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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!
Are we in a race to the bottom or the top?
If manufacturing's biggest variable cost is labor, companies will flock to the place where their variable costs are the lowest.
So, the question is, have we started to reach wage parity now by virtue of wage reductions in the USA (race to the bottom) or the fact that wages in places like China have reached parity?
IMHO, it's both. The standard of living here in the USA has stagnated just like the last 6 years of the economy and the demands of labor outside the USA has driven costs up. But we are severely limited in this country because we face a huge increase in energy costs once the economy starts to actually do more than tread water. Manufacturing won't return, not yet.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
The socially corrosive mentality that one class of jobs, usually technical and electrical engineering, can be mercilessly outsourced needs to stop.
Lower-value service jobs like accounting, lawyers and notaries are immune to this phenomenon.
It's also good that more Chinese can earn better wages and hopefully benefit from the technology they are actually building.
Mostly random stuff.
"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."
Mexican wages rising less than China's doesn't mean that they're wages aren't still low. Where are you getting this misconception about misconceptions? It's not in the linked article.
It's a race to the bottom. It's why we keep printing money here in the USA.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
2nd world is (was) the Communist bloc.
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.
US wages are not flat. They're declining. Adjusted for inflation and the cost of living increases, your effective purchasing power is 1/3rd of that of your grandparents.
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. You can't even with you and your spouse working full time with decent jobs. Your children will need loans to go to college and you will need to fork out a lot of money for childcare while you both work. You should probably pay for private tutoring too, to make up for your lack of time with your children you spend working. (Parental involvement in education is key to educational success. THE number one factor. It's why lower income people stuck working 60+ hours a week with 3-5 part time jobs have children with bad educational outlooks)
Point is, you're getting screwed. The income gap between the wealthy and poor has increased exponentially in the last 30 years. And it's no accident. There are people working hard to make sure you and your children grow up stupid, in to a life of perpetual debt and poverty.
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.'
To lower-cost SE Asia and African countries.
Have you ever been to a third-world country?
Have you lived there?
Because I think it's quite apparent that you don't have a clue what you're talking about. But here's a quick'n'easy test: Our poor are fat. Their poor are skinny.
The real problem is that other nations continue to manipulate their money relative to the $.
China,
Indonesia,
India,
vietnam,
etc. are but a few.
As long as this is ignored, then manufacturing will continue to stay with those nations that manipulate the most.
What is really helping move this back is NOT so much costs, but the fact that the younger generation are saying no to this and working hard to bring it back. Look at how Target, and Walmart are doing. These are basically front companies for these other locations. They are having no choice but to start bring back North American products.
I prefer the "u" in honour as it seems to be missing these days.
China also has a long history of violent peasant revolt, so i'm sure it will work out one way or another...
HA! I just wasted some of your bandwidth with a frivolous sig!
It doesn't cost anything really to ship software or service support / customer support. If the wages are even a bit lower I would suspect that a lot of those jobs will stay offshore. Some might come back because it is can be more hassle than it is worth resulting in bad product when using offshore programmers. Then again, it is the MBAs that often make the offshoring decisions, so who knows what their tiny little brains will come up with.
-- I ignore anonymous replies to my comments and postings.
This is the inevitable consequence of outsourcing. We've altered the local economies of those countries and the sucking sound is reduced, and so now the "outsourcing" will flow where the vacuum is now strongest... which perhaps just happens to be right here in our own back yards again.
What goes around comes around. Or something like that.
This is complete BS, they come out with nonsense studies like this all the time.
My father works in manufacturing, they don't like going over seas, you have a hard time controlling quality, ensuring design specs, etc...
But there is no way they can stay in business without it.
According to my father, when doing analysis of where to send work The total cost of labor (including benefits an such) are roughly as follows:
US: $15/hr
Mexico: $1/hr
China: 10cents/hr
The minimum wage is mexico is $5/day, so yea...
China has the benefit of the manufacturer paying no benefits at all and the government keeping the employees healthy.
There are added costs like shipping, bribing government officals etc...
But the costs would have to be huge to make up the difference between $15/hr and 10 cents per hour.
Where US workers come into the picture is to save money on shipping. If you can send the product over in pieces, save a ton on shipping and then have the final product assembled here, you can get the best of both worlds.
Literally the opposite of the point of the article we're discussing, but sure. Why not. What a joke. Haha.
I think it's you who haven't been to many third world countries. Yes, there are countries with famine, but there are plenty of poor fat people in Nicaragua, Fiji, Egypt, Brazil, etc. I think that we are seeing a convergence in many aspects of life between the US and what everyone calls the third world. Belize looks kind of like Mississippi. Costa Rica and Mexico actually look better. We still have the lead in institutions - our courts work better, our cops are fairer, and our customer protections are more robust than any place in the third world. But I think these are the most important differences between the first and third world. Outright famine still happens, but is certainly the exception even in the latter.
