U.S. manufacturing slips in competitiveness, according to study

Source: AlixPartners

Feb 17, 2010

Battered and bruised in 2009, U.S. manufacturing faces serious challenges as American manufacturers slipped to from fifth to eighth in a new a ranking of cost competitiveness released by AlixPartners LLP. The study shows that Mexico continues to lead as the number-one low-cost country (LCC) for outsourcing from the U.S., while China, improving considerably over last year's study, still came in sixth.

"There is no doubt that economic forces worked against U.S. manufacturers this past year," said Stephen Maurer, a managing director with AlixPartners and a leader of the firm's Manufacturing Improvement practice. "This study shows that despite recent improvement in U.S. productivity, hungry global competitors have become even more formidable, both as out-sourcing destinations and as competitors to U.S. companies."

In last year's study, the Index showed that Mexico had jumped ahead of both China and India to take the top spot as the low-cost manufacturing source for the U.S. for the market basket of parts analyzed. It also showed that U.S. manufacturers gained ground on most overseas LCCs. The 2010 study shows that China has made a strong comeback, recouping much of its cost advantage relative to the U.S. However, China's improvement was not enough to wrest back the top ranking from Mexico, or the no. 2 ranking from India.

Vietnam, Russia and Romania, newly entering the ranks of the study this year, made impressive showings as no. 3, 4 and 5, respectively — all edging out China. Meantime, almost all of the countries analyzed improved their cost competitiveness relative to U.S. manufacturers.

The study also helps highlight some of the complexity in determining the true lowest-cost manufacturing location. "While most people think of labor, shipping and exchange rates as the principle variables in evaluating outsourcing costs, a variety of overhead costs can have a dramatic impact on the bottom line, and are often overlooked," noted Steve Hilgendorf, a director in AlixPartners' Manufacturing Improvement practice. "Things like electricity rates, tax burden and construction costs all vary widely from country to country, and in many otherwise low-cost countries, capital equipment and tooling are actually more expensive than in the U.S., because they largely need to be imported."

To view highlights of the study, click here.