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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
2nd world is (was) the Communist bloc.
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.'
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!
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.
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.