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The high cost of manufacturing in Australia

08-05-2014
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Australia is now one of the world’s most expensive countries for manufacturing, a new report shows.

The Boston Consulting Group report released last week found Australia’s manufacturing costs are 30 percent higher than those in the United States.

The private study found in the past decade wages in Australia had increased by 48 per cent, the currency had appreciated by 21 per cent, energy costs were up 80 per cent, and productivity had fallen by a percentage point.
On the other hand, US manufacturers have grown more competitive over the past decade compared with factories in China, Brazil and most of the world's other major economies.

US factories can make goods at the same cost or even cheaper than those made in Eastern Europe, according to the report. And it is only 5 percent cheaper to make goods in China compared with the US.
Rising wages and higher energy costs have diminished China's long-standing edge over the US.

At the same time, a boom in US shale gas production has reduced US natural gas prices and slowed the cost of electricity.

The Boston Consulting Group study focussed on manufacturing costs in the 25 biggest exporting countries.
Only seven of those countries had lower manufacturing costs than the US this year – Indonesia, India, Mexico, Thailand, China, Taiwan and Russia.
The report highlighted several major shifts in manufacturing costs globally over the past decade.

Manufacturing in Mexico is now more cost effective than in China, for example, while Australia and Brazil have become among the most expensive manufacturing centres in the world.

The survey doesn't include transportation costs, which vary depending on where goods are shipped.

Over the past decade, labour costs, adjusted to reflect productivity gains, shot up 187 percent at factories in China, compared with 27 percent in the United States. The value of China's currency has risen more than 30 percent against the US dollar over the past decade.

The higher Chinese currency made goods produced in China and sold abroad comparatively more expensive. And foreign goods became comparatively more affordable in China.
Chinese electricity costs rose 66 percent, more than double the United States' 30 percent increase.

Brazil has lost even more ground than China. In 2004, manufacturing was 3 percent cheaper in Brazil than in the United States. By 2014, Brazil was 23 percent more expensive. Brazilian factories didn't improve efficiency enough to offset rising energy and labor costs.

Hal Sirkin, a co-author of the BCG report, said many firms are still making production decisions "on the basis of a decades-old worldview that is sorely out of date."
"They still see North America and western Europe as high cost and Latin America, Eastern Europe and most of Asia – especially China, as low cost," he said in a statement.
"In reality, there are now high- and low-cost countries in nearly every region of the world."

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