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Made in America now cheaper than Made in Brazil


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2014 Apr 25, 3:16am   8,106 views  15 comments

by corntrollio   ➕follow (0)   💰tip   ignore  

http://finance.yahoo.com/blogs/daily-ticker/-made-in-america--now-cheaper-than-made-in-brazil--boston-consulting-group-140748699.html

It is now cheaper to produce goods in Mexico than in China and about 25% more expensive to manufacture products in Brazil than in the U.S., according to a new report from The Boston Consulting Group.

"The conventional wisdom that China and Asia are low cost and South America is low cost and Europe and the U.S. are high cost is no longer true," says Hal Sirkin, a co-author of the report and a senior partner at BCG.

BCG analyzed the 25 top exporting economies according to key drivers of manufacturing and created an index to show their competitive rankings. Among the results: the competitive edge for China over the U.S., which was historically about 20 points, has narrowed to just five.

Here's the BCG release:
http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-159505

Manufacturing goods for the US in the US increasingly makes sense, and becomes even more so when you consider supply chain inflexibility caused by manufacturing in Asia. You have much more control over quality in the US, and you avoid the long journey on a ship. Now that the gap is only 5%, why deal with the hassle and the lack of control?

It's also amazing that the US is competitive with Eastern Europe. It's not that surprising that Brazil is so expensive -- they are ridiculously protectionist and, as an example, are basically forcing car manufacturers to locate there through high tariffs. Brazilians would rather buy things in Florida.

As I mentioned before, Mexico is beating China now for North America-bound goods because wages have risen so quickly in China and haven't risen as quickly in Mexico. This is why there is a decent amount of American manufacturing located in Mexico too (e.g. Ford, Chrysler), although there are obviously other concerns about being in Mexico:

http://patrick.net/?p=1047319&c=768089#comment-768089
http://realestate.patrick.net/?p=1240970&c=1072579#comment-1072579

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1   Robert Sproul   2014 Apr 25, 4:41am  

So they have successfully driven down wages and expectations in the US.
In this vid, from 1994, Sir Anthony Goldsmith (one of the relatively benign old-school oligarchs) breaks down how GATT et al is going to serially decimate the working classes globally.
They knew exactly what they were doing.

http://www.youtube.com/embed/4PQrz8F0dBI

2   corntrollio   2014 Apr 25, 4:56am  

Robert Sproul says

So they have successfully driven down wages and expectations in the US.

It's not wholly about wages. We have a higher quality workforce here too and are better able to produce high quality goods. In addition, you have more control over supply chain when it's local, and you have less inventory management to do when it doesn't take several weeks to get your goods. The lead time alone to meet launch dates can be tricky.

For example, ask anyone in the clothing industry how long it takes to get your order fixed when the factory screws up. Sometimes you either have to sell your stuff for cheaper because the factor messed up your specs, or else you have to miss your critical launch date while the factory fixes it. Hopefully you're not having to buy more raw materials either. It's an industry where timing can be very important.

3   Robert Sproul   2014 Apr 25, 5:42am  

corntrollio says

We have a higher quality workforce here

Yeah but they don't want to pay a premium for it.
If they would pay say, 25 bucks an hour, to cut the assholes out of chickens (they go right in the box marked Calimari) on the dehumanizing Tyson Slaughter Line, they would quickly find crowds lined up for "jobs that Americans don't want".
And we would probably only pay an extra nickel for that CAFO sludge meat.

4   edvard2   2014 Apr 25, 5:56am  

Perhaps a bigger factor than anything is automation: The US manufacturing sector is one of the most automated industries in the world. Its getting down to wherever its cheaper to run machines inside a metal building than more so than the workers. We just so happen to have relatively cheap energy and a well-developed transportation infrastructure.

5   EBGuy   2014 Apr 25, 6:28am  

Subheading: Devalue and Frack Your Way to Prosperity
BSG seems to be the lone voice in the wilderness talking up the Made in the USA meme. They have a large (worldwide) footprint, so perhaps there is not room for anyone else to go this route.

6   corntrollio   2014 Apr 25, 6:57am  

EBGuy says

BSG seems to be the lone voice in the wilderness talking up the Made in the USA meme.

BCG might be, but there are companies "re-shoring" -- GE comes to mind:

http://www.npr.org/blogs/parallels/2014/01/22/265080779/as-overseas-costs-rise-more-u-s-companies-are-reshoring

The store about their hybrid water heaters has more to it -- the workers in the Kentucky factory actually helped GE make it cheaper and easier to manufacture -- the cost went from $1599 to $1299, and the mechanicals got a lot simpler and easier to put together. The workers in China were not doing that -- they just followed instructions:

http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/?single_page=true

The Atlantic article also mentions other companies that are re-shoring. BCG may be pushing this the hardest, but there's also evidence of it happening.

7   Dan8267   2014 Apr 25, 7:54am  

The only thing America exports are entertainment and software. And software was by far the larger of these two products. The gaming software alone rivaled Hollywood, yet was small compared to business software.

Today, we are producing less and less software as we outsource it to Chindia. That leaves us with one product: reality T.V. Yep, America's only export will be episodes of COPS showing Americans getting hauled off to jail.

8   corntrollio   2014 Apr 25, 9:07am  

Dan8267 says

That leaves us with one product: reality T.V. Yep, America's only export will be episodes of COPS showing Americans getting hauled off to jail.

The British are far better at exporting successful reality TV... at least stuff that doesn't solely involve trashy people being trashy.

