The North American Energy Revolution has resulted in the abundance of low-cost shale gas, which is helping the U.S. return to a prominent position among the world’s manufacturing leaders, which is great news to pet product manufacturers who would like their label to say “Made in the USA” or “Made in North America.”
According to a new study of the 25 largest exporting countries from the Boston Consulting Group[1], this year only seven have lower manufacturing costs than those of the U.S. Those countries are: Indonesia, Mexico, Thailand, China, Taiwan, and Russia.
Moreover, since 2004, U.S. manufacturers have become more competitive compared with every major export country except three: India, Mexico, and The Netherlands.
This is a dramatic reversal in just one decade! As I wrote in my May e-update column, it was unfathomable that I could have my Avian Adventure bird cages made in the U.S. for anything close to what I was paying in China. Even Mexico was 40% more expensive then China when I moved production from Mexico to China in 2002. Today it is only 5% cheaper to produce in China then the US, and the gap is continuing to narrow every year.
Why is this happening?
One factor, as we’ve already mentioned is cheaper energy. As energy demand soared, the cost of electricity has risen 66 percent over the past decade in China.[2]
At the same time, China’s labor costs are climbing. Since 2004, Chinese labor costs (adjusted to reflect productivity gains) went up 187 percent. Meanwhile, U.S. labor costs over the same period went up just 27 percent. In other words, in 2004 China wages averaged $4.35 per hour, less than one-fourth of the cost of $17.54 in the U.S.
By 2014, wages measured the same way climbed to $12.47 in China, more than half the cost of $22.32 in the U.S.
The U.S. has also benefited from shifts in the exchange rates, specifically the rise in value of China’s currency. Over the past 10 years, the Yuan has gone up more than 30% against the U.S. dollar.
But the U.S. isn’t the only country gaining a manufacturing advantage. Thanks to its close proximity to the U.S. and its own cheap energy and labor costs, Mexico is also developing into a manufacturing leader.
The Boston Consulting Group study found that in 2012, the cost to manufacture in Mexico (adjusted for productivity) fell to a lower level than in China. Think of how much faster and cheaper your products will arrive to your facility when they ship from Mexico versus China. Once again, lower energy and labor costs are the catalyst for the advantage.
That’s attracting the attention of global companies that once considered China the cheapest place to manufacture. For example, Honda has invested $1.3 billion to build production plants in Mexico over the past two years.
The U.S. and Mexico are now considered the “rising stars of global manufacturing” thanks to low wage growth, sustained gains in productivity, stable exchange rates, and a huge competitive advantage in energy costs. Based on these trends, experts have predicted the following trends:
• The U.S. will continue to hold a competitive advantage in energy costs until at least 2025.
• Because of the U.S. advantage in energy costs and the rising cost of labor in China, by the end of this decade it will be cheaper to manufacture in the U.S. than in China.
• Mexico, which has already surpassed China as a low-cost manufacturer, will continue to build its cost advantage and the U.S. will be among the beneficiaries. By 2015, Mexico’s average manufacturing labor costs are projected to be 19% lower than in China.
This is all very good news for those of us who make our living manufacturing pet products for the North American consumer. Perhaps those long plane rides to Asia, unfamiliar and scary meals, and less-then-pleasant factory visits will soon be a thing of the past.