The Costs of Manufacturing in Mexico vs. Canada

Demand for Canadian manufactured goods is on the rise – but so, too, is the cost of manufacturing. As a result, Canadian manufacturers may find it challenging to meet these demands without making a significant operational change. Labor shortages, scarcity in industrial real estate, and high operating costs are prompting many manufacturers to consider nearshoring their production in Mexico.

Below, we provide a breakdown of what manufacturers can expect their costs to be in Mexico versus Canada. With this data in hand, Canadian manufacturers can determine the most cost-effective and efficient strategy for bringing their goods to market.

Mexico offers greater stability and lower manufacturing labor costs 

A 2022 Labour and Skills Survey from Canadian Manufacturers and Exporters (CME), an advocacy group, revealed how manufacturing labor and skills shortages have impacted the Canadian economy. In the year prior to the survey’s release, manufacturing labor shortages cost the Canadian economy nearly $13 billion in lost sales, penalties for late delivery, and postponed or canceled investment projects.

Among possible solutions, CME calls for Canadian manufacturers to supplement their workforce with immigrants. However, without enough temporary workers to meet the demand, manufacturers are finding it more cost-effective to shift production to where there is available labor. In fact, 15% of the Canadian manufacturers surveyed by CME reported they are considering moving some or all production outside Canada due to a need for more workers.

While manufacturers have options in where to locate, Mexico provides a cost-effective solution with several benefits for Canadian manufacturers — particularly when it comes to labor.

Average labor costs in Canada vs. Mexico

Canadian manufacturers find Mexico’s manufacturing workforce to be cost-competitive. Direct hourly unskilled manufacturing labor that might average CAN $20.75 in Canada is closer to $6.27 in Mexico. Factories located near industrial clusters are typically able to recruit more experienced employees who can quickly achieve the expected level of manufacturing quality.

                             Source: Statistics Canada, Tetakawi

Moreover, Mexico provides an opportunity to rein in steep cost increases. When manufacturing wages in Canada reached an average of CAN $31.01 per hour in 2022, it achieved a 26% increase in wages over the last decade, according to data from Statistics Canada. Wages have been more stable in Mexico across that same period.

Of course, as in any country, wages in Mexico vary from region to region. Locations along the Mexico-U.S. border will have higher salaries than locations further south. The cost of unskilled manufacturing labor might average CAN $8.51 in the border cities closest to the U.S. market. Direct labor in the automotive manufacturing center of Saltillo might be closer to CAN $6.29 or $5.72 in Hermosillo, the highly connected capital of Sonora. Manufacturers are still able to easily transport goods via Interstate or international rail from these more cost-effective locations.

Average cost of industrial real estate in Canada vs. Mexico

Industrial real estate is another hot commodity in Canada that may incentivize companies to consider expanding into Mexico. The Real Estate News Exchange reports that, during the Feb. 2023 RealCapital conference, Collier's vice-chairman Gord Cook noted, “The Canadian industrial development market has generally been under-supplying the market since 2008.” According to Cook, the industrial development pipeline remains under 2% in all areas except Vancouver. 

With this underdevelopment, industrial rent continues to rise: up 18% in Vancouver, 31% in Toronto, 41% in Calgary, and 74% in Montreal in 2022.

            Sources: Data from Tetakawi, Canadian Property Management

Class A real estate is in hot demand in Mexico as well, but manufacturers are able to find available space at competitive costs. Ongoing investments in manufacturing infrastructure in emerging manufacturing centers provide a strong balance of connectivity and cost savings.

Utilities impact on operational costs in Canada vs. Mexico

As manufacturers balance long-term operational costs, electricity rates are another leading consideration. 

As in many countries, Canada is currently facing costly spikes in energy rates. While rates vary significantly across provinces, electric costs have generally increased from 50% to 100% during the winter spanning 2022 to 2023. 

This is another area where a Mexico location provides energy-intensive manufacturers with an opportunity to save on the overall cost of manufacturing. Mexico has one of the lowest electricity prices in the global market, reports the Minister of Energy. While power distribution can vary based on location, established industrial clusters are served by a reliable electrical grid system. 

            Sources: Data from Tetakawi, EnergyHub

For a more comprehensive overview of utility costs in Mexico, listen to our podcast below: 

Get a complete cost estimate and plan your expansion

As was highlighted during the inaugural Canada-Mexico High-Level Economic Dialogue in 2022, Canada and Mexico already share a strong relationship that provides an excellent jumping-off point for stronger collaboration and cross-investment. Ministers from the two countries took this time to discuss the importance of shared workforce development and efforts to foster a collaborative business environment. The expectation is that they can enhance North American competitiveness more effectively together than apart. 

We agree that a strong partnership is essential for ensuring speed to market and enhancing competitiveness. Tetakawi has been a trusted partner in helping Canadian manufacturers launch in Mexico for over 35 years. 

To better understand the potential for cost savings, we encourage you to reach out any time to a Tetakawi expert for more targeted cost information suited to your company’s needs.