China Manufacturing in Mexico – Market Evolution
China manufacturing in Mexico would not have been discussed twenty years ago. Natural market evolution has created a notable paradigm shift where companies currently manufacturing in China are reviewing the benefits of moving manufacturing from China to Mexico. The forces of tariffs are uncloaking the benefits of China manufacturing in Mexico.
In the short term, the result of the current trade war between the United States and China will most likely be higher prices for goods upon which tariffs have been levied by the U.S. However, it is interesting the value of the dollar increasing markedly has actually retarded price increases to the U.S. consumer.
In the medium term, Mexico is becoming a magnet for Chinese manufacturing firms seeking to avoid the effects of tariffs upon the sale of their products to U.S. markets. In addition to import tax avoidance, U.S. companies using Chinese manufacturers are looking at Mexico and are reviewing the other benefits of China manufacturing in Mexico.
Less expensive shipping
The most obvious benefit of China manufacturing in Mexico, beyond the avoidance of U.S. levied tariffs, is its low-cost structure. Although for some products the per piece cost of manufacturing an item may be lower in China, these savings are mitigated by charges related to shipping items from across the globe and supply chain management. These costs are high at present and are projected to continue to rise for the foreseeable future. Additionally, sending products from China only makes economic sense when they are packed in a full container load. Being able to move less than full container loads to the U.S. at a reasonable price is another of the advantages of China manufacturing in Mexico.
Mexico Labor is cheaper than China labor
As regards labor, today, the average price of direct manufacturing labor in Mexico is lower than that of China.
A shorter supply chain
Another advantage of China manufacturing in Mexico beyond the avoidance of U.S. import duties is the length of a company’s supply chain. If a company has an urgent order to fill from one of its major clients, a quick response from China is not possible. Companies that are manufacturing in Mexico can get their products to their U.S. customer in one or two days by ground transport.
Protection of Intellectual Property
With the new USMCA (United States – Mexico – Canada – Agreement) companies foreign to Mexico have the same legal protection for their intellectual property as that in the United States and Canada. This is a valuable benefit for manufacturers concerned about preventing theft of their patents, private technology, manufacturing procedures and manuals.
Another advantage of China manufacturing in Mexico beyond savings in duties is the proximity between production facilities and customers. Consider the following:
- Flights are quicker and cheaper. For instance, a flight from Detroit to Shanghai may cost $2,500.00 and have a duration of 14 hours, while the cost of a flight from Detroit to Mexico City would be less than half of that amount. The flight to Mexico City from Detroit would only take four hours.
- Time zones are the same or similar. When it is 6:00 am in Detroit, it is six o’clock in the afternoon in Shanghai. This means that to get the job done it is necessary to work outside of normal hours. On the other hand, a clear advantage of China manufacturing in Mexico is that the country is in the same time zone as the United States.
- Increase in productivity. When a business executive travels to China, he or she can lose up to a week of productivity due to jet lag. Most people need a day or two to adapt to changes in time zones from such a long journey. An advantage of doing business in Mexico that goes beyond the avoidance of the payment of duties is that there is no effect of time zone changes upon travelers.
Experienced and Skilled Workers
The manufacture of auto parts, for instance, is not new to Mexico. Mexican auto industry workers have had a wide range of experience in the production of a variety of items over the last several decades. This gives Mexico an advantage not only because it results in reduced costs, but also results in increased quality. Also, among the advantages of manufacturing in Mexico is the fact that the country graduates more than 100,000 engineers annually. This growing number is larger, on a per capita basis than even in the United States.
Global Free Trade Agreements
Among the advantages of China manufacturing in Mexico beyond the avoidance of import duties is the favorable business environment that the country has created. Mexico has signed a total of twelve free trade agreements that govern commerce with 55 countries, including the newly added Trans-Pacific Partnership. In addition to free trade with the United States and Canada, Mexican made products ship duty free to a majority of the developed world’s economies.