For years low-cost assembly and manufacturing have taken place in developing countries by firms based in the industrialized world. Otherwise known as outsourcing, the industrial revolution was the first-time businesses started to use outside resources for jobs such as architecture, engineering, and even insurance as a way to save costs. By the 1970s, outsourcing manufacturing came full circle as we saw the production of clothing, shoes, toys, and electronics happening abroad, resulting in drastic changes within the structure of modern industries. Today everything from gadgets to automobiles is outsourced to low-cost countries (LCCs) so goods can remain affordable.
What companies realized then and today is that to remain competitive, they must opt for lower labor costs, which explains why “internal” activities were and are performed outside a country and, at times, by third parties. Additional reasons for utilizing manufacturing resources in developing countries include but are not limited to ease of logistics, decreased production rates, lower wages, and increased cash flow; we will explain more here. However, first, we wish to emphasize how although countries of Asia have often been considered the obvious choice to transfer the manufacturing of worldly goods, looking forward to 2020, the list of the top-producing LCCs now includes Mexico.
Not surprisingly, companies procure in low-cost countries because of inexpensive labor. The figure below shows the average manufacturing wage in Mexico, and China continues to converge over time. Due to yearly increases and a growing limitation of access to skilled workers in coastal areas within China, Mexico is proving to be wage competitive, and its competitiveness is making it a more attractive manufacturing locale for international companies.
A comparison of manufacturing trends between Mexico and China
ACFTA a free trade area - ten member states of the Association of Southeast Asian Nations (ASEAN) and the People's Republic of China.
17.736 births per 1000 people, a 1.85% decline from 2017.
11.930 births per 1000 people, a 1.29% decline from 2017. In 2018 reported the lowest birth rate since 1961,
Manufacturing in Mexico – The Proximity Equation
It’s not just wages that make Mexico an ideal location for outsourcing manufacturing. Mexico offers proximity to the United States, while countries such as China are halfway around the world. A flight from China to New York City (NYC), for example, takes more than 13 hours. A non-stop flight from Mexico can take as little as five hours. Shipping times are also significantly less between Mexico and the U.S. than China and the United States. Reduced transit times also equal less costly transport because if quality issues with the product occur, it becomes more affordable and efficient to send products back to Mexico for reprocessing, especially since quality issues arising from China are more problematic in terms of costs.
Finally, qualified workers in Mexico are plentiful. Although China also has a significant pool of skilled workers, low birth rates suggest diminishing access. Plus, when it comes to safety, Mexico’s government has developed responsible employment practices and stringent child labor laws which helps slow the flow of illegal immigrants to the U.S. Chinese government employee safety practices, we know, are not as developed as those implemented in Mexico, and child labor laws may not be as heavily restricted or enforced as they are in Mexico.
Ensure Maximum Profits without Jeopardizing Credibility and Reputation
To summarize, today’s manufacturing firms are choosing Mexico over China as an LCC for manufacturing due to wage convergences, supply chain and transportation costs differentials, access to workers and protection by a robust legal infrastructure Here at Tetawaki, we know many companies that started their low-cost operations in China are favoring Mexico as way to cost-effectively deliver goods to market today and into the future and can help you get there. Want to know more about establishing a manufacturing presence in Mexico? Contact us today!
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