The Global Manufacturer

Where Should You Go for Low-Cost Manufacturing?

There’s no place like home, or at least close to home. Asked what location they considered to be the most attractive for low-cost manufacturing aimed at the North American market, executives at small-to-mid-sized companies said the United States and Mexico were at the top of the list.

Those findings from a study by Entrada Group included 150 manufacturers, 95% of whom worked for firms headquartered in mature markets (73% in the U.S., 14% in Canada and 8% in Europe). For the companies that manufacture in more than one location, the U.S. and Mexico were each chosen as the top location by 23% of the audience. China trailed the North American locations at 19%.

That wasn't always the case. Currently, 51% of those companies manufacture in China while 37% make products in Mexico. Another 27% manufacture in other Asian nations and 24% have production in India.

“With labor costs rising in the Far East, it isn’t surprising that companies are considering production locations in their own backyard,” says Doug Donahue, principal and vice president of Business Development with Entrada Group. “Additionally, for the past decade or so, manufacturers have seen increased pressure to produce in the same region where their product is sold. Thus, for many manufacturers, the U.S. is becoming more attractive due to rising costs in China coupled with this trend of regionalization.”

How manufacturers ranked these 10 factors in order of importance when thinking about their companies' manufacturing locations. (Source: Entrada Group)

Donahue, whose firm helps manufacturers establish operations in Mexico, said that country offers the “best of both worlds” --  close proximity to U.S. and Canadian markets along with labor costs as low as $1.50 per hour.

When asked the top factor that had determined the past choice of a manufacturing location, 30% said “low-operating costs” while 27% chose “other.” Entrada said most respondents choosing other indicated that the location they chose “was based largely on customer needs, and a requirement to be within proximity.” Another 16% said the main determinant was the need for “high-quality production.”

Both companies with two or more manufacturing locations and those with a single location said a low-cost manufacturing strategy was important to their future growth. But manufacturing executives with two or more manufacturing sites reported mixed results with their efforts to date. While 50% said they had largely achieved their goals for low-cost manufacturing, another 46% said they had had only moderate success and 3% reported no success at all.

The survey seems to indicate more of a shift to regional manufacturing than any large-scale rejection of China. While smaller manufacturers may have run with the herd to China in the past, they're looking more closely at North American sites for expansion as labor costs in China rise, shipping becomes more expensive and past mishaps prompt more attention to supply chain risk.

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