American businesses have been reaping the benefits of manufacturing in Mexico for decades.
Now that the negotiation of the United States-Mexico-Canada Trade Agreement (USMCA) has concluded, companies in the US would be well served to consider establishing manufacturing operations south of the border. Among the benefits of manufacturing Mexico are:
Advantageous Labor Costs
Perhaps the most obvious benefits of manufacturing in Mexico are the cost and quality of its workforce. Today, because of current global economic conditions, wages in Mexico are approximately three-fifths of what they are in China. This means that in Mexico, the average fully burdened direct laborer wage rate is about US $2.50 to $3.00 per hour. In addition to cost, one of the benefits of manufacturing in Mexico is the quality of its labor force. Mexico graduates, on average, 115,000 engineers from its universities and technological institutes. This is more per capita than the United States.
Supply Chain Length and Cost
A company that is taking advantage of the benefits of manufacturing in Mexico has a supply chain that is the fraction of the length that it would be in any other place in the world. While rush orders from the Far East are a difficult proposition to fulfill, parts, assemblies, and finished products can be shipped from Mexico to the US customers by truck in a matter of 1-2 days. Companies that receive goods that are shipped from half a world away are not only waiting for extended periods to receive what they have purchased but also are paying what are significant transoceanic shipping fees.
Protection of Intellectual Property
According to Industry Week, Chinese entities are responsible for up to 80% of all intellectual property theft experienced by US firms. One of the major benefits of manufacturing in Mexico is that the country protects IP with laws that are similar to those enforced by the United States and by Canada.
A close geographical proximity to the United States is another one of the main benefits of manufacturing in Mexico. Producing goods in Mexico as opposed to other more distant locales means that:
- Flights are faster and cheaper. For instance, while a flight to Shanghai would take almost an entire day to arrive from the US, travel to Mexico can be achieved in a number of hours. Additionally, flights to Mexico are priced advantageously when compared to the cost of a round trip ticket to China.
- Time differences are negligible. For instance, when it is 6 am in Detroit, it is 6 pm in Shanghai. This means that when US and Chinese personal need to communicate this interaction will take place outside of normal working hours. On the contrary, the US and Mexico are, for the most part, on the same work schedule.
- When an executive flies to China much productivity can be lost due to the length of the journey and to jet lag. Most individuals require a day or two to adapt to a change of schedule on both ends of the trip. When an executive flies for work to Mexico this is not an issue.
World-class manufacturing in Mexico by international companies has been occurring for more than five decades. For more than two generations, Mexican workers have been producing products that have been consumed the world over.
One of the benefits of manufacturing in Mexico is that the country is socially responsible as regards it workers and the products that it manufactures. Today, there is significant concern regarding the quality and origin of products, and of the conditions under which they have been produced. Mexico is a socially responsible choice for the following reasons:
- Mexican labor laws are akin to those in the US and Canada. Whereas workweeks in Asia can sometimes top 60 hours, the maximum number of hours that an employee can be obliged to work in Mexico is 48.
- Mexico has strict rules and regulations in the area of occupational safety, as well as has laws in place protecting child labor.
- Mexico has stringent rules in place that mandate the safety of the inputs used to make manufactured goods. In some well-publicized cases, Asian factories have used raw materials that have been contaminated. This has led to the withdrawal of such items from the marketplace for safety reasons.
A Positive Business Environment
Another one of the benefits of manufacturing in Mexico is its pro-business attitude. The country is one of the worlds most prolific exporters and has 12 free trade agreements that govern commercial relations with 44 countries. Mexico is a country that exhibits stable democratic values, as well as a consistent and transparent regulatory environment.