In recent years, waves of multinational companies in Canada have been moving their manufacturing operations to Mexico. As the global economic landscape shifts, an increasing number of businesses are exploring the benefits of offshoring production to this strategic location.
In the automotive sector alone, there are currently more than sixty Canadian car parts companies operating out of Mexico, and this is just the beginning. With a highly educated workforce, affordable labor, and proximity to Canada, manufacturing in Mexico may be just the strategic advantage your company is looking for.
What Is Offshoring?
‘Offshoring’ refers to the transferring of activities of a business process to a different country than the business’s home country. This is done primarily to access lower-cost labor, establish a presence in a foreign country, or access additional skilled labor.
Advantages of Manufacturing in Mexico
Manufacturing in Mexico brings a plethora of competitive advantages. Mexico’s manufacturing industries, particularly in electronics, medical devices, automotive, and aerospace, are globally known for their low-cost labor and high quality of production.
Compared to both China and Canada, Mexico offers significantly lower wages, allowing Canadian companies to save money on labor without compromising on efficiency or quality of production. Salaries in Mexico are approximately 50% lower than in China (around $3 to $4 per hour) and around 70% less expensive than in other global markets like the US, making manufacturing in Mexico an increasingly attractive option.
Additionally, the savings don’t come only from lower labor costs–companies can also save on expenses like utilities and retail and even tax savings. Canadian businesses can cut back on administrative costs and external consulting if operating under a shelter.
The benefits of using a shelter program make manufacturing in Mexico quite enticing. Companies operating under a shelter program can carry out their operations with virtually no legal risk. The shelter provider is responsible for arranging all permits and licenses and ensuring the company complies with Mexican laws, allowing the business to operate smoothly.
Mexico’s highly trained and skilled workforce is a major advantage for companies considering moving their manufacturing operations to the country. The country places a concentrated emphasis on education, particularly in the fields of engineering and technology, and produces more engineers per year than the United States.
This means that Mexico has ample talent for businesses operating within the manufacturing sector, providing generations of highly trained project managers, line workers, and operations specialists. Plus, institutions like Tecnológico de Monterrey have specifically aligned their curriculum with the needs of the modern industry, and have established strong ties with multinational companies to ensure their curricula meet their standards.
Mexico has some of the world’s most active border crossings and international transportation options. It has become known for producing quality goods and ensuring on-time delivery to keep operations going smoothly.
Challenges of Manufacturing in Mexico
When manufacturing in Mexico, Canadian companies will have to address certain challenges. These include:
The quality of infrastructure varies across regions in Mexico. While some areas have well-maintained roads and modern facilities, others may have unreliable utility supplies and inadequate transportation systems.
To avoid potential disruptions later on, companies must conduct thorough research on the infrastructure capabilities of their chosen location to keep the supply chain running smoothly. They must ensure access to efficient road networks, reliable electricity sources to run manufacturing plants, adequate internet connectivity, and robust security measures.
Regulatory Systems Navigation
Mexico has a complex regulatory environment for foreign companies that Canadian businesses must navigate carefully. It is essential to understand the legal requirements for setting up manufacturing operations, comply with labor regulations, and secure permits before beginning any operations.
In this case, working with local experts can help overcome these obstacles and ensure smooth operations when operating in a foreign environment.
Connecting With Local Suppliers
When offshoring manufacturing processes to Mexico, fostering strong relationships with local suppliers is essential for your business’s success. As a foreign manufacturer, a Canadian company must establish trust-based partnerships to help ensure the timely delivery of services, materials, or components at competitive prices.
Importantly, when networking with potential suppliers and connecting with local business associations, it’s important to consider cultural differences. Understanding the nuances of Mexican business culture is essential for ensuring a smooth transition into the country’s manufacturing sector. This can help build successful partnerships with local stakeholders and suppliers that will benefit your manufacturing operations in the long run.
Best Locations for Manufacturing in Mexico
Empalme: For Optical and Electronics
Home to a thriving manufacturing culture, a robust trade network, and a highly skilled labor pool, Empalme hosts a range of manufacturing operations for optical, electronics, and automotive manufacturing.
Often called Guyamas’ ‘sister city,’ Empalme is strategically well-located. It is easily connected to the rest of Mexico–and the world–through the nearby deep-water seaport in Guaymas. It is also only a short distance from Hermosillo, providing convenient access to its large international airport.
Saltillo: For Automotives
For automotive manufacturing, Saltillo is the primary city of choice. Manufacturing comprises more than 80% of the city’s economy, and its highly trained workforce allows foreign companies to become productive automotive manufacturers in a short period of time.
In addition, the city’s embedded industrial culture and education system produces thousands of young workers each year to fulfill the pipeline for future talent and labor. It also offers seamless over-the-road transportation, as it is home to an international airport and an active railroad station.
Guaymas: For Aerospace
One of the premier venues for high-tech manufacturing in Mexico, Guaymas is the hub of aerospace engine components manufacturing. With its strategic location, large workforce, and strong industrial culture, this area has attracted great foreign investment and has robust relations with local suppliers and government agencies.
Manufacturers looking to move into this region will likely face some competition, but will have access to flexible real estate options and a highly specialized labor pool.
Set Up Manufacturing Operations in Mexico With Tetakawi
Whether you’ve already broken into manufacturing in Mexico or are considering launching operations, partner with Tetakawi for full support in establishing, operating, and growing your business in the country. We offer a range of advisory services, connections with manufacturing committees, and support services to help you reap the full benefits of manufacturing in Mexico as a Canadian company.
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