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