Manufacturing in Mexico: Advantages and Cost Savings Opportunities
May 02, 2022
Mexico is a good location for manufacturing due to the numerous advantages it affords companies related to production cost savings, labor and transportation stability, and economies of scale. With a strategic entry through the IMMEX program, companies manufacturing in Mexico can benefit from significant cost savings opportunities.
As the major manufacturing industries in Mexico continue to grow – including the automotive, aerospace, medical device, electronics, and consumer products industries – they’re creating greater economies of scale from which factories of all sizes can benefit.
What are the benefits of manufacturing in Mexico?
Mexico is a preferred location for building a manufacturing factory due to the wealth of resources it affords manufacturers. From people to suppliers to partners, Mexico’s manufacturing economy is geared toward helping manufacturers succeed. Its benefits include:
Low labor costs: Mexico boasts a highly-skilled labor force that is up to 80% cheaper than the cost of labor in the United States. This is due to the lower cost of living in Mexico. Average wages for factory workers in Mexicoare approximately 80% less than the USD $12 per hour wage typical of U.S. factories.
Dependable access to labor: Manufacturing companies operating in countries facing labor shortages, including the U.S., continue to raise wages to attract candidates. Many manufacturers find access to Mexico’s stable demographics helps them strategically fill direct labor roles they could not fill in the United States.
Reliable transport of goods: Many companies are relocating manufacturing from China to Mexico in order to benefit from faster shipping. Supply chain upheavals are making nearshoring locations particularly attractive. Manufacturers can transport goods from Mexico to the U.S. via rail or a network of highways. Deep-sea ports and international flights connect Mexico to the world.
Robust manufacturing and supply networks: Companies looking to do business in Mexico benefit from robust supply chain networks. As the second largest exporter of computers, sixth largest automotive manufacturer, and the eight largest electronics exporter, Mexico provides opportunity to do business with a growing base of OEMs and Tier 1 companies in search of local suppliers.
Foreign investment incentives. The Mexican government incentives foreign investment as a key strategy for creating local jobs. Foreign direct investors can often secure income, consumption, and import/export tax incentives that further offset their costs.
What are Mexico's Competitive Advantages?
In addition to the benefits of manufacturing in Mexico above, the country offers a unique system for launching production that gives manufacturers an edge. Mexico’s greatest competitive advantage may be the IMMEX program.
Foreign manufacturers that launch in Mexico as a maquiladora under the IMMEX shelter programreduce many of the risks that come with forming a legal entity in Mexico. The shelter service company assumes all compliance-related concerns as the employer of record in Mexico. Launching under the umbrella of a shelter service provider also speeds the process of securing permits and regulatory compliance. As a result, companies can have their manufacturing factory in Mexico up and running in as little as 30 days.
In addition to this ease of entry, manufacturers operating in Mexico gain a competitive advantage through Mexico’s network of Free Trade Agreements (FTAs). These global agreements reduce barriers to trade and encourage the transit of goods and services worldwide. With 14 FTAs reaching across more than 50 countries, Mexico has access to more than 60% of the world’s gross domestic product.
How much cheaper is it to manufacture in Mexico?
As noted above, lower labor costs make it much cheaper to manufacture in Mexico than the United States. However, many companies also find it cheaper to manufacture in Mexico than China and other low-cost southeast Asian manufacturing countries.
Labor costs have soared in China in recent years. As a result, many manufacturers moved to other low-cost manufacturing locales in Asia. Those manufacturers are now facing new challenges. Container shipping rates from China to the United States have soared as high as a record-breaking $20,000per 40-foot box due to strained global supply chains, according to freight-tracking firm Freightos. The lack of stability in ocean freight delivery at present makes pricing forecasts more difficult.
In comparison, it may cost $1,600 to $2,700 to ship containers from Mexico to the U.S. Mexico’s proximity to the world’s largest consumer base affords manufacturers another clear competitive advantage.
Where to find manufacturing resources
Historically, most manufacturing in Mexico has been located along the northern border. Many companies may first think of locations like Tijuana when they first consider nearshoring in Mexico. Today, however, companies find a better balance of available workforce and cost savings with locations further south.
There are cost saving opportunities to be had across Mexico. However, selecting the right site for your factory is key to maximizing your operational success. If you’re considering opening or expanding operations in Mexico, talk to a Tetakawi expert to learn how we can help your company optimize the advantages of manufacturing in Mexico.
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