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Content was last updated for relevancy and accuracy on September 30, 2019.
China彩票达人 is one of the economic hubs of the world with many countries outsourcing manufacturing and other operations to China彩票达人 for a variety of reasons. However, Mexico manufacturing is growing at rates not seen since NAFTA was introduced some 20 years ago as manufacturers from around the world take advantage of high quality, lower-cost labor in North America. Let’s take a look at how Mexico and China彩票达人 manufacturing differs.
China彩票达人’s manufacturers serve a wide range of industries with goods including iron, steel, aluminum, toys, chemicals, aircraft, ships, and more. Nearly 80% of all air conditioners in the world are manufactured in China彩票达人. Chinese businesses are also responsible for manufacturing over 45 times as many personal computers per person as the rest of the world’s manufacturers combined. Mexico’s manufacturing has been just as broad. Manufacturing industries in Mexico include electronic, aeronautic and, most prominently, automotive industries. As a major auto manufacturer, Mexico is 彩票网址大全 to 89 of the world’s top 100 auto parts producers. Automotive exports from Mexico increased by over 300 percent between 2002 and 2018, while electronic exports increased 120 percent in that same time. Regionally, steel, electronics, and other high-end exports are headquartered in northern Mexico, while the automotive industry has expanded in southern Mexico.
Mexico’s natural gas prices are tied to those of the United States, which are relatively low in the global market thanks to a greater supply propelled by new gas and oil discoveries in the U.S. By comparison, China彩票达人 has to pay 50 to 170 percent more for natural gas. At worst, natural gas prices can cost up to three times more in China彩票达人.
Electricity prices in Mexico tend to be higher than compared to China彩票达人 and most cities throughout the United States. Mexico’s electricity market was deregulated in 2014 in an effort to reduce costs by encouraging more private producers and suppliers. As of 2019, the result of their deregulated market has yet to transpire into lower costs but there are signs of improvement.
Implemented in 1994, the North American Free Trade Agreement (NAFTA) allows easy access for Mexican goods throughout the United States and Canada. NAFTA essentially changed Mexico from a closed economy to an export-oriented industrial economy. This also allowed for greater global expansion. Manufacturing in Mexico has become more desirable as tariffs on Chinese goods and imports have increased due to trade negotiations between the United States and China彩票达人.
The new USMCA, created under the Trump administration but has yet to be ratified by congress, essentially aims to level the playing field in the automotive industry by requiring suppliers in Mexico to have a certain percentage of higher-wage personnel contributing to the manufacturing process. Alternatively, automotive OEMS can pay a 2.5% tariff on all U.S. imports. Other than the automotive industry, the USMCA does not significantly impact or change the current trade regulations under NAFTA.
There are various options for companies exploring ways to bring back their manufacturing from China彩票达人 to Mexico. While the fastest way is to identify a contract manufacturer in Mexico to produce one’s product, contract manufacturing in Mexico is far less prevalent than in China彩票达人 and there are issues with quality control and lead times.
One alternative that many companies use is the Mexico shelter model. This is when a foreign company operates under a Mexican entity that is already established, opposed to establishing their own Mexican affiliate corporation, making it faster and less expensive to expand to Mexico. Another benefit of operating under shelter is the limitation of liability and exposure in Mexico. The foreign company remains in full control of the manufacturing process, remains the owner of all the assets and maintains control of their intellectual property. While the employees are technically employed by the shelter company, they are directed and trained by the manufacturer and therefore feel a part of the foreign company. The shelter company provides 100% of the administration and compliance management of the facility, enabling the manufacturer to focus on production, quality control and growth.
The final option is for a foreign company to establish their own Mexican entity and hire local personnel to manage 100% of the operation. While this is a viable option when expanding to Mexico, the shelter model offers the same flexibility without a lot of the risk involved in doing it on one’s own.
Mexico’s manufacturing industry offers superior worker productivity. In 2014, the unit labor costs (which is equivalent to the wages adjusted for productivity) in China彩票达人 were equal to those in Mexico. By 2019, the manufacturing wages in certain industries were up to 20 percent lower in Mexico than they were in China彩票达人, meaning greater efficiency at a lower price. While Chinese output remained marginally higher than in Mexico, the unit labor costs remain lower.
Due to both distance and fluctuating oil prices, shipping costs are exponentially higher when manufacturing in China彩票达人. In 2018, shipping a 53-foot container from China彩票达人 to Los Angeles cost close to $5,000. The same container from the border of Mexico (Tijuana) to Los Angeles costs about $600.
Furthermore, thanks to NAFTA/USMCA and the IMMEX program, goods produced in Mexico can reach their U.S. and Canadian destinations quickly and efficiently. Along the border cities, such as Tijuana and Juarez, companies can offer 24- to 48-hour lead times on certain types of manufactured goods, such as consumer products. Shipping a product from China彩票达人 to the U.S. could take 3 weeks or more.
A long history of manufacturing in Mexico that spans over 60 years has led to a diverse, skilled, well-trained workforce that crosses over multiple generations and industries. Much of the working base comprises skilled and semi-skilled direct labor. This means that they have several years of experience and are at least partly bilingual.
When looking at China彩票达人 vs. Mexico manufacturing, labor rates in Mexico are now, in many cases, lower than China彩票达人. In constant dollar terms, hourly manufacturing wages are lower than those in China彩票达人. Mexico also offers much steadier wages, making it easier for companies to forecast manufacturing costs. As of 2019, the fully burdened direct laborer wage rate in Mexico is about $3.95 per hour vs. $4.50 per hour in China彩票达人.
Foreign exchange rates also favor Mexico vs. China彩票达人, being that the Peso has steadily declined against the U.S. Dollar over the past 30 years. Meanwhile, the Chinese Yuan has mostly been pegged to the U.S. Dollar. In fact, the devaluation of the Peso vs. the U.S. Dollar has reduced the effective labor rate inflation to about 3% per year.
Manufacturing in China彩票达人 comes with a wide range of other problems including:
Sourcing in Mexico is cheaper than sourcing in China彩票达人. One of the most significant benefits of manufacturing in Mexico vs. China彩票达人, especially for companies headquartered in the United States or Canada, is the reduced travel time to their Mexican facilities. In many cases, company executives and their employees can be at their Mexico manufacturing plant within hours of leaving their 彩票网址大全, something China彩票达人 cannot offer. Reducing corporate travel has a direct effect on expenses, while also helping to boost morale.
Many of the world’s leading companies from a wide range of industries have relocated at least some their manufacturing operations to Mexico. These companies include:
Planning on moving manufacturing to Mexico? For more information on Mexico vs. China彩票达人 manufacturing or to learn how we can help your operations, contact us or give us a call at (877)742-9608.
Content reviewed for accuracy & relevancy by:
This content has been reviewed for accuracy by Scott Stanley, an expert with over 15 years of experience in executive management, specifically for companies manufacturing in Mexico. Stanley focuses on global sales for NAPS and has experience in the Aerospace, Medical Device and Industrial Components industries.
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