The author of a recent article on MSNBC’s web site points out that China’s labor cost is now only about 10% lower than the US. The article seems to suggest that once the lines cross, which is estimated to happen in 2015, it will make sense to bring manufacturing back to the US. Later in the article, the author states that US workers are 4 times more productive than Chinese workers.
It seems to me that higher productivity outweighs the labor cost differential. Many companies forget to measure productivity improvement when looking at labor cost. Productivity is measured as units of output per unit of input, so if a company has $20 revenue for every $4 of labor, the productivity metric is $5.
My point is that there are two sides to the equation: cost and output. If American workers produce four times what Chinese workers produce in the same time period, it appears to me that the lines have already crossed and manufacturing should be brought back now.
As a footnote, there are several other important considerations in this question: cost of inventory in transit, quality, speed to market (closeness to the customer), protection of intellectual property, etc. Cost and output are important, but they aren’t the whole story.
© 2012 – Rick Pay – All Rights Reserved
OMG! Someone who gets it. It’s about “productivity” not wages. And cost of l;labor is not limited to wage either. There are hundreds of costs the Industrial Engineer calculates to examine the fully burdened cost of “manufacturing”. Soon, American consumer products will be more effectively produced locally. I have been pestering economists on this issue for five years now. They know Alcoa, Boeing, and GM and are certain everyone else should ship labor offshore. Its been an exasperating five years but some like you are getting it.
Ron Smith
Retired Chair of Technology
Cerritos College
Thanks Ron for the comment.
I think more and more are beginning to get it, but it is, as you mention, a slow wake-up. Some think that the USA will again be a manufacturing leader potentially as early as 2015. Using Total Cost of Ownership helps companies see that off-shore manufacturing is no longer as cheap or reliable as it was.Some of my cleints are bringing manufacturing back as a customer service issue as much as a cost issue.
With regards,
Rick