Mexico is New “Hot” Spot to Cut the Cost of Manufacturing

According to a recent post by The Strategic Sourcerer, Mexico is the place for manufacturers that are seeking to cut their operating costs to be. Since the early 2000’s China was the venue of choice for such businesses, but, due to changing circumstances, Mexico has regained its competitive footing.

According to the Wall Street Journal, these days wages in Mexico are actually lower than those paid in China when productivity variables are taken into consideration. Mexico’s workers achieve more productivity on an hourly basis than their Asian competitors.

In addition to an increase in Mexican wage competitiveness and higher productivity, proximity to the United States enables companies that choose to locate in Mexico to lower their manufacturing costs to also benefit from reduced freight and transportation costs. This is an important consideration given the volatility of the current market for fuel prices. Proximity to the U.S. market also enables companies to cut the cost associated with holding large amounts of manufactured goods in inventory. Finally time to market from a Mexican location is significantly reduced. Items take as little as two days to get to end users from Mexican production plants can spend as long as thirty days traversing an expansive ocean.

Production that occurs in Mexico also has another hugely significant benefit to U.S. manufacturers when compared to manufacturing that is executed in China: The majority of parts and components that go into products that are assembled in Mexico are sourced from manufacturing companies that are located throughout the United States that employ American workers, and pay wages inside the United States. When goods are manufactured by China, sourced inputs from the United States are negligible and American workers do not benefit.

One of the factors that has created concern for manufacturers considering the establishment of manufacturing facilities in Mexico is that drug trade violence that has been widely publicized over the last several years. Despite this fact, companies with an established presence in Mexico, most notably in the automotive industry, have recently funneled billions of dollars into new plant and equipment related investments, and have also employed additional thousands of Mexican workers. Drug related violence is generally limited to internecine disputes between rival narcotics trafficking organizations. In spite of real and perceived turbulence, the Mexican economy as a whole has been growing at a clip of approximately 5% over the last several years.