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.

Comments

Growing pains.

[HeckRuler]

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.

Re:Growing pains.

[CaptainDork]

Good point, and I don't think they will benefit from lessons learned elsewhere. America has had to compensate for lack of a cheap labor force by implementing technology. It took a while, but regulations now protect the workers (and consumers).

China, on the other hand, has always had plenty of cheap labor. They have solved problems with brute force instead of applying technology.

As that culture changes for China, they will make the exact same mistakes the other industrialized countries have made. China's water and air conditions are miserable ... a condition that is reminiscent of the 1900s in the US.

Re:Growing pains.

[jfengel]

I gather that there is a countervailing trend, in the form of reformers in the government. China's version of "communism" is pretty far removed from anything visualized by the early social theorists, and it was plagued by a lot of outright insanity for decades, but it always had collectivism at its core. Mao was one of the great mass-murderers of history, but he wasn't corrupt, merely deranged.

I wouldn't call it a benevolent dictatorship, but I was put in mind of it by your mention of the unelected senators. They still had to campaign; it's just that they ended up stumping on behalf of the legislators-cum-electors. The most prominent example was the Lincoln-Douglas debates: they were running for the Senate but really trying to get legislators to vote for their party. It meant that national issues often trumped local issues, and the state legislature suffered for it.

My point there is that democracy, while important, isn't a cure-all. It's inherently adversarial, a conflict which has notably ground today's national legislature to a standstill. Even popularly-supported reforms get no traction, much less anything with even a whiff of controversy. And it's too inflexible to stop the largest discretionary component of our budget from pumping many billions to the military-industrial complex: I don't buy the theory that they're manufacturing wars for it, but even without that kind of explicit corruption it's still not as responsive as you'd like to imagine a directly-elected legislature should be.

I'm not an expert in China's structure, but I wouldn't count them out just because they're unfamiliar. Certainly the system is ripe for corruption, and they do need to fix it, but they have managed to reform themselves already even under one-party control. It will be interesting to see where it goes from here. There's much to do.

Re:Growing pains.

[blue9steel]

"Social stabilization" is just a way of saying "the direction of the herd."

Not really. Social stability is actually an important goal no matter your economic/government form. You can push people around and abuse them quite a bit because frankly they're mostly concerned with their own daily activities. Once you cross the line and get them all riled up with nothing more to lose though, look out because here come the pitchforks and guillotines.

"The public is like a sleeping dragon, do whatever you want as long as you don't wake them up." --source unknown

The oblig. quote from Snow Crash

[RevWaldo]

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

.

Re:Zooooom!

[i kan reed]

I'm gonna disagree.

This is supposedly a sign that the race to the bottom is actually done. The bottom filled out and is rebounding, and "we" mostly resisted our worst political urges vis-a-vis protectionism and removing regulatory protections that exist for good reasons. An equilibrium has been reached, and all the sacrificing has been mostly of the short term kind.

I know posting anything that isn't a hyper-cynical prediction of doom-and-gloom isn't too popular on slashdot, but this happened with Japan in the early 90s, and it happened with the United States(to the British Empire) in the 1850s. This isn't an unprecedented development. Cheap labor isn't infinite and eventually labor starts to get positively valued again.

Re:Is this really good news?

[Amouth]

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.

Re:The Real question then is...

[rogoshen1]

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.)