For U.S. companies, Mexico is best bet for low-cost manufacturing

A recent study by the consulting firm AlixPartners determined that in 2009 Mexico was the most cost-competitive country for U.S.-based companies to manufacture their products. Mexico received the lowest-cost ranking because of its favorable exchange rate and the fact the country had not been significantly affected by transportation and material costs.

The "U.S. Manufacturing-Outsourcing Index" study compared the cost to manufacture a variety of parts and products in low-cost countries and in the United States. It analyzed how seven cost drivers (exchange rates, labor costs, transportation costs, raw-materials costs, inventory costs, capital equipment, and overhead costs and duties) vary by country and how they can affect total product cost.

Study author Stephen Maurer noted that low labor costs were not the overriding factor in determining the optimal country for low-cost sourcing. Even in the United States, hourly labor usually accounts for only 20 percent of the total cost of a manufactured product. Other factors, such as energy costs, currency-conversion charges, and transportation can trump low labor costs in some countries.

To learn more, see "U.S. Manufacturing Slips in Competitiveness, According to AlixPartners Study."