(6.1.1)--Made_in_America_again.pdf

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1、Made in America,AgainWhy Manufacturing Will Return to the U.S.The Boston Consulting Group(BCG)is a global management consulting firm and the worlds leading advisor on business strategy.We partner with clients in all sectors and regions to identify their highest-value opportunities,address their most

2、 critical challenges,and transform their businesses.Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization.This ensures that our clients achieve sustainable competitive advan-tage,build more capable o

3、rganizations,and secure lasting results.Founded in 1963,BCG is a private company with 74 offices in 42 countries.For more information,please visit .Made in America,AgainWhy Manufacturing Will Return to the U.S.Harold L.Sirkin,Michael Zinser,and Douglas HohnerAugust 2011Made in America,Again2Chinas o

4、verwhelming manufacturing cost advantage over the U.S.is shrinking fast.Within five years,a Boston Consulting Group analysis concludes,rising Chinese wages,higher U.S.productivity,a weaker dollar,and other factors will virtually close the cost gap between the U.S.and China for many goods consumed in

5、 North America.LOOK AT TOTAL COSTSCompanies should undertake a rigorous,product-by-product analysis of their global supply networks that fully accounts for total costs,rather than just factory wages.For many products sold in North America,the U.S.will become a more attractive manufacturing option.RE

6、ASSESS YOUR CHINA STRATEGYFor many products that have a high labor content and are destined for Asian markets,manufacturing in China will remain the best choice because of technologi-cal leadership or economies of scale.But China should no longer be treated as the default option.AT A GLANCEThe Bosto

7、n Consulting Group3For more than a decade,deciding where to build a manufacturing plant to supply the world was simple for many companies.With its seemingly limitless supply of low-cost labor and an enormous,rapidly developing domestic market,an artificially low currency,and significant government i

8、ncentives to attract foreign investment,China was the clear choice.Now,however,a combination of economic forces is fast eroding Chinas cost advan-tage as an export platform for the North American market.Meanwhile,the U.S.,with an increasingly flexible workforce and a resilient corporate sector,is be

9、coming more attractive as a place to manufacture many goods consumed on this continent.An analysis by The Boston Consulting Group concludes that,by sometime around 2015for many goods destined for North American consumersmanufacturing in some parts of the U.S.will be just as economical as manufacturi

10、ng in China.The key reasons for this shift include the following:Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash Chinas labor-cost advantage over low-cost states in the U.S.,from 55 percent today to 39 percent in 2015,when adjusted for the higher pro

11、ductivity of U.S.workers.Because labor accounts for a small portion of a products manufacturing costs,the savings gained from outsourcing to China will drop to single digits for many products.For many goods,when transportation,duties,supply chain risks,industrial real estate,and other costs are full

12、y accounted for,the cost savings of manufacturing in China rather than in some U.S.states will become minimal within the next five years.Automation and other measures to improve productivity in China wont be enough to preserve the countrys cost advantage.Indeed,they will undercut the primary attract

13、ion of outsourcing to Chinaaccess to low-cost labor.Given rising income levels in China and the rest of developing Asia,demand for goods in the region will increase rapidly.Multinational companies are likely to devote more of their capacity in China to serving the domestic Chinese as well as the lar

14、ger Asian market,and to bring some production work for the North American market back to the U.S.Manufacturing of some goods will shift from China to nations with lower labor costs,such as Vietnam,Indonesia,and Mexico.But these nations ability to Made in America,Again4absorb the higher-end manufactu

15、ring that would otherwise go to China will be limited by inadequate infrastructure,skilled workers,scale,and domestic supply networks,as well as by political and intellectual property risks.Low worker productivity,corruption,and the risk to personal safety are added concerns in some countries.This r

16、eallocation of global manufacturing is in its very early phases.It will vary dramatically from industry to industry,depending on labor content,transportation costs,Chinas competitive strengths,and the strategic needs of individual compa-nies.But we believe that it will become more pronounced over th

17、e next five years,especially as companies face decisions about where to add future capacity.While China will remain an important manufacturing platform for Asia and Europe,the U.S.will become increasingly attractive for the production of many goods sold to consumers in North America.This report,the

