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Wednesday, July 30, 2014

Advantages Point to Golden Future for U.S. Manufacturing, BCG Says

The U.S. is entering a golden age of manufacturing due to cost advantages in labor, energy and logistics and could be taking as much as $115 billion in annual exports away from other industrialized countries by 2020, according to a new report by Boston Consulting Group (BCG).

In “Behind the American Export Surge: The U.S. as One of the Developed World’s Lowest-Cost Manufacturers,” BCG forecasts three big winners in the new era: chemicals, machinery, and transportation equipment.

U.S. producers will gain $7 billion to $12 billion in chemical exports from Western Europe and Japan by 2015, BCG projects. Compared with the U.S., chemical production costs by that year will be 29 percent higher in Germany, 28 percent greater in France, and 16 percent more in China. Driving the U.S.’s cost efficiency will be the low cost of natural gas.

Credit: Supakitmod, freedigitalphotos.net

In the same time frame, the U.S. is forecast to gain $3 billion to $12 billion in machinery exports from Europe and Japan. Labor costs will drive the increase: It will be 15 percent less expensive to build machinery in the U.S. than Italy, 14 percent less expensive than in Germany and France, and 7 percent cheaper than in Japan. The U.S. will emerge as a low-cost export base for foreign manufacturers, and more offshore companies will set up operations in America.

The U.S. is expected to pick up $3 billion to $9 billion in export sales of transportation equipment — cars, trucks, buses, and aircraft — from Europe and Japan. In 2015, it will cost 11 percent less to build these products in the U.S. than in Germany, and 6 percent less than in Japan, the report states. Even though China will still have a 6 percent cost advantage over America, BCG says, it will “likely make more economic sense for such products to be made in the U.S.” if that is where they will be sold.

As for the impact on employment, BCG estimates that between 600,000 and 1.2 million factory jobs will be created, with another 1.9 to 3.5 million jobs coming in related services. The job surge could reduce U.S. unemployment by 2 to 3 percentage points by 2020.

BCG continues to advise companies to have a diversified global footprint to best respond to unexpected changes and to expand or reduce production rapidly in response to market needs. Nevertheless, the consultant recommends that companies both in the U.S. and abroad reassess global production strategies and consider the cost benefits of an American manufacturing base.

“Companies that fail to take into account these cost shifts when making long-term investments could find themselves at a competitive disadvantage,” BCG counsels.

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