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Study: U.S. Manufacturing Will Achieve Cost Parity with China by 2015

The U.S. is definitely a more cost-competitive source for manufacturing today than it has been in many, many years, said Steve Maurer, managing director at AlixPartners.

By 2015, the average cost of importing products from China will be about the same as the cost of manufacturing them in the United States, according to new research.

The research comes from the business-advisory firm AlixPartners, which analyzed manufacturing costs and patterns in the United States and various low-cost countries as part of its "AlixPartners Manufacturing-Sourcing Outlook."

In a corresponding survey of 137 C-level manufacturing executives, the firm also found that the perception of the United States as a manufacturing location has improved by leaps and bounds.

In the survey, 37 percent of manufacturing executives said they would choose the United States as their preferred location for nearshoring (defined as moving production of products closer to the U.S. consumer base) – equal to the percentage of respondents who cited Mexico as the most attractive nearshoring locale.

In the firm's 2011 survey, only 19 percent of executives cited the United States as the preferred nearshoring location.

"The U.S. is definitely a more cost-competitive source for manufacturing today than it has been in many, many years," said Steve Maurer, managing director at AlixPartners and leader of the firm's manufacturing practice in the Americas.  

"In fact, the cost gap with China has on average been closed by approximately 70 percent for the products we analyzed."

Look Before You Leap

China is losing its manufacturing-cost edge over other countries as well. In recent years, it's been 15 percent to 20 percent cheaper to manufacture products in Mexico and India than in China, according to AlixPartners.

However, that doesn't apply to all products.

For example, while the costs of making plastic molded parts and non-denim slacks in China are rising, they still are lower than the costs of making those products in Mexico – and will continue to remain lower through at least 2015, according to AlixPartners' analysis.  

Before uprooting production from China and other low-cost countries, manufacturers "need to perform thorough, case-by-case analyses," the firm said.  

Manufacturing executives need to consider a number of factors, including product type, raw-materials costs, labor costs, inventory costs, exchange rates, duties, freight costs and overhead costs, among others, according to the firm.
 
"When it comes to moving production, companies should look twice before they leap," said Foster Finley, managing director at AlixPartners and leader of the firm's supply chain practice in the Americas.  

"Not only do product-cost variables vary widely by product type, but several factors, such as exchange rates, materials costs and labor agreements, can all have a dramatic impact on the outcome."

Even when there's a compelling case for nearshoring, the firm advised companies to consider the potentially massive costs of moving as well as the skills gap that has plagued U.S. manufacturing in recent years.  

Based on the survey results, nearshoring is on the radar of a growing number of manufacturers.

In the survey, 84 percent of executives indicated that they consider nearshoring to be an important decision for their companies during the next year.

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