Executive Briefings

Instead of Putting Another Plant in China, Maybe You Might Consider Someplace Else - Like the USA

"When clients are considering opening another manufacturing plant in China, I've started to urge them to consider alternative locations," says Hal Sirkin of the Boston Consulting Group (BCG). "Have they thought about Vietnam, say? Or maybe [they could] even try Made in USA?" When clients are American firms looking to build factories to serve American customers, Sirkin is increasingly likely to suggest they stay at home, not for patriotic reasons but because the economics of globalisation are changing fast.

Labour arbitrage-taking advantage of lower wages abroad, especially in poor countries-has never been the only force pushing multinationals to locate offshore, but it has certainly played a big part. Now, however, as emerging economies boom, wages there are rising. Pay for factory workers in China, for example, soared by 69 percent between 2005 and 2010. So the gains from labour arbitrage are starting to shrink, in some cases to the point of irrelevance, according to a new study by BCG.

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"When clients are considering opening another manufacturing plant in China, I've started to urge them to consider alternative locations," says Hal Sirkin of the Boston Consulting Group (BCG). "Have they thought about Vietnam, say? Or maybe [they could] even try Made in USA?" When clients are American firms looking to build factories to serve American customers, Sirkin is increasingly likely to suggest they stay at home, not for patriotic reasons but because the economics of globalisation are changing fast.

Labour arbitrage-taking advantage of lower wages abroad, especially in poor countries-has never been the only force pushing multinationals to locate offshore, but it has certainly played a big part. Now, however, as emerging economies boom, wages there are rising. Pay for factory workers in China, for example, soared by 69 percent between 2005 and 2010. So the gains from labour arbitrage are starting to shrink, in some cases to the point of irrelevance, according to a new study by BCG.

Read Full Article