Moving manufacturing from Asia to Mexico makes economic sense

 

Moving manufacturing from Asia to Mexico is a trend that has established itself over the past several years.

This is due to a number of factors, but is primarily a function of the fact that, according to the Brookings Institute, “Asia’s wages are rising and no longer represent an overwhelming advantage for labor intensive industries.” While in the year 2000, the fully loaded Asian manufacturing wage was a mere sixty cents, by the close of 2012 it had risen to US $3.50. Although the average Mexican wage in the manufacturing sector stands today in the vicinity of US $3.50, some, including the Boston Consulting Group, contend that, when per hour productivity is taken into account, Asian wages top those of Mexico.

Wage increases are not the only reason why companies are moving manufacturing from Asia to Mexico. In addition to having become an emerging country manufacturing powerhouse, (Mexico exports more manufactured goods than the rest of Latin America combined), the county’s proximity to the United States gives it several distinct advantages over its Far East competitor:

  • Companies ship from Mexico to the U.S. and Canada quicker, and at a much lower cost, than is possible from Asia.

  • Proximity to the U.S. and Canada enables manufacturers in Mexico to make just in time deliveries in North America

  • While Mexico is once again becoming price competitive for high volume production, there is no better industrial location from which to do low-cost, customized manufacturing.

  • Being in the same time zones allows U.S. and Canadian designers and engineers coordinate their activities with their Mexican production teams.

  • Obtaining a visa and enduring a sixteen hour flight is not necessary should U.S. and Canadian personnel have a physical need to be in a Mexican facility.

  • In addition to transportation expense, a Mexican location also cuts inventory cost. At any given time, companies that produce in Asia for consumers in North America have significant stocks of goods in transit across the sea.

  • There are no duties or tariffs imposed upon goods traded between NAFTA signatory countries.

  • Mexicans, Canadians and Americans are more attuned to and comfortable with each others’ culture than is the case with that of Asia.

  • Asian intellectual property (IP) protection laws are notoriously porous, while Mexican IP laws function in much the same way that similar statutes do in the United States and Canada.

Moving manufacturing from Asia to Mexico will most likely continue to be a trend for the foreseeable future. The Asa governments have made the strategic decision to pursue policies that will result in ever higher wages for their populations. Officials see the next stage of their economic development as one which is fueled by the creation of a vibrant domestic consumer based economy. As a consequence, Asian economic planners have made a conscious decision that will result in the loss of lower wage and lower margin manufacturing to other countries. The logical choice of where to manufacture goods for the United States that fall into this class is, of course, Mexico.  Mexico site selection offers broad choices for companies seeking a low-cost production venue.