The Costs of Manufacturing in Mexico vs. the U.S.

Wondering what it costs to manufacture in Mexico compared to the United States? The purpose of this article is to provide a comparative breakdown of labor costs, real estate costs, and utility costs to help you develop a business plan to expand into Mexico.

There are two key areas where a move from the U.S. to Mexico can help manufacturers lower their costs: labor and real estate. While wages and industrial real estate leasing rates vary across the country, manufacturers will find nearshoring in Mexico can sufficiently reduce these costs to make an expansion worthwhile. You can scroll down to learn more. 

Manufacturing labor costs in Mexico compared to the United States

No matter where you operate, labor commands the largest share of manufacturing costs, accounting for as much as 70% of total business costs. Labor costs include base wages, required benefits, and payroll taxes. It’s no wonder that companies often look at ways to reduce labor costs as the first step in a cost-reduction strategy. 

In Mexico, manufacturers can find stable demographics that can fulfill long-term needs. Factories situated in specific industrial clusters can also recruit experienced workers who can quickly achieve the quality you need. 

Direct Labor Wage Comparison

Direct manufacturing labor includes those employees working on assembly lines and in production-focused activities. Their work is an essential cost of manufacturing as it directly impacts your product’s quality and completion. Below, we offer a comparison against U.S. wages to provide a big-picture perspective on the savings manufacturers can hope to achieve in Mexico. 

As in any country, wages will range depending on the region and the complexity of the product being manufactured. So, the cost of unskilled direct labor might average $6.17 in the border cities closest to the U.S. market and drop to an average of $4.65 in the automotive manufacturing center of Saltillo or $4.15 in Hermosillo, the highly connected capital of Sonora. 

Indirect Labor Wage Comparison

Indirect manufacturing labor includes those employees who provide essential support to manufacturing processes. This might consist of employees who perform maintenance, manage inventory, and deliver quality assurance. A higher skill level or specific training experience might be required in some of these roles.

As with direct labor, these wages will range based on experience, skill, and regional norms. The fully fringed wages for a team leader might average $9.31 in the northern border cities. This manufacturing cost might be more palatable at $8.20 in northeastern cities, such as Saltillo, or $7.78 in northwestern cities, including Hermosillo. 

Salaried Labor Comparison

Companies might first think of Mexico as a source of cost-effective direct manufacturing labor but soon find that the country matriculates a high number of engineers each year. These individuals go on to work in a range of positions, including supervisory and managerial-level roles. 

In most cases, salaried managerial positions have a smaller wage gap when compared to the U.S. Because these positions tend to be fewer in number than direct labor roles, manufacturers still see an overall more cost-effective picture. Moreover, these positions are essential for the success of manufacturing operations. An investment here can pay dividends in the entire team’s performance. 

Industrial real estate costs in Mexico vs. the U.S. 

Class A real estate is in hot demand in Mexico, but still remains highly competitive compared to costs found in many U.S. markets. Location will dictate the rate of your lease, but other factors may come into play as well. Triple net lease rates for industrial properties can vary from neighborhood to neighborhood or based on their proximity to certain essential services. 

                                                          Sources: Data from Tetakawi, JLL, CBRE, Cushman & Wakefield

The cost of electricity is another major factor to consider. Here, too, a Mexico location provides energy-intensive manufacturers with an opportunity to save. Mexico has one of the lowest electricity prices in the global market, reports the Minister of Energy, below those registered in many European countries. The country has a good electrical grid system, although power distribution can vary based on location. Rates tend to be equivalent to or competitive with those found in U.S. markets.

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

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

Get a complete picture of your costs in Mexico

While the average costs of manufacturing described here can help begin to make a business case for nearshoring in Mexico, these estimates should only be a starting point. Labor and real estate costs will vary depending on region, the level of local manufacturing competition, and the skillsets you require, among other factors.

To better understand the potential for cost savings, we encourage you to reach out for information targeted to your company’s specific needs.