Thursday, June 2, 2011

Low cost go south

Interesting article in the Globe and Mail highlighting re-shoring and the giant strides the US has made overall in increasing productivity.
Average wage rates also don’t reflect the productivity difference between the two countries. U.S. manufacturers have achieved such high productivity that real labour costs are less now than they were in 1995 – and, for all practical purposes, operate in a huge zero-inflation zone. The decline in the value of the U.S. dollar, along with the gradual, grudging rise in the value of the Chinese Yuan, makes U.S. exports more competitive still. 

The full Boston Consulting Group report estimates that net manufacturing labour costs between the US and China to converge in 2015.  That is not far away.  Rising Chinese labour costs (15-20% annually) and higher shipping costs have eroded the Chinese cost advantage.  Increasing US productivity has lowered US costs. The situation for the US especially their low cost / non unionized States looks optimistic.  How the US will be able to tool and more importantly skill up over the next decade will be interesting to watch.  I suspect it may be harder than it should as educators and politicians do not now see the opportunity that may be ahead of them.
Where Canada sits in comparison is probably not favourable, there historically between a 25% productivity gap between the Canada and the US.  And where Alberta sits within this equation is probably worse. 
Here in Alberta we have very different labour challenges to the US with Oil and Gas having an almost insatiable appetite for labour often at any price this leaves the rest of Alberta industry in a difficult situation.  In competing with foreign (including US) companies we have little control of labour cost, the only function we do have control of is productivity. 
What can we do about it?  Alberta Productivity are working hard at raising awareness.  How much change is happening in Alberta is harder to gauge, time will tell.

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