18、first in a series,examines the economic trends that point to a U.S.manufacturing renaissance.It also explores the strategic implications of the shifting cost equation for companies engaged in global sourcing.The U.S.“Decline”and Renaissance in Perspective The death of American manufacturing has been

19、 foretold many times in the past four decades.As the only major industrialized nation not leveled by World War II,the U.S.accounted for around 40 percent of the worlds manufactured goods in the early 1950s.But then,fueled by a relentless wave of imports from a reconstructed Europe and eventually fro

20、m Japan,the U.S.experienced a dramatic loss of market share in industries such as color TVs,steel,cars,and computer chips.In the 1970s and 1980s,fears of the loss of U.S.industrial competitiveness were particularly acute,prompting a widespread debate over whether the nation should adopt a“Japan Inc.

21、”-style industrial policy and teach its schoolchildren to speak Japanese.Then came the rise of such East Asian Tigers as South Korea and Taiwan,which led to a massive transfer of production of labor-intensive goods,including apparel,shoes,and toys,and then of much of the U.S.computer and consumer-el

22、ectronics manufacturing industry.The U.S.suffered through many painful adjustments to these challenges.Unlike most nations,however,it quickly ripped off the Band-Aid and allowed industry to adapt.Factories closed,companies failed,banks wrote off losses,and workers had to learn new skills.But U.S.ind

23、ustry and the economy responded with surprising flexibility and speed to reemerge more competitive and productive than ever.By the late 1990s,American companies dominated the world in high-value industries such as microprocessors,aerospace,networking equipment,software,and pharma-ceuticals.Manufactu

24、ring investment,output,and employment surged.It may not be obvious yet,but the U.S.manufacturing sector is today in the midst of a similar process of readjustment in response to perhaps its greatest competitive threat everthe rise of China.Since opening its doors to foreign investment and trade,Chin

25、a has offered a virtually unbeatable combination of seemingly limitless cheap labor(less than$1 per hour),a growing pool of engineers,a fixed currency,The reallocation of global manufacturing will become more pronounced over the next five years,especially as compa-nies face decisions about where to

26、add future capacity.The Boston Consulting Group5and local governments willing to offer inexpensive land,free infrastructure,and generous financial incentives.In the decade since it entered the World Trade Organization(WTO)in 2001,China has essentially become the default option for companies wishing

27、to outsource production in order to lower costs.From 2000 to 2009,Chinas exports leapt nearly fivefold,to$1.2 trillion,and its share of global exports rose from 3.9 percent to 9.7 percent,according to United Nations Conference on Trade and Development data.These developments occurred in a remarkable

28、 breadth of industries,from labor-intensive assembly work to heavy industry and high-tech.Chinas portion of global apparel exports increased from 17.4 percent to 32.1 percent,for example.Its share of the world export market for furniture soared from 7.5 percent to 25.9 per-cent,for ships from 4.1 pe

29、rcent to 19.6 percent,for telecom equipment from 6.5 percent to 27.8 percent,and for office machines and computer equipment from 4.9 percent to 32.6 percent.In the U.S.,meanwhile,the loss of some 6 million manufacturing jobs and the closure of tens of thousands of factories over the past decade has

30、fanned frequent warnings of a manufacturing crisis.The Tide Is Turning Once again,however,predictions of the demise of American manufacturing are likely to prove wrong.The U.S.manufacturing sector remains robust.Output is almost two and a half times its 1972 level in constant dollars,even though emp

31、loy-ment has dropped by 33 percent.Despite the recent wave of outsourcing to China,the value of U.S.manufacturing output increased by one-third,to$1.65 trillion,from 1997 to 2008before the onset of the recessionthanks to the strongest productiv-ity growth in the industrial world.Although China accou

32、nted for 19.8 percent of global manufacturing value added in 2010,the U.S.still accounted for 19.4 per-centa share that has declined only slightly over the past three decades.The conditions are coalescing for another U.S.resurgence.Rising wages,shipping costs,and land pricescombined with a strengthe

33、ning renminbiare rapidly eroding Chinas cost advantages.The U.S.,meanwhile,is becoming a lower-cost country.Wages have declined or are rising only moderately.The dollar is weaken-ing.The workforce is becoming increasingly flexible.Productivity growth continues.Our analysis concludes that,within five

