For at least two decades, China has reigned supreme as the manufacturing hub of choice for US manufacturers, but the global market is changing, and many companies are considering larger investments in Mexico than ever before. It’s a visible fact that the new US manufacturing hub is Mexico.
Why Companies Manufacture Abroad
While much of the political rhetoric paints the issue in very heated and divisive terms, the plain reality in manufacturing is that, for decades, US companies have often eyed geographically far-flung countries like China for their low-cost manufacturing needs. During a time when the world became increasingly connected and interdependent, China offered low labor costs and varied skill sets within manufacturing that made it cost-effective to do business there. This tendency has grown rapidly, and some have speculated that the recent spike in foreign investment has grown out of the political climate in the US. Among other reasons are the following:
- Increasing regulations are making business in the US more complicated than in the past.
Concerns about the Affordable Care Act are leading decision makers to look for ways to increase the bottom line.
- Calls for an increase in the minimum wage to $15 per hour are discouraging investment in low-wage manufacturing jobs domestically.
Why the new US manufacturing hub is Mexico
Since the signing of the North American Free Trade Agreement (NAFTA), the US has done a steadily increasing amount of business with Mexico. As a result, in recent years, domestic manufacturers have shifted production south of the border in significant volume. It now appears that this from the shift seems to be accelerating. While the prospect of US jobs going south may seem harmful to the US economy, it has been noted that both Mexico and the US benefit from this partnership.
But why Mexico? What makes Mexico more appealing than China to US manufacturers? Much has been written on the subject, but the following points present a sampling of Mexico’s strategic advantage:
- China’s wages are rapidly rising, while Mexico’s seem stable and low.
- Mexico borders the US, allowing for shorter supply lines, faster delivery, reduced transport costs, and managing within the same time zones.
- Mexico has free trade agreements with dozens of countries worldwide, making this Latin American country a perfect launch pad for international export.
- Mexico is especially appealing to hi-tech companies within the electronics, aerospace, and automotive industries due to an aggressive protection of intellectual property.
- Mexico’s investment in an educated and highly skilled workforce differentiates the manufacturing labor from China’s low-skill labor pool.
- Mexico’s labor force is rapidly growing; a full two-thirds of the populace is working age.
For these reasons and others, the new US manufacturing hub is Mexico.