No one on the face of the planet does Puritanism better than Americans. From birth, we're close-order drilled that work is the *only* ethic, to the point that by the second week of vacation (if it exists), the average American worker starts to feel twitchy, as if they're 'cheating' by not working, or they won't be missed and thus discovered to be irrelevant by the queen and drones.
And this - with a little help from the One-Percenters - is why there will never be a Star Trek style future, where one works due to passion and not subsistence necessity.
You should walk through a Chinese factory or even an American factory where production volume doesn't warrant the investment in automation.
I am becoming gerund, destroyer of verbs.
I've driven a forklift... I made 5cents over minimum wage. I know It's a logical fallacy to disregard your post just because one little bit is wrong, but... I'd like to know what plants you've seen where someone driving a forklift was making $30-50 an hour... I don't think you've seen that at all. I'm sitting in the middle of Intel, as a technician, and I don't make that much. Perhaps I need to quit my job and go drive a forklift?
Given the cost of labor, geographical proximity and ease of distribution thanks to NAFTA, I'm surprised more companies aren't setting up manufacturing in Mexico. In one of the more stable states, not the heads-in-a-duffel-bag / threatening to collapse the government states.
Oh wait, I just answered my own question.
THIS SPACE INTENTIONALLY LEFT BLANK.
American workers are now competing to offer their labor at the lowest possible cost. Improving public education has helped; American workers are beginning to understand and accept that they have no other choice.
I comment occasionally so that I can mod others -1 overrated or -1 offtopic.
That's the whole point, they don't pay people 30-50$ an hour to "drive a forklift" they where paying it because the union contract required x% pay increase each year of service, and the forklift guys had been there for 20+ years still driving a forklift (the ~30 ones). the ~50$ was a different plant, where operators who had been there for 20-30 years who could no longer physically do the work required by operations (long standing, heavy lifting, etc.) where assigned to be the forklift drivers as it was a job within their physical abilities and was used as a "golden job before retirement" this was also exasperated by the fact that they had bad policies around promoting from within from the shop floor. It didn't mater your skills or years of service or knowledge of the business, if you didn't have a 4 year degree you couldn't be salary, and you could't be a supervisor as that was salary only, let alone a production/process engineer or a manger. So if you were an operator or a technician and you didn't have a 4 year there was no where to go but within the hourly positions.. Yet they would still get the annual pay increases even though the job did not show the value of that raise.
Its bad policy & management of the workforce and the distribution of talent which can have a very profound effect on the labor rates which translates to a cost of good sold. which can cause the viability of producing local vs producing oversees comes into question.
'...if only "Jumping to a Conclusion" was an event in the Olympics.'
It's interesting to watch how things oscillate from one extreme to the other. In computers, it's the shift from terminals connected to mainframes, to PCs, to terminals that look a lot like a smartphone, and now a little bit back towards PCs. I'm guessing this insourcing trend will start swinging back the other way once labor here gets too far above the price levels it's at now.
The company I work for basically the opposite of leading edge -- we do IT services for a very staid, downtime-averse, risk-averse industry segment. They're just starting to figure out that offshoring whole development groups isn't giving them the savings they predicted, a fact that most companies realized a lot sooner. So not every industry oscillates in phase, but the pattern is everywhere.
Serious question though, for those with experience...one of the most often cited problems US manufacturers complain about is the lack of skilled factory workers. What exactly do people need in the way of skills that they didn't have 20-30 years ago when the manufacturing was offshored originally? If it's just running CNC equipment or similar, isn't all the programming and such done by the engineers? What is the skill they need?
I used to get paid around $10-12/hour to drive a forklift, with a max pay of around $15/hour (plus overtime when required). It really does depend on how much a company values its workers and the quality of their work. $30-50 seems.. the fuck, because I'd go do that job RIGHT NOW. But as I was saying, a bad fork driver can cost you millions in certain industries. Our forklift drivers had to go through a 2 week certification course, with obstacle courses on several different forklifts that we had in service, plus recurring yearly testing. It was a "prestige" job on the floor.
If you were me, you'd be good lookin'. - six string samurai
Move your manufacturing to Canada. We can move parts and products between the U.S.A. and Canada by trains, planes & automob... I mean trucks. Just don't mess around while driving on the highways.
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That's nice, but you should tell us how you really feel.
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Canada is better, eh? We don't have worms in our alcohol.
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Oh, they just found out it's more expensive? Good for them, except they should have figured out that waiting 4 weeks for your product to be replaced if you sell it all when it would be 3 days in the US loses you tons of money regardless of worker wages. You just cannot have your business rely on another business thousands of miles away. Don't even get me started on the level of fraud and quality issues. Chinese manufacturing costs A TON once you look past the surface. Everything should still be made in the US!
