Renaissance manufacturing (part two)

Last week's column talked about the rebound in U.S. manufacturing that is both under way and likely to continue. The American manufacturing sector is expected to add jobs in 2012 for the third consecutive year, after years of painful job eliminations. The column also focused on some of the "common wisdoms" about manufacturing, the quality of vehicles made in the U.S. and other issues that further inspection shows to be misguided.

Another common wisdom: :The United Stares and other major manufacturing nations simply cannot compete with the extremely low costs of doing business in China when it comes to manufacturing.

Times, they are a changin'.

The Boston Consulting Group in a recent study of global manufacturing noted that Chinese wage rates are rising at about 17 percent per year, while the Chinese currency, the yuan, continues to rise in value, significantly reducing that nation's prior competitive advantage. At the same time, a powerful shift is under way within the U.S.

The BCG study noted that in 2000, China's average wage rate, adjusted for productivity, was 36 percent of that in the U.S. By the end of 2010, that gap had shrunk to 48 percent, with a BCG estimate that it will be 69 percent in 2015. To quote Hal Serkin of BCG, "The spread is getting down to a smaller and smaller number. Increasingly, what you're seeing (in corporate boardrooms) is a discussion not necessarily about closing production in China, but about 'Where will I locate my next plant?' "

Simply more competitive

More flexible U.S. work rules, lower labor and land costs, higher global fuel and transportation costs, and financial incentives from many local communities and states have made the U.S. much more competitive as a low-cost base for supplying the American market. Consulting firm AlixPartners reported that in 2005, Chinese-produced parts arrived at U.S. destinations an average of 22 percent cheaper than comparable products domestically. By the end of 2008, the average price gap had dropped to 5.5 percent. That differential has no doubt been eliminated. It brings into question the need to justify the risk and complexity of producing halfway around the world.

In addition, the issue of Chinese piracy of technology, theft of intellectual property and massive turnover of key personnel makes life difficult half a world away. Chinese authorities talk of the need to protect global patents and limit illegal and counterfeit products. Good luck with that one.