Tijuana Manufacturing Location Alternatives in Mexico
September 07, 2021
From its place on the U.S. border, Tijuana has a long history as a center for manufacturing in Mexico. Accessibility to the U.S. market has made it the country's top export manufacturing base and consequently one of the first locations many manufacturers consider when looking to manufacture in Mexico. However, Tijuana's popularity means that manufacturers locating here can expect to pay more for labor and real estate and experience higher turnover rates than in many other areas of Mexico.
While certain businesses will find that Tijuana's location, infrastructure, and manufacturing network make it an ideal fit for a Mexico manufacturing base, other manufacturers may find that they can better balance costs and find more available skilled labor by considering southern alternatives to Tijuana.
Key markets in Tijuana
There's a good reason that Tijuana is known as the Gateway to Mexico; its San Ysidro border crossing is the busiest along the U.S.-Mexico border. The city has one of the largest populations in Mexico, with approximately 1.9 million inhabitants at an average age of 30, and is one of the most visited cities in the Western Hemisphere.
For manufacturers in a few key areas, this combination of population and location has significant benefits. Medical device manufacturing, for example, has a strong presence here. San Diego, just 18 miles to the north, is among the United States' top three life science clusters, which drives some of the demand and collaboration with medical device manufacturers in Tijuana. The city has served as Mexico's medical device manufacturing capital for more than 30 years now, a time that has given it the ability to build a robust supply chain network. The labor force here has access to ample training in the stringent quality standards for manufacturing medical devices.
Tijuana also is home to manufacturers in the electronics, aerospace, and automotive sectors. Aerospace, in particular, has a strong presence here. Tijuana serves as one of several Mexican hubs for aerospace manufacturing, supported by a new innovation and design center. The state of Baja California in general hosts Mexico's largest aerospace cluster, with 110 firms located here. These manufacturers tend to focus on electrical components, fuselage systems, landing gear, and other small aircraft mechanisms.
Challenges manufacturers face in Tijuana
While manufacturers operating in Mexico find more competitive costs in Mexico than they do in the United States, much of Europe, and China, costs aren't uniform across the country.
Wages are a key case in point. As of 2021, the minimum wage in Mexico was raised to 141.70 pesos (approximately USD $7.16) per day of work, except in the Free Zone of the Northern Border, where the minimum wage is 213.39 pesos (approximately USD $10.78) per day of work. Although manufacturers should expect to pay competitively over minimum wage in any location, this presents an idea of the cost differences to expect in Tijuana compared to other locales.
To balance out this added cost, the government declared in 2018 an economic free zone that encompasses a 2,000-mile swath of northern Mexico, and including 43 cities across six states and the entire state of Baja California. Throughout this region, the value-added tax is reduced from 16% to 8%, and corporate income tax is reduced from 30% to 20%, with the goal of encouraging corporate investment. It will be important for manufacturers considering a site in Tijuana to balance out these long-term costs to determine profitability.
In addition, leasing prices in Tijuana have increased steadily, affording realtors with some of the highest rates in the country. While increases in facility construction have boosted vacancies in the city, demand remains high, and vacancy rates are comparably low.
Also, due to increased competition for labor, manufacturers in Tijuana experience turnover rates as high as 16% per month.
Alternative locations to consider in Mexico
Many companies searching for a Mexico manufacturing site that affords a strong supply chain network and easy accessibility to the U.S. consider sites just to the south of the border in Sonora. Sonora has become a manufacturing powerhouse in part from its participation with Arizona in creating a government-led Arizona-Sonora mega-region to promote business opportunities between these U.S. and Mexican states. This has helped fuel the growth of a number of manufacturing sectors within the manufacturing network of Hermosillo, Guaymas, and Empalme.
Hermosillo, the capital of Sonora, sits less than 200 miles south of Nogales, Arizona, on Highway 15. Its location is less than a one-hour drive from Empalme, and the large coastal municipality of Guaymas adds to the availability of labor and resources.
Hermosillo has manufacturing strength that dates back to the establishment of the Ford Stamping and Assembly plant in 1986. This auto expertise has jumpstarted tremendous growth in others, most notably in aerospace, medical device, and electronics manufacturing. Today, Sonora is home to one of the fastest-growing aerospace industry clusters in the country, with more than 69 aerospace companies established across the state.
Guaymas benefits from its coastal site, as it's home to the second-largest port on the Pacific coast. This makes it an ideal base for exporting globally. Consequently, Guaymas has become one of Mexico's premier sites for high-tech manufacturing, particularly in the aerospace sector. For even more competitive costs, many companies have looked to the smaller municipality it surrounds.
As a smaller city, Empalme provides a quieter, more cost-effective area for foreign nationals to work and live—with easy accessibility to larger cities and popular coastal tourist destinations.
While this region offers ample access to labor and excellent educational and technical training facilities, costs here to the south of Tijuana are more competitive. For example, A machinist working in Hermosillo might earn an average rate of $75 MXN/hour compared to $98 MXN/hour in Tijuana. There is more availability in real estate as well. For example, the Rio Sonora Manufacturing Community in Hermosillo offers space to lease in combination with a range of shelter services and more than 7 million square feet of buildable space.
Get a complete cost picture
More companies around the world have recognized Mexico's value as an affordable regional base for skilled manufacturing. However, as with any location, there are regional variations of which to be aware. Not every city will provide a company with the right blend of available labor, technical skill, supporting infrastructure, and accessibility to markets, and the cost picture will look different for each manufacturer.
Working with a partner that understands cost variations can help. Tetakawi's decades of experience in helping companies launch manufacturing in Mexico has provided us with unique insight into costs and other trends that could impact your launch. We can provide clients with cost estimation, real estate, and a complete range of shelter services to get your operation up and running faster.
If you're ready to explore your options in manufacturing in Mexico, contact Tetakawi today.