When cheap is not so cheap

WHEN managers are choosing where to locate a new factory, their decision depends on many things. Cost is one of them. But costs come in many forms and change constantly. Alongside labour costs, there are also those for raw materials, energy, transport and much else besides. Currencies move too. Yesterday’s low-cost location may turn out to be tomorrow’s money-pit.

Rising Chinese wages have received much attention in recent years, with observers wondering what the next cheap Asian country will be to take a chunk of China's manufacturing job-growth. Average factory wages have more than quintupled, in nominal, renminbi-denominated terms since 2004. Productivity levels have also grown, but China's currency has appreciated, offsetting some of the savings. Other countries are also said to be moving up and down the cost rankings. For example, America and Mexico are becoming increasingly affordable, Brazil less so.