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Four Factors Matter More Than Labor Cost

Labor cost and currency rates do not matter that much to manufacturers anymore. Instead, there are four more complex considerations that drives companies' choices of where to manufacture.

Labor cost and currency rates do not matter that much to manufacturers anymore. Instead, there are four more complex considerations that drives companies' choices of where to manufacture.

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Labor cost and currency rates do not matter that much to manufacturers anymore. That was one of the key points of a report recently published by Strategy + Business. Instead, four other considerations—all of them more complex—play a larger role in driving companies’ choices of where to manufacture. They are:
 
1. Skill level and quality of potential employees.
 
2. The presence of clusters of companies in which manufacturers can interact and learn from one another.
 
3. Having a country nearby that not only offers some low-labor-cost capacity, but also an emerging consumer market (for the United States, this means Mexico).
 
4. A competitive regulatory and tax environment.
 

The United States is not an obvious leader on any of these points. However, it could be a strong contender in all these areas if it chose to make strategic course corrections aimed at emphasizing these strengths.