Mexico vs. U.S.: What's the better choice for reshoring?

For many companies, reshoring is now an appetizing option. It's for a good reason: China slowly loses ground as an affordable source of labor capital. As logistics provider Cerasis noted, manufacturing wages in China more than doubled since 2007. This is not helped by mandatory wage increases put into law by the Communist Party of China. Moreover, the once-plentiful labor pool in the country is much smaller now, as many individuals move their skill sets away from manufacturing and more to service sector positions. It's enough that some manufacturers in China are offshoring to Vietnam, or even the U.S.

That said, manufacturers have options in bringing back their operations. Do they return to the U.S. in full? Or do they simply move operations to Mexico? Both have strong cases to bring production back from China or other nations. Companies should take the time to weigh their options. With that said, here are some of the benefits of each, and why Mexico may be the better pick of the two.

The U.S.: A great local choice
There are a lot of good reasons to come home, and manufacturing has the same intentions when it comes to bringing operations to the U.S. As Plastics News noted, one of the first is being able to develop new products and get them to market quickly. The country has the highest amount of capital spent on research and development, far ahead of Mexico. Highly technical work requires an advanced level of education and will be more useful locally than in Mexico.

Mexico may be the better option for many manufacturers.

There are also technological advances that will give people the advantage of working locally. As 3-D printing improves, it will become possible to create incredibly sophisticated parts or products without the need for casting, tooling or machining. The reduction of labor intensive processes will enable companies to run make-to-order business models, where they only need to produce when requested, as opposed to creating inventories. In small and niche operations, there may be some preference to having production in the U.S.

Mexico: The affordable pick
What makes Mexico desirable as a reshoring alternative is cost. Manufacturing through local factories and the maquiladora system along the borders, companies that import from Mexico benefit from more affordable wages, as well as a younger labor force. These employees will likely have a greater array of vocational skills such as welding or machining than employees in the U.S., according to IndustryWeek. Companies that invest in a maquiladora will have a longer-lasting worker pool they can afford to pay. Another cost benefit comes from inventory management. Inventory turns are much easier to handle in Mexico due to the close proximity and strong infrastructure, as well as mitigating obsolete stock. A product from a maquiladora can reach a distribution center in the southern states within 12 hours.

Speaking of the shared border, another key benefit is shipping and logistics. It's quite inexpensive to ship a container to anywhere in the U.S. from Mexico. It helps that low oil prices make the trip even more affordable. On top of this, thanks to NAFTA and other trade agreements, the cross-border logistics are simplified. Shipments have easy access to key infrastructure such as the highway and railway systems, allowing for quick delivery.

Both: Everybody wins
In a global economy, it's worth noting that keeping production of a product in one place may not be the most profitable outcome. A possible solution in reshoring options is to split up assembly by parts or components, and running different factories for each in both the U.S. and Mexico. For example, a product can have its more basic parts constructed and put together in Mexico, then shipped to the U.S. to add more complex aspects for final assembly and testing.

Companies can also adjust assembly based on the unique skill sets available on each side of the border. That can extend to repairs. If a part for a product built in Mexico needs re-molding, it can get shipped to the U.S. to get fixed, then sent back south for assembly. In either situation, having Mexico as a reshoring base can be a great benefit for manufacturers looking to optimize profits.

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