Don't worry, they won't be paid slaves for much longer. Companies are installing robots as we speak!
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I don't think "exasperated" means what you think it means.
...gis sdrawkcab (usually not responding to ACs; don't bother posting as AC)
Honestly, I'd list those countries at a higher scale than the absolute Third World. In the Indian subcontinent, Madagascar and parts of Sub-Saharan Africa, there are still millions of people who are badly nourished, who expend an enormous amount of effort every day in unskilled labour but whose sustenance consists of a mere handful of a staple food (white rice, cassava, cornmeal, bread) with little or no ingredients added. Central America and the Middle East is significantly better off.
Sometimes even the rich are skinny, because of poor food availability for decades.
One of the reasons Russia and Eastern Europe produce beautiful ladies like there's no tomorrow. In all fairness, they wouldn't have been considered "beautiful" 60 years ago, but tastes change.
...gis sdrawkcab (usually not responding to ACs; don't bother posting as AC)
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.
Does inflation make sense?
Chuuch. Preach. Tabernacle.
Beta seems to have become worse lately. There is no place to sign in, and the link to return to classic is missing. I have to close and re-open my browser until it starts in classic mode.
Our forklift drivers had to go through a 2 week certification course, with obstacle courses on several different forklifts that we had in service, plus recurring yearly testing. It was a "prestige" job on the floor.
On the flip side, one summer job when I was a teenager, I was a working in a high-tech fortune 100 company's warehouse (which shall remain nameless) and my manager decided to send me to fork-lift "school" so I could help out loading the trucks. His sole word of advice to me was that the last guy to put the forks through the walls of his office got fired on the spot, so don't screw up.
The "school" was a 2 day hands-on where I got to attempt to drive 2 different styles of forklifts for about 20mins each and watch an OSHA approved fire extinguisher operation video. I spend the rest of the summer trying not to destroy things in the warehouse.
It was pretty prestigious job for a teenager, but I was getting slightly above minimum wage for that job...
Does inflation make sense?
While i know were you are going, i can say from my experience that while people might use Inflation s the reason for having wage increases of x% a year, very very rarely is X at all tied to inflation in any meaningful way.
'...if only "Jumping to a Conclusion" was an event in the Olympics.'
Rush is Canadian, it was a given that Canada took first place. The real fight is for who's in second place
The poor in Egypt were motherfucking skinny. At least they were in 2008. Maybe you were looking at the shopkeepers or taxi-drivers, or tour guides who spoke English.
Same for Peru. Also went through the Caribbeans, but never really saw the poor there.
Costa Rica is doing just fine. That was a pleasant experience. Nice enough I felt fine just driving around by myself. I'd feel fine accepting them in as another state if it weren't for my OCD demanding there be an even number of states.
Outright famine still happens, but is certainly the exception even in the latter.
I was going to give you shit about saying that first world nations experienced famine, but then I looked up the actual definition of first, second, and third-world nations. I thought it just meant established vs poor-as-shits-ville. Rather, it's a hold-over from the cold war. But sure, if you consider Oman first world, then that's totally legit.
Indeed. It's usually described as a raise. Despite very often actually being less than the rate of inflation. I guess "Congratulations! You're getting a 3%-4%=-1% 'raise'!" doesn't have the same ring to it.
Chuuch. Preach. Tabernacle.
Since you found it funny, why don't you explain the joke to me.
I could see some humor maybe of they were somewhat related but pulling shit out of nowhere just doesn't give the giggles you seem to think it does.
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.
Small quibble, entropy increasing is the natural order of the universe and things.
Am also not sure maximum entropy in economy is a stable/wealthy/better one. (entropy as measure of chaos/disorder)
The summary talks about "inflexible labor markets".
Yes, some population write laws that protect human beings from exploitation. I would not call it "inflexible", but "protective", or just "human"
Dramatic Shifts In Manufacturing Costs Are Driving Companies To US, Mexico
They're only interested in Southern or Southernized states, which is not representative of the US. That is, they're only interested in places with a well-defended "know thy place" mentality where labor is rendered servile.
Any deviance from said philosophy is severely punished, whether it be by individuals or corporations. In the case of individuals, it is measured in legally-friendly terminations, designed to break support. In the case of corporations, especially the precedent-setting Volkswagen, interest groups will threaten to take out tax incentives or otherwise hobble the company.
Twitter supports and protects racists - by smearing their critics with the "Hate Speech" label.
Unlike CHINDIA, USA can export its inflation to rest of the world with https://en.m.wikipedia.org/wik...
Casteism