The index covers four direct economic drivers of manufacturing competitiveness:

• wages
• productivity growth
• energy costs
• currency exchange rates.

The index finds

• Mexico Is Less Expensive than China,
• China's manufacturing-cost advantage over the U.S. has shrunk to less than 5 %,
• Costs in much of eastern Europe are basically at parity with the U.S. and
• Brazil is now one of the highest-cost countries along with Australia, the highest.

Mexico and the U.S. have significantly improved relative to nearly all other leading exporters across the globe. The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage that is largely driven by the 50 % fall in natural-gas prices.

According to BCG, the top 10 most competitive export economies are:

1. Mexico
2. China
3. United States
4. South Korea
5. United Kingdom
6. Japan
7. Netherlands
8. Germany
9. Italy
10. Belgium

According to Michael Zinser, a BCG partner, "These changes should drive companies to rethink their sourcing strategies, as well as where to build future capacity. Many will opt to manufacture in competitive countries closer to where goods are consumed."

The authors recommend that companies reassess their global production and sourcing footprints in light of today's cost structures and trends. Manufacturers need to look beyond wages and take into account total costs, including differences in productivity and hidden costs. "When companies build new manufacturing capacity, they are typically placing bets for 25 years or more."

Read more at BCG

Editor's Note: CR4 would like to thank Larry Butz, GEA Consulting President, for contributing this blog entry.