investment processes (thing IC Fabrication) normally the Cost of Goods Sold (non-capital) are they moving costs which are lowest when you do manufacturing within the region of sale. By the labor gap closing, the best place to increase margin is to make adjustments to the logistics costs, which means changing how you do business.
But over all this is good, this is a very good thing. the closer all global labor markets are, the more likely the manufacturing will be to distributed so that you are preforming the work in the region of sale. once this happens the supply & demand for any given region should level out, and you should see better balanced net imports/exports. Rather than any single economy being unbalanced. once you get balanced then the life of the average worker will on average get better and more stable.
Again, this is a very good thing, it is a long and ever changing road, but just like the universe this is, as the nature of all things, a move towards less entropy and is natural in any system.
'...if only "Jumping to a Conclusion" was an event in the Olympics.'
It wasn't always like that though. Blame globalism if you want; but in the post war years, DETROIT was the richest city in the United States. It did not get that way due to service industries and intellectual property creation. They took raw materials, and made cars. for profit. and did not pay slave wages. The rust belt was bedrock of the American middle class.
I do not buy the argument that manufacturers have to pay shit wages to stay competitive. I think that's an excuse to either inflate managerial / executive salaries; or cover up for failing to invest in increasing efficiency.
Or it's due to the rise of the MBA. Labor is simply an input, a cost to be minimized. There's knock-on effects to selling your workers out in order to slightly lower production costs -- and those goons didn't look at the bigger picture or what we'd lose -- a stable, well functioning, organized society (Look at Detroit/Flint/Gary in 2014)
(In before some libertarian blames government regulation for companies moving production offshore.)
Part of the answer is automation. Although the manufacturing sector in the US has been growing consistently for a long time, in recent history the growth has come without new jobs, due to automation.
Which isn't to say they don't need workers: there is a shortage of skilled workers who know how to weld, or drive heavy machinery, etc.
"First they came for the slanderers and i said nothing."
IMHO, it's both.
Yep. And, frankly, it was and is obvious that it would be. I've been saying for years that globalism was ultimately a good thing, though in the short term it was going to be painful for the wealthy countries, as standards of living equalize. If this article is correct, the pain may be much less, and much shorter, than I'd expected. Not that there isn't still pain ahead, but if we're already getting to the point where overseas labor costs have risen enough to be offset by domestic education and infrastructure, then the future looks pretty good.
At the end of the day, though, I'm no more entitled to my job than some programmer in China. If he can do the job as well and will do it for less money, then he should have it. Cost of living differences make this painful in the short term, but if we just keep competition open, the field will level -- some of that leveling may come from decreases in my standard of living but most of it will come from increases in his. That's too bad for me, but great for him, and it's fair because he's no less a human being than I am.
Note to ACs: I usually delete AC replies without reading them. If you want to talk to me, log in.
Your parents and grandparents were able to buy a house, two cards, and send 2 children to college on a single income. You can't.
I think there are two main factors driving this:
- Up until about the 70s, there was no competition for labor...the US was its own market and very few people ever even left the country for extended periods.
- The labor/management balance has shifted dramatically in favor of management.
The other component of your nostalgia moment was that your parents or grandparents were typically employed either for life by the same company, or by a small number of companies. Jobs were stable and employers invested in their employees, who in return had more loyalty. In the case of factory work, unions kept management in check and ensured their members got a decent middle class wage. I know this because I grew up in a Rust Belt city in the 70s/80s, and saw exactly what happens when this support structure is kicked out from under employees.
The problem today is that management is in the drivers' seat, and has convinced labor that they can be exactly like them if they just work harder and complain less. The "job creator" meme is very strong, even among the poor/unemployed, which is surprising. Not every employer is like this, I agree, but enough of them are that it affects everyone. I happen to be very lucky and working for a good employer, but when competitors start putting downward pressure on wages and benefits, it takes a very strong company with a good market position to hold the line.