Shifting production from China to Mexico can generate manufacturing costs savings of more than 20%
3 min read
4 months ago

Shifting production from China to Mexico can generate manufacturing costs savings of more than 20%

One of the visible takeaways from the global coronavirus pandemic for U.S. manufacturing companies has been the recognition of the importance of maintaining responsiveness in the face of adverse external events such as disruptions in sources of supply and changes in the demand for products. Recent events have highlighted the great degree of dependence that some US firms have on geographically distant suppliers. In most instances, this refers to those that are located in China and other Asian nations.

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Find manufacturing cost savings close to home

Over the course of the last several decades, much of the focus of many manufacturing sectors has been to move to these countries to take advantage of low-cost alternatives to the United States. Today, however, the need to respond more quickly to changes in the marketplace, coupled with the ongoing need to reduce operating costs and execution times, has motivated US companies to look to Mexico to find manufacturing cost savings.

Mexico continues to prove itself attractive to businesses in the United States, not only because of its propitious geographical location but also because the cost of labor in the country is extremely competitive compared with other alternatives. In addition to advantageously priced labor, the new United States-Mexico-Canada Free Trade Agreement (USMCA) represents an opportunity to enjoy tariff preferences throughout North America.   Another benefit beyond manufacturing cost savings is that Mexico is a party to 13 other negotiated trade treaties that make commerce duty-free with more than 50 other countries.

Another of the great advantages beyond manufacturing cost savings that locating a production facility in Mexico can offer that has been one of the main takeaways of the pandemic is that the logistics cycles are shorter.  This creates an increased ability of companies to respond quickly to customers within their value chain needs.

According to an analysis that was recently conducted by PricewaterhouseCoopers (PwC), if U.S. companies, particularly those involved in production activities, move their operations from China to Mexico, they can expect to generate a manufacturing cost savings of an average of 23%.

This is an increasingly popular idea.  Pulse survey results have also shown that one out of four U.S. CFOs believes that changing their company’s supply chain strategies is the most important action that they can take to improve future corporate growth prospects.

The Mexican manufacturing sectors that characteristically enjoy the most opportunities to achieve cost savings south of the border are those with highly integrated production chains, such as the aerospace and automotive industries, and the electronics and medical devices sectors, among others.  It is important to recognize that industries that require a high labor content to achieve their production goals will generate the most manufacturing cost savings. Thus, if a company’s production chain becomes highly automated and less reliant on labor, it will enjoy fewer cost advantages by moving its manufacturing from markets such as the US to Mexico.

It is critical to keep in mind that U.S. organizations are advised to choose companies that offer long-term reliability as their business partners. As a new company to Mexico, executives should consider achieving manufacturing cost savings through a partnership with a Mexican shelter company.  These are organizations enable companies to concentrate on their core manufacturing functions,  while the shelter company partner takes care of all of the intricacies of doing business in Mexico.  Shelter companies in Mexico are experts in providing services in the areas of human resources, accounting, logistics and transportation, health, safety, and customs compliance, as well as facility management and plant security.

Team up with a shelter company in Mexico to realize manufacturing costs savings

In addition to being a partner that enables manufacturers to generate cost savings in Mexico, shelter companies, such as the Tecma Group of Companies, also play an important role in mitigating the risks involved in making investments in Mexico’s manufacturing sector.

Juan Arvilla

Director of Operations

Juan Arvilla

Director of Operations

Juan has worked in the maquiladora industry for more than twenty years. He has extensive experience in manufacturing, sourcing and materials planning.