CHICAGO, IL--(Marketwired - Aug 19, 2014) - Dramatic shifts in cost competitiveness around the world over the past decade are starting to spur a number of companies to change their global sourcing and manufacturing investment strategies, according to a new report by The Boston Consulting Group (BCG). The report, titled The Shifting Economics of Global Manufacturing: How Cost Competitiveness Is Changing Worldwide, is being released today.

Global automakers are expanding production in the UK, for example, which has emerged as one of Western Europe's lowest-cost manufacturing locations, while at the same time they are slashing capacity in Australia, now one of the most expensive. In Mexico, where manufacturing costs are now estimated to be cheaper than those of China, Asian electronics manufacturers such as Foxconn and Sharp are expanding production.

"Many companies are beginning to see the world in a new light," said Harold L. Sirkin, a BCG senior partner and coauthor of the report. "They are finding that many old perceptions of low-cost and high-cost countries are out of date, and they are starting to realign their global sourcing and production networks accordingly."

The Shifting Economics of Global Manufacturing expands on earlier BCG research into changes in direct manufacturing costs among the world's 25 largest goods-exporting nations since 2004. That research, released in April, found that several economies still often perceived as low-cost manufacturing nations -- 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, according to the new BCG Global Manufacturing Cost-Competitiveness Index. The index also found that the competitiveness of historically high-cost nations, such as the U.S. and the UK, has significantly improved.

The BCG Global Manufacturing Cost-Competitiveness Index is a new tool that sheds light on the shifting cost dynamics of global production. The index compares changes in direct costs between 2004 and 2014 in the world's 25 leading export economies along four dimensions: manufacturing wages, productivity, energy costs, and currency exchange rates. An interactive graphic on bcgperspectives.com shows how the cost position of each of those 25 economies has changed between 2004 and early 2014 relative to the others.

The new report analyzes the factors driving the cost shifts in greater detail in several economies, such as Australia, India, Mexico, and the UK, and the impact of changing costs on those nations' manufacturing competitiveness. The report also offers recommendations on how companies and governments can respond.

Several countries that have most improved their competitiveness over the past decade are already attracting new manufacturing investment and jobs, while investment is declining in some of those that have lost ground in the BCG index. In the UK -- where the direct-manufacturing cost structure has improved by up to an estimated 10 percentage points in the index over other leading Western European exporters since 2004 -- automobile output has increased by around 50 percent since 2009. According to the Financial Times, auto production is projected to grow by another one-third by 2017 to 2 million units annually, thanks to around $17 billion in new investment by automakers such as Jaguar Land Rover, Nissan, Honda, and the BMW Group's MINI.

Contrast the UK's performance with that of Australia, the country whose global cost competitiveness deteriorated the most from 2004 to 2014, according to the BCG index. Australian auto production has contracted by half since 2004, and Ford Australia, Toyota, and General Motors' Holden subsidiary plan to shut their factories by 2017. Overall investment in Australian manufacturing fell by 6 percent between 2004 and 2012. A major reason is that Australia's booming natural resources sector helped push manufacturing wages up by about 48 percent over the past decade and Australia's currency up by 21 percent against the U.S. dollar. Overall manufacturing labor productivity, however, fell by 1 percent over the same ten-year period.

"Improving the productivity of each worker is becoming an increasingly important factor in manufacturing competitiveness across the globe," said Michael Zinser, a BCG partner who is coleader of the firm's Manufacturing practice. "This is especially true as the once-considerable wage gaps between developed and developing economies continue to shrink."

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