34、 years,the total cost of production for many products will be only about 10 to 15 percent less in Chinese coastal cities than in some parts of the U.S.where factories are likely to be built.Factor in shipping,inventory costs,and other considerations,andfor many goods destined for the North American

35、marketthe cost gap between sourcing in China and manufactur-ing in the U.S.will be minimal.In some cases,companies will move work to inland China to find lower wages.But this will not be an attractive option in many indus-tries.Chinese cities in the interior provinces lack the abundance of skilled w

36、orkers,supply networks,and efficient transportation infrastructure of those along the coast,offsetting much of the savings afforded by slightly lower labor costs.When all costs are taken into account,certain U.S.states,such as South Carolina,Alabama,and Tennessee,will turn out to be among the least

37、expensive production The U.S.is becoming a lower-cost country,with a workforce that is increasingly flexible and productivity growth continuing.Made in America,Again6sites in the industrialized world.As a result,we expect companies to begin building more capacity in the U.S.to supply North America.T

38、he early evidence of such a shift is mounting.NCR moved production of its ATMs to a plant in Columbus,Georgia,that will employ 870 people by 2014.The Coleman Company is moving production of its 16-quart wheeled plastic cooler from China to Wichita,Kansas,owing to rising Chinese manufacturing and shi

39、pping costs.Ford Motor Company is bringing up to 2,000 jobs back to the U.S.in the wake of a favorable agreement with the United Auto Workers that allows the company to hire new workers at$14 per hour.Sleek Audio has moved production of its high-end headphones from Chinese suppliers to its plant in

40、Manatee County,Florida.Peerless Industries will consolidate all manufacturing of audio-visual mounting systems in Illinois,moving work from China in order to achieve cost efficiencies,shorter lead times,and local control over manufacturing processes.Outdoor Greatroom Company moved production of its

41、fire pits and some outdoor shelters from China to the U.S.,citing the inconvenience of having to book orders from Chinese contractors nine months in advance.The reallocation of production is still in its early stages,but we believe it will accelerate in the years ahead.The impact of the changing cos

42、t equation will vary from industry to industry.Products in which labor accounts for a small portion of total costs and in which volumes are modest,such as auto parts,construction equipment,and appliances,will be among those that companies reevaluate in terms of their options for supplying the North

43、American market.But the manufac-ture of goods with relatively higher labor content that are produced in high vol-umes will likely remain in China.Finally,companies that make mass-produced,labor-intensive products,like apparel and shoes,may move production from China to other low-cost nations.(We wil

44、l assess the implications of the new manufactur-ing math for specific industries in the second report in this series.)These trends do not suggest that Chinese manufacturing will decline or that multi-national companies will shut their mainland plants.More Chinese production capacity will be devoted

45、to supplying the countrys enormous domestic market,which is gaining millions of new middle-class households each year,as well as other growing economies in Asia.In addition,China will continue to remain a low-cost supplier to Western Europe.And China will remain competitive in industries that have d

46、eveloped strong“clusters of excellence”and that have an immense installed base of production capacity and component and material suppliers.This means that when it comes to building new production capacity,companies will likely choose to explore alternatives instead of automatically opting for China.

47、Over The manufacture of goods with relatively high labor content that are produced in high volumes will likely remain in China.The Boston Consulting Group7the next five years,we believe that the U.S.will be the optimal choice for many manufacturing investments aimed at serving the North American mar

48、ket.The New Manufacturing MathA combination of factors is starting to dramatically shift the manufacturing cost equation in favor of the U.S.Chinas Rising WagesRising labor rates have been a fact of life in Chinese factories for years.Average wages leapt by 150 percent from 1999 through 2006,for exa

49、mple,a period in which China emerged as the worlds workshop for a range of industries.Those increases started from a low base,but now the tipping point is in sight.For one thing,wage growth has accelerated much faster than productivity growth.From 2000 through 2005,pay and benefits for the average C

50、hinese factory worker rose by 10 percent annually.(See Exhibit 1.)From 2005 through 2010,wage hikes averaged 19 percent per year,while the fully loaded cost of U.S.production workers rose by only 4 per-cent.The last few years have been especially volatile in China.In 2010,the giant contract manufact