The Cost of Manufacturing in Mexico vs. Texas

Manufacturing in Texas has a long history of producing petroleum and coal products but has more recently expanded to include more advanced goods. Since the early 2000s, the state’s manufacturing economy has been led by the production of computers, electronics, vehicles, automotive parts, and machinery. However, the fast growth in these sectors has led to its own challenges. Labor shortages, in particular, are making it difficult for manufacturers to meet consumer demands without changing how they operate.

For many manufacturers, the answer lies just across the border in Mexico. Below, we provide a breakdown of what manufacturers can expect to spend in Mexico compared to manufacturing in Texas. With this data in hand, companies can create a more cost-effective and efficient strategy for bringing their goods to market. 

Matching labor to manufacturing activities in Texas

A late 2021 article by ABC affiliate KVUE revealed how manufacturing labor shortages are impacting Texas' manufacturing sector. According to the article, the fast growth of manufacturing in Texas means that companies find themselves competing to attract a fairly limited labor force. 

"I would say, near-term, we're going to be in a [talent] crunch just like we have been in the last few years," East-West Manufacturing CEO Andy Salo told KVUE. "That will probably get worse before it gets better."

Texas has begun to invest in workforce development programs to build interest in manufacturing among K-12 students, at trade schools, and within community colleges. However, the Texas Comptroller reveals a strong strategy to cope with labor shortages in the short term. According to data from the Comptroller, total manufacturing employment has declined, but the quality of the jobs created in this sector has improved. 2016 data on Texas' manufacturing jobs showed an average of more than $73,000, which was 37% more than the statewide average wage of approximately $53,500. 

Manufacturers may find that the most cost-effective solution to manufacturing success is to manage specific technical manufacturing tasks in Texas, while shifting more high-volume production to Mexico, where an experienced workforce is readily available and one of Mexico's primary advantages. 

Average manufacturing labor costs in Texas vs. Mexico

Texas-based manufacturers find Mexico’s manufacturing workforce to be cost-competitive. Production labor that might average $15.49 per hour, without benefits, in Texas is closer to $6.27, fully fringed, in Mexico.

Direct Labor Costs in U.S. versus Mexico

fully fringed hourly wages listed in USD

Position

U.S. (National averages based on data from the Bureau of Labor Statistics)

Mexico (National averages based on data from Tetakawi)

Unskilled direct manufacturing labor

$17.42

$4.55

Welders

$20.65

$6.87

CNC operator

$22.23

$6.96

Machinists

$23.57

$8.10

Quality control auditor

$17.21

$5.82

CNC Programmer, Technician

$29.33

$8.09

Production manager

$56.62

$46.11

Much like in Texas, the manufacturing workforce in different areas of Mexico will have different areas of expertise. Factories located near one of Mexico’s industrial clusters are typically able to recruit more experienced employees who can quickly achieve the expected level of manufacturing quality. And just as with manufacturing in Texas, manufacturing wages in Mexico may vary from region to region. 

Mexican cities along the U.S. border tend to command higher wages than locations further south. Unskilled manufacturing labor might average $6.17 in the border cities closest to the U.S. market and drop closer to $4.65 in the automotive manufacturing center of Saltillo or $4.15 in Hermosillo, the highly connected capital of Sonora. 

Listen to our Manufacturing in Mexico Podcast for more information about labor costs in Mexico: 

 

Average cost of industrial real estate in Texas vs. Mexico

Texas has ample land on which to develop, and that has made for a hot industrial real estate market. D Magazine reported that the Dallas-Fort Worth metro region had 50 million square feet of industrial space under construction in 2021 alone. Prologis Research has predicted that Texas will lead in warehouse net absorption in 2023 as higher interest rates begin to slow industrial development. However, the research firm also expects that industrial rent growth will exceed 10% as fewer developments come online. This could make the lease rates available in Mexico even more attractive.

Typical Monthly Industrial Building Rent in Mexico vs. Texas

Mexico

Triple net rates given per month per square foot in USD

Dallas-Ft. Worth

rates given per month per square foot in USD

Houston

rates given per month per square foot in USD

Mid

High

Mid

High

Mid

High

$0.55

$0.75

$0.68

$0.75

$0.65

$0.72

                                             Sources: Data from Tetakawi, JLL, Colliers

The cost of Class A real estate in Mexico remains highly competitive compared to costs found in many U.S. markets, including Dallas-Fort Worth, Houston, and other popular Texas manufacturing locales. While location will largely determine the rate of your lease, other factors may come into play as well. In Mexico, triple net lease rates for industrial properties might vary based on proximity to certain essential services or even by neighborhood. 

There is also the cost of operating this property to consider. A Mexico location provides energy-intensive manufacturers with another opportunity to lower operational costs. Mexico has one of the lowest electricity prices in the global market, reports the Minister of Energy. The country has a good electrical grid system, and its rates tend to be equivalent to or competitive with those found in U.S. markets. 

Typical Electricity Rates

Rates given per kWh in USD

Mexico

Texas

Mid

High

Mid

High

$0.117

$0.137

$0.179

$0.181

                                                        Sources: Data from Tetakawi, U.S. Bureau of Labor Statics

For a more comprehensive overview of utility costs in Mexico, listen to our Manufacturing in Mexico Podcast:

Make your location matter

As the manufacturers pulling out of California and into Texas already know, location matters. So, too, does a diverse regional footprint. A diverse manufacturing footprint can provide valuable stability and help companies to more effectively weather economic storms. Given that many of the industries now taking root in Texas already have a long history in Mexico, there’s a tremendous synergy between these two locations that can support a cross-border operation.

To better understand the potential for reducing your costs with a location in Mexico, we encourage you to reach out for information targeted to your company’s specific needs.

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