Good question – one that I have been looking at for many years as Design for Manufacturing and Assembly trainer and consultant. I’ve visited the manufacturing floors of an unknown number of companies and spent countless hours within engineering offices of well more than 120 organizations from all over the world. With that said let me summarize why countries like China and others are so much more cost effective at manufacturing than the US or our EU competitors.
I'm going to summarize my observations but please do not politicize this discussion as I will delete. I'm working on a white paper with much more details so you might keep watch for when I publish on Engineers Edge.
First, know that the cost of everything is a wage for somebody whole or in part. If a society has high wages everything costs more than one than one with less expensive average wages.
The cost of living for a typical middle-class life in China is less expensive. China has managed the cost of living drivers to prevent significant inflation. Costs like medical care, transportation, food, education and so on. When the cost of living drivers are controlled there is less demand for higher wages, less inflation pressure – it’s that simple.
Exchange rates – US dollar is the world’s currency for trade. With lots of demand for our dollar it drives up the value, gives the dollar more purchasing power and the Renminbi less – thus China is cheaper to buy from Dollar-to-Renminbi perspective.
Culture – the Chinese working class are motivated to get the job done when compared to US workers. No there’s not slave labor in China but there is an unending supply of people to the tune of more than a billion. This can also be said about Mexican labor – they hustle. Yes, I'm saying it out loud - they are better employees on average.
The total cost of running a business is much cheaper in China – again China has managed the cost drivers in their country. Materials, medical care, electricity, facilities costing, transportation and of course overall labor costs and so on. Cheaper business costs = cheaper products.
Business investment – the Chinese appear to be more willing to invest in cost cutting technology then US companies. A machine or software that does the work of ten workers cuts total production costs. There’s lots of resistance to change in the US – particularly from labor. I’m sure you've heard it "Why change that - we've always done it that way" said.
Technology has changed in today's world we can take an existing sheet metal shape laser scan it and export to multi-axis machine center and poof, we have tooling in less than ten hours effort. Combine that with less expensive wage business environment and you have a cost-effective product to sell in America.
The simple truth is that China is just beating the US and others in the mass production manufacturing world. They have managed their country differently, created a much more competitive business environment from within and with the rest of the world.