Calculation of total manufacturing costs by region

Calculating the total cost of production is crucial to identifying competitive production locations. Various factors such as material, labor and logistics costs must be considered on a regional basis.  

Determine direct material costs

Direct material costs include all expenses for raw materials and components required for production. These costs vary greatly depending on the availability of materials in a region and the associated transportation and customs costs. In regions with abundant raw materials, material costs are often lower, while longer supply chains lead to higher costs. Environmental regulations and import restrictions can also influence material prices.

Analyze labor costs

Labor costs are made up of wages, social security contributions and other benefits. These costs are generally lower in developing countries, but factors such as productivity and expertise can influence efficiency. Higher labor costs in developed countries can be offset by a more efficient workforce. Legal requirements, such as minimum wages and health and safety regulations, also play a role and influence overall costs.

Calculate operating costs

Operating costs include energy, rent, maintenance and infrastructure. These can vary greatly from region to region, depending on energy resources and the availability of qualified personnel. In regions with low energy costs, such as hydropower or fossil fuels, operating costs can be lower. Strict environmental regulations or a weak infrastructure, on the other hand, can significantly increase operating costs.

Include transportation and logistics costs

Transportation and logistics costs are decisive factors in manufacturing, especially in global supply chains. Production sites close to sales markets or important transport hubs benefit from shorter transportation routes and lower costs. Well-developed infrastructures such as highways, ports and rail connections significantly reduce logistics costs and guarantee faster deliveries. In regions with weak infrastructure, on the other hand, higher costs and delays can occur, which increases the overall cost of production. The choice of means of transportation, for example by truck, train or ship, also influences the efficiency and costs of logistics.

Regional subsidies and tax concessions

Many countries offer subsidies and tax breaks to motivate companies to locate in certain regions. These incentives can significantly reduce production costs and take the form of tax breaks or grants. However, companies should ensure that the conditions and duration of these incentives are stable in the long term. Such incentives are often tied to requirements such as job creation or investment in certain technologies. In the long term, companies must include the sustainability of such incentives in their strategic considerations.