9   EBGuy   2014 Apr 25, 10:34am  

controllio said: BCG may be pushing this the hardest, but there's also evidence of it happening.
Without a doubt. We've fallen so far, there is no where to go but up. We're even taking business from our neighbors to the north.
http://patrick.net/?p=1213346&c=834055#comment-834055

Thanks for The Atlantic article; I hadn't seen it before. Cheap energy and insourcing is one reason I'm bullish on our long term prospects. We've definitely turned a corner.
At the public event in September, Immelt captured the lessons of the new Appliance Park. “I think the era of inexpensive labor is basically over,” he said. “People that are out there just chasing what they view as today’s low-cost labor—that’s yesterday’s playbook.”

10   corntrollio   2014 Apr 25, 10:48am  

EBGuy says

Thanks for The Atlantic article; I hadn't seen it before.

There was another related article in the same issue too:

http://www.theatlantic.com/magazine/archive/2012/12/mr-china-comes-to-america/309160/?single_page=true

Immelt has that part right on the cheap labor -- that's what all the MBA-types used to justify off-shoring, but they completely lost control of quality and supply chain. That's why some companies have even been moving call centers back to the US -- quality issues.

11   corntrollio   2014 May 12, 7:11am  

Here's another one on Made in the USA:

http://www.cnbc.com/id/101646468

It mentions the BCG report, but also gives examples of smaller companies:

A Pennsylvania company is shipping building materials to Mongolia. It's one of the coldest countries, where effective home insulation is a big challenge. A Tennessee business is ramping up patterned glass production, destined for churches and homes in South America and Europe. A Florida maker of porcelain lighting is not only exporting but has opened an Australian outpost after orders climbed. Only a handful of U.S. companies make porcelain lighting and opaque patterned glass, with the bulk of such production is in China.

12   EBGuy   2014 May 12, 8:01am  

Even our PCB layout house was touting the BCG report. Some of those export stories are pretty wild. I remember reading about the Mongolian mine a couple years back.

13   pkennedy   2014 May 12, 10:19am  

Basically it comes down to if you know how to do manufacturing in China and have good processes and controls, you'll get a good deal. However, for most businesses, they aren't going to see that. They will have to deal with layers of problems that will compound.

It's like offshoring IT work, it's great if you're huge and you can do everything there. If you need 5 or 10, or 30 guys, it's going to be a nightmare that is going to suck you dry while producing little.

US has been manufacturing about 23% of the worlds goods for the last 40 years, they aren't going to increase their take here by much. They also aren't going to produce a lot more jobs, because the manufacturing done is heavily automated and very efficient. So there really isn't any room for growth in manufacturing in the US.

As for cars, almost every country "forces" car manufactures to produce in their country. Cars are big ticket items, manufacturing them all in one country and exporting them around the world would obviously be the easiest way to do it. However, no country wants to give away that much economic activity, so they force them to build them locally.

As for Brazil, the cars are abysmal here. It's insane the quality. Engines are just covered in oil within 2 years, warranties are for a year, batteries go after about 2 years, rust everywhere on the frame within a year, and everything in between is breaking down quickly! But since there are high tariffs, no one can bring in ANY external cars to force the manufactures to build better quality. When the manufacturers build in the country, they all just build just well enough to compete with each other. The build quality is horrendous!

14   corntrollio   2014 May 12, 10:46am  

pkennedy says

As for Brazil, the cars are abysmal here.

Way overpriced too, as I understand. Brazil is very protectionist about cars, but the manufacturers have decided it's better to produce shitty cars in Brazil for massive profits than not to sell them to Brazilians at all.

pkennedy says

Basically it comes down to if you know how to do manufacturing in China and have good processes and controls, you'll get a good deal. However, for most businesses, they aren't going to see that.

It's extremely rare to have good processes and controls, and quality is always a problem, as is production timeline. As an example, that's why some call centers are being on-shored again. If a Chinese factory screws something up, you probably won't know about it for way too long, and then it may be too late to fix, so you may have to sell substandard stuff or abandon your schedule. There also may be inventory implications as well because everything takes several weeks to get here on a boat. It's a lot easier to have control of your people and designs closer to where you want to sell, and globalization is making it so the cost isn't that different any more, so you can maintain quality.

I think I'd have fewer complaints if manufacturers moving factories to China meant we'd get the same quality goods as Made in the USA from back in the day. The reality is that moving to China is part of an overall cost-cutting process and usually means that construction of what you're buying and the materials put into it are cheapo too. There's no comparison between a shitty Chinese-made shoe with glued soles and plastic cheapo leather vs. a high quality American shoe such as Alden, Chippewa, Red Wing, or Allen Edmonds (note that Alden makes all shoes in the US, while some of the others may offer a cheaper line of shoes not made here). There's no comparison between most Asian-built/American-branded particle-board furniture with shitty Ikea-type fasteners and properly constructed American-built solid wood furniture from the exact same brand bought in the 70s, 80s, or earlier before they moved their factories. When buying shitty Chinese made stuff, at some point you're just paying for branding. There is such thing as quality Chinese-made stuff, but it's the exception.

15   corntrollio   2014 May 13, 6:13am  

APOCALYPSEFUCKisShostikovitch says

when I found a luggage retailer I was told they refuse to sell Samsonite and hadnt' sold it for years and years because it was not repairable

I saw a Made in the US Samsonite-branded (contractor-made -- contractor was indicated on the piece, but I can't remember who it was) piece of furniture in someone's house several months ago, and it was very sturdy, and the finish was still intact after more than 30 years. The comparable item you'd buy today is a piece of crap made of inferior materials that look nice when new, but look like ass in a very short time.

I don't understand people who buy POS made-in-Asia Pottery Barn particle board crap, when they could buy Made in the US real wood stuff for the same price or cheaper.

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