An analysis of the changing cost competitiveness of the world’s top 25 export economies.

1. The Shifting Economics of Global Manufacturing
An Analysis of the Changing Cost Competitiveness of
the World’s Top 25 Export Economies
April 2014 – Selected highlights

2. 1
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
Summary: A significant reordering of national manufacturing
competitiveness has occurred over the past decade
Striking shifts have taken place
in the competitiveness of the
top 25 export economies during
the past ten years
Manufacturing competitiveness
has become truly global
Of the world's top 10 exporters,
China, the U.S., and South
Korea stand apart from the
pack
Dramatic historical volatility
can be seen in the major
drivers of competitiveness
Manufacturers must have a
global perspective to remain
competitive as the economics
continue to shift
• Rapid changes in wages, labor productivity, energy costs, and exchange rates have driven
dramatic changes in relative manufacturing-cost structures
• These changes have led to four emergent categories of relative competitiveness
– Under Pressure. Traditional low-cost countries whose costs are rising quickly
– Losing Ground. Traditional high-cost countries that are falling further behind
– Holding Steady. A mix of low- and high-cost countries that are maintaining their position
– Rising Stars. Mexico and the United States—improved competitiveness versus all others
• Manufacturing competitiveness is no longer concentrated in a single region or country
• East and South Asian countries joined by North American, western European, and eastern
European countries are at the top of the rankings
• The gap between China and the U.S. in overall manufacturing cost—before transportation—is
less than 5 points today
• South Korea, the next-most-competitive major exporter, is ~2 points more costly than the U.S.
• The rest of the top 10 export economies are ~10 to 25 points disadvantaged to the U.S. and
~15 to 30 points disadvantaged to China
• The past ten years have been marked by high volatility
– Several countries have seen more than ten years of 10% to 20% sustained wage growth
– Productivity has doubled in many countries—while declining in others
– Energy costs—relative to the U.S.—have increased in many countries: 50% to 200%
– Currencies have fluctuated greatly, ranging from –20% to +35% versus the dollar
• Future uncertainty in all of these dimensions demands that manufacturers remain flexible to
stay competitive
• Manufacturers need to develop long-term views and build options into their supply chain as
much as possible

3. 2
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
BCG's Global Manufacturing Cost-Competitiveness Index covers
countries with ~90% of total exports of manufactured goods
Australia China
India
Indonesia
JapanSouth Korea
Taiwan
Thailand
Brazil Canada
Mexico
United States
Austria Belgium Czech Republic
France
Germany
Italy
NetherlandsPolandSpainSweden
United Kingdom
Switzerland
Russia
Source: OECD.

4. 3
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
0
15
30
45 Switzerland
Indonesia
The index covers four direct drivers of mfg competitiveness:
wages, productivity growth, energy costs, and exchange rates
0.0
0.4
0.8
1.2 United States
Brazil
0.05
0.10
0.15
0.20
0.25
0.00
Russia
Italy
Productivity index
(scaled to U.S.)
Electricity cost
(cents per kW hour)
0
3
6
9
12
15
18
21
24 Switzerland
Russia
Natural-gas cost
($ per million BTUs)
Dimension
Definition
Range of values
globally in 2014
$35.83
$0.29
1.00
0.15
22.2
5.4
21.1
3.3
Median
Sources: U.S. Economic Census; BLS; BEA; ILO; Euromonitor; EIU; BCG.
Labor productivity
Value-added economic output
per manufacturing worker
0.59
• Highly variable
• Gains in most countries, but
some developed countries
are decreasing
Energy costs
Electricity and natural-gas input
costs
11.4 12.6
• North American energy
revolution driving down cost
• Costs in the rest of the world
steadily increasing
Local wages ($)
Manufacturing
wage rates
Average hourly salary for a
manufacturing worker
17.64
• Increasing across all
countries
Macro trend

5. 4
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
Over the past ten years, there have been dramatic shifts in the
relative cost competitiveness of the top 25 export economies
Source: BCG.
Unchanged or improved
Declined 1-4 points
Declined 5-9 points
Declined 10-14 points
Declined 15 or more points
Outside top 25 exporters

6. 5
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
Four country categories emerge from these dramatic shifts
Category themes
Under pressure
Losing ground
Holding steady
Rising stars
Characteristics
• Traditionally low-cost countries
whose deteriorating
competitiveness is driven by a
wide range of factors
• Traditionally high-cost countries
whose competitiveness
continues to deteriorate owing
to the lack of productivity gains
and energy cost increases
• Countries roughly maintaining
their relative competitiveness
versus global leaders
• Increasing competitiveness
versus all others
• Moderate wage growth,
sustained productivity gains,
stable foreign-exchange rates,
and energy advantages
Countries
China
Czech
Republic
PolandRussiaBrazil
BelgiumFrance Italy SwedenSwitzerland
India IndonesiaNetherlands
MexicoUnited States
Source: BCG.
United Kingdom

