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| Services giant India beats China as low-cost manufacturer: Survey |
| Press Trust Of India / New Delhi May 22, 2009, 00:09 IST |
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India, for long considered good for only services, has beaten the ‘world’s factory’ China to become the second cheapest manufacturing destination after Mexico.
China’s cost advantage has eroded over time largely because of a wide range of cost increases, while India’s currency has turned weak against the US dollar which in turn has offset increase in internal cost and freight rates.
Meanwhile, Mexico saw the biggest improvement driven by a favourable exchange rate, relatively low transportation costs and free-trade status, said global business advisory firm AlixPartners in its report ‘2009 Manufacturing-Outsourcing Cost Index’.
“Outsourcing is a whole new ballgame today. Gone are the days when companies could see cost savings of 30 per cent or more by making ‘no-brainer’ manufacturing-footprint and outsourcing decisions, to China in particular,” Stephen Maurer, managing director with AlixPartners and a leader of the firm’s Lean Manufacturing practice, said.
The cost ranking of benchmark countries has shifted significantly from 2005 to 2008, with Mexico topping the list, overtaking India (second) and China (third), followed by the United States and Brazil.
Brazil is still not as attractive as other low-cost countries (Mexico, China and India).
The Index, which analysed the cost of manufacturing in the United States as against that in low-cost countries like China, India, Brazil and Mexico, shows that in the last six months there has been significant change in aggregate low-cost country manufacturing rankings, due to fast-moving changes in cost drivers such as exchange rates, labour and shipping.
Going forward, China is likely to see a small improvement in cost competitiveness, as the yuan strengthens and transportation costs drop, while Mexico may lose some of its exchange-rate-driven advantage.
“India continues to be strong as favourable exchange rates are expected to continue, and transportation costs and effective duties drop,” AlixPartners said adding Brazil’s manufacturing cost will again exceed that in the US. The Index also predicts that while China's cost position would probably improve in the latter half of this year, in part, due to declining ocean freight costs as a result of moderating oil prices and the global slowdown. But it probably will not improve enough for China to overtake Mexico and India this year.
In the meantime, while the US has become more competitive in recent years, American manufacturing plants and suppliers still face a significant cost disadvantage in most cases versus the countries reviewed, the Index finds.
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