Manufacturing in Asia and Mexico: The game has changed.
According to Jim Gitney, the CEO of Group 50, a business consulting firm located in Upland Hills, California, “forget everything you knew about” the Mexico-Asia relationship ten years ago.
In a PowerPoint presentation that has been recently released, Gitney highlights changes that have taken place over the last decade that have affected manufacturing in Mexico and Asia. The Group 50 CEO, highlights the fact that:
- Asia is no longer looking primarily outward to promote its economic growth, but inward;
- Mexico has undertaken reforms that will fundamentally change its global economic competitiveness for the better;
- When comparing manufacturing in Mexico and Asia, companies are now looking at “total cost of ownership, as opposed to per unit cost of end product.
Gitney asserts that companies that are focusing almost exclusively on per unit cost when examining manufacturing in Mexico and Asia are not taking into account that:
- The cost of labor in one country, when viewed in light of the cost in the other, has become almost indistinguishable.
- The increased productivity registered by the Mexican workforce has outstripped wage inflation. In Asia this is not the case;
- While energy costs that affect manufacturing in Asia and Mexico have decreased significantly in the latter country, there has been little change in the price of energy in the former;
- Exchange rate movements have made Mexico more competitive in terms of global pricing, while the value of the Chinese Yuan has recent twenty-five percent against the US dollar over the last decade;
Taking into account the above listed considerations when looking at manufacturing in Asia and Mexico. Gitney concludes that Mexico is the obvious choice for companies that sell their product(s) to North American end users. His presentation lists primary means by which companies can accomplish the goal of having their products manufactured in Mexico:
- Entering into a contract manufacturing agreement with a third party;
- Establishment of a wholly-owned subsidiary in Mexico;
- Operating in Mexico in partnership with a company that offers Mexico manufacturing Shelter Services
To learn how in greater detail how the manufacturing in Asia and Mexico game has changes, download Jim Gitney’s presentation: