The phrase “Made in China” embodies cheap labor, the outsourcing of American manufacturing jobs, and China’s transformation into one of the world’s economic superpowers. However, it seems the end of the Made in China manufacturing era may be in sight.
Labor Costs Driving an End to the Made in China Manufacturing
Factory workers demanding better wages and working conditions are hastening the eventual end of an era of cheap costs that helped make southern coastal China the world’s factory floor.
Where once low-tech factories and scant wages were welcomed in a China eager to escape isolation and poverty, workers are now demanding a bigger share of the profits. The government, meanwhile, is pushing foreign companies to make investments in areas it believes will create greater wealth for China, like high technology.
Many companies are striving to stay profitable by shifting factories to cheaper areas farther inland or to other developing countries, and a few are even resuming production in the West by “reshoring”.
Five economies traditionally regarded as low-cost manufacturing bases China, Brazil, the Czech Republic, Poland, and Russia have seen their cost advantages erode significantly since 2004 while US Manufacturing has considerably improved its cost structure.
The erosion in the cost advantage has been driven by a confluence of sharp wage increases, lagging productivity growth, unfavorable currency swings, and a dramatic rise in energy costs, states the Boston Consulting Group (BCG) based on a study of 25 nations that account for nearly 90 percent of global exports of manufactured goods.
BCG’s Global Manufacturing Cost-Competitiveness Index has tracked changes in production costs over the past decade on the basis of wages, productivity growth, energy costs, and currency exchange rates – four direct economic drivers of manufacturing competitiveness.
“Manufacturing cost competitiveness around the world has changed dramatically over the past decade so dramatically that many old perceptions of low-cost and high-cost nations no longer hold,” states the BCG report.
The BCG index now rates Brazil as “one of the highest-cost countries”, and the UK as “the cheapest location in western Europe”.
Mexico now has lower manufacturing costs than China, whose manufacturing-cost advantage over the U.S. has shrunk to less than 5 percent (5%). Costs in eastern European nations are at parity or above costs in the U.S while costs in much of eastern Europe are basically at parity with the U.S, states the BCG report.
Part of BCG’s ongoing research into the shifting economics of global manufacturing, the report states that 10 countries with the lowest manufacturing costs “include a mix of nations from around the world.
Six of the 10 are in Asia, while several others are in North America and eastern Europe.
The overall manufacturing-cost structures of Mexico and the U.S. have significantly improved relative to nearly all other leading exporters across the globe.
The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage that is largely driven by the 50 percent fall in natural-gas prices since large-scale production of U.S. shale gas began in 2005.
In some nations with low direct-manufacturing costs, BCG found that competitiveness could be undermined by other factors, such as a difficult business environment or poor logistical infrastructure.
3D Printing Aiding in the End of Made in China Manufacturing
Almost all cheap goods are made in China or in other parts of East-Asia. Knowing that 3D printers will fundamentally change distribution of plastics and other plastic-related materials, it is likely that the unilateral pouring of low-quality products from Asia to the West will end.
The likely scenario of the coming age of locally produced good will look something like this: The consumer will order the design of a given item online, print out the receipt/voucher, and march to the nearest 3D printing station to pick up the order. As the markets develop, we can be sure that many of the most common items will be in stock notwithstanding the massive industry of customization.
In other words, local and regional demand will dictate the scale and scope of industries that rely on mass manufacturing. The largely overlooked dimension of 3D printing is its sustainability. Most materials are biodegradable, but this isn’t even its most sustainable feature. The fact that mass manufacturing itself will become customizable is the real key.
No more warehouses full of old and outdated goods, but a situation in which supply will truly meet demand and not only in theory. Remember He-Man and his plastic friends? I would imagine that thousands of Skeletors are still rotting in garbage dumps around the world. With customized and biodegradable 3D-printed toys, the pollution is a non-issue.
Locally made toys that are biodegradable? Goodbye Made in China and environmental hazards.
INFOGRAPHIC: The End of Made In China Manufacturing