7. 6
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
Size of exports (highest to lowest)
Dramatic shifts have led to a wide spread in cost
competitiveness across the top 25 export economies
90
140
120
110
100
130
0
80
India
87
Taiwan
97
Manufacturing-cost index, 2014 (U.S. = 100)
Mexico
91
Russia
99
Canada
115
UnitedKingdom
109
Belgium
123
Netherlands
111
Italy
91
Brazil
123
Spain
109
Australia
130
Switzerland
125
CzechRepublic
107
Austria
111
Sweden
116
Poland
101
Indonesia
83
Thailand
123
France
124SouthKorea
102
Japan
111
UnitedStates
100
Germany
121
China
96
OtherElectricity Natural gasLabor1
Sources: U.S. Economic Census; BLS; BEA; ILO; Euromonitor; EIU; BCG.
Note: Index covers four direct costs only. No difference assumed in “other” costs (for example, raw-material inputs, machine and tool depreciation); cost structure calculated as a weighted average
across all industries
1Productivity-adjusted.

8. 7
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
Summary of competitiveness index rankings for the top 10
export economies
Country 2014 index rank
2014 mfg-cost
index
Delta in mfg-cost
index ('04–'14)
Trend in index
('04-'14)
China 1 96 +9
United States 2 100 N/A
South Korea 3 102 +4
United Kingdom 4 109 +1
Japan 5 111 +4
Netherlands 6 111 –1
Germany 7 121 +4
Italy 8 123 +10
Belgium 9 123 +7
France 10 124 +10
Source: BCG.

9. 8
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
Several of the remaining top 25 exporters have very attractive
direct-cost profiles but are challenged by secondary factors
Mfg cost
relative to
the U.S.
Overall
business
environment2
Ease of
doing
business3
Logistics
performance4
Corruption
perception5
Rank
47
35
31
29
47
Country1
Indonesia
India
Thailand
Mexico
Russia
Rank
120
134
18
53
92
Rank
59
46
38
47
95
Rank
114
94
102
106
127
Sources: U.S. Economic Census; BLS; BEA; ILO; Euromonitor; EIU; BCG.
1Includes a selection of economies ranked from 11 to 25 on total export size.
2EIU ranking based on ten separate criteria or categories covering the political environment, the macroeconomic environment, market opportunities, policy toward free enterprise and competition,
policy toward foreign investment, foreign trade and exchange controls, taxes, financing, the labor market, and infrastructure.
3World Bank Ease of Doing Business Index.
4World Bank Logistics Performance Index.
5Transparency International 2013 Corruption Perception Index.
Delta
–17%
–13%
–9%
–9%
–1%

10. 9
Copyright©2014byTheBostonConsultingGroup,Inc.Allrightsreserved.
This research is part of BCG’s series on the shifting dynamics
of global manufacturing
Authors of This Analysis
Harold L. Sirkin
Senior partner and coauthor of The U.S. Manufacturing
Renaissance: How Shifting Global Economics Are Creating an
American Comeback (Knowledge@Wharton, November 2012)
BCG Chicago
Michael Zinser
Partner, coleader of the Manufacturing practice, and coauthor of
The U.S. Manufacturing Renaissance: How Shifting Global
Economics Are Creating an American Comeback
BCG Chicago
Justin Rose
Partner, leader of green energy in the Americas, and coauthor of
The U.S. Manufacturing Renaissance: How Shifting Global
Economics Are Creating an American Comeback
BCG Chicago
Selected Publications and
Research in the Series
How Cheap Natural Gas Benefits the Budgets of U.S.
Households
An article by The Boston Consulting Group
December 2013
Majority of Large Manufacturers Are Now Planning or
Considering “Reshoring” from China to the U.S. (press release)
Survey findings by The Boston Consulting Group
September 2013
The U.S. Skills Gap: Could It Threaten a Manufacturing
Renaissance?
A report by The Boston Consulting Group
August 2013
Behind the American Export Surge: The U.S. as One of the
Developed World's Lowest-Cost Manufacturers
A report by The Boston Consulting Group
August 2013
U.S. Manufacturing Nears the Tipping Point: Which Industries,
Why, and How Much?
A report by The Boston Consulting Group
March 2012
Made in America, Again: Why Manufacturing Will Return to the
U.S.
A report by The Boston Consulting Group
August 2011
Note: Publications are available on BCG's thought leadership portal, www.bcgperspectives.com, or at www.bcg.com.
To request a more detailed overview of the findings,
please contact BCG-Info@bcg.com.
To request a media interview, please contact Eric
Gregoire at gregoire.eric@bcg.com.
To discuss the findings with a BCG expert, please
contact Payal Sheth at sheth.payal@